Kevin Drum - November 2008

Putting the Noise Machine in its Place

| Wed Nov. 19, 2008 5:41 PM EST

PUTTING THE NOISE MACHINE IN ITS PLACE....Ezra Klein isn't sure that Barack Obama made the right choice by tapping Eric Holder as his nominee for attorney general:

It's hard for me to believe that Obama couldn't find anyone for the post who wasn't the workhorse behind Bill Clinton's pardon of fugitive financier Marc Rich. Holder, obviously, was just doing his job, but appearances matter in this town. Republicans will have no problem attacking the choice, and your average voter will be rather confused as to why Obama made it. Whatever Holder's merits — and I grant that they are many — it's a nomination that recalls the worst of the Clinton era, and it's not clear why that needed to be done.

Leaving Holder's broader merits (or lack thereof) to one side, I'd offer a different take on this: do we really want to hamstring ourselves by worrying too much about what kind of temper tantrum the Republican Party is likely to throw over Obama's nominees? I don't doubt they'll do their best to smear Holder, but the Rich pardon happened eight years ago and Holder's role in it was fairly modest. Obviously it's not a good idea to give Republicans too many free shots early in his term, but if Obama truly thinks Holder is the best man for the job, then I think he's done the right thing. Let the talk show clowns wail and the congressional leadership send out their streams of faux outraged press releases. This is a pretty good chance to show that this stuff just doesn't work anymore, and I'll bet Obama realizes it.

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Team of Rivals?

| Wed Nov. 19, 2008 2:58 PM EST

TEAM OF RIVALS?....Is Barack Obama really assembling a "team of rivals," as Abraham Lincoln did in Doris Kearns Goodwin's account of Lincoln's presidency? Goodwin's book was a little too hagiographic for my taste (even Lincoln's obvious mistakes routinely get spun into accidental acts of genius), but there's no question that Lincoln really did surround himself with a contentious bunch of personalities. Obama, conversely, doesn't really seem to be doing that. Hillary Clinton and the other SecState candidates are the only real "rivals" he's considering for his cabinet, and one cabinet spot hardly counts as a team, does it?

Still, Dan Drezner thinks the Goodwin analogy is serving Obama well:

That said, it's pretty smart for Obama and his staff to spread this meme around. First, it flatters all of his cabinet officers to think that they're like Seward, Salmon Chase et al. Second, by invoking the metaphor, Obama gets to frame his administration as evoking both the great challenges of the Civil War period and the greatness of Lincoln.

So maybe Obama isn't assembling a team of rivals after all, but he's still a pretty smart cookie for faking us into thinking he is. Nice move from the former gym rat.

Czar Thomas

| Wed Nov. 19, 2008 2:43 PM EST

CZAR THOMAS....Steve Benen passes along the news that Tom Daschle is Obama's pick both for Secretary of Health and Human Services — a cabinet position — and White House health "czar" — a more traditionally West Wing-ish kind of thing. Steve is pleased:

The Daschle announcement reinforces the notion that an Obama administration is going to take the push for healthcare reform very seriously. A senior Democratic official told Mike Allen, "Of all the proposals that Obama wants to enact, health care requires the most input and tough negotiations and shepherding. No one knows the House and Senate like Tom Daschle."

Indeed, the Daschle news makes me even more encouraged about the prospect of a healthcare package actually passing. Emanuel is insisting that an incremental approach won't do; Baucus and Kennedy are laying the groundwork on the Hill; and Daschle has been preparing for this fight for quite a while.

I'm not really a fan of the whole "czar" thing, but if we're gong to have a healthcare czar it makes sense to give the position to the HHS secretary. What's more, if Hillary Clinton decides to stay in the Senate, this would set up a pretty interesting contrast with 1993: Hillary would be shepherding healthcare reform from the legislative side this time and Daschle would be doing it from the executive branch. It's so crazy it might work!

Anyway: I agree with Steve. This is good news. Daschle is plainly dedicated to healthcare reform, he understands the legislative realities as well as anyone, and Obama is sending a pretty clear message that he plans to push full steam ahead on this. Keep your fingers crossed.

Examining the SOFA

| Wed Nov. 19, 2008 2:14 PM EST

EXAMINING THE SOFA....McClatchy has posted an unofficial translation of the Status of Forces Agreement that the Iraqi cabinet recently approved. Here are the key paragraphs:

"U.S. Forces" refers to the entity that includes all the personnel of the American Armed Forces, the civilian personnel connected to them and all their possessions, installations and equipment present on Iraqi territory.

....All U.S. forces are to withdraw from all Iraqi territory, water and airspace no later than the 31st of December of 2011.

That's as clear and simple as it could be, and as near as I can tell there are no weasel words elsewhere that weaken this commitment. Leila Feidel apparently agrees:

If Iraq's parliament endorses the agreement, in six weeks American forces would have to change the way they operate in Iraq, and all U.S. combat troops, police trainers and military advisers would have to leave the country by Dec. 31, 2011. President-elect Barack Obama's campaign plan to leave a residual force of some 30,000 American troops in Iraq would be impossible under the pact.

Now, obviously Iraq and the U.S. can mutually agree to amend the SOFA later if they decide to. But the fact that the wording of the current document is so clear — not "aspirational," not "conditions based" — will make it hard to do that. This language will very shortly get baked into the DNA of every Iraqi in the country regardless of confessional or ethnic loyalty, and the document provides no mechanism for modification aside from changing the SOFA itself, which would require approval from the Iraqi parliament. And what are the odds of that?

The translated agreement is here. I encourage everyone to read through it and look for loopholes. If you find any, leave 'em in comments.

Regulation

| Wed Nov. 19, 2008 1:39 PM EST

REGULATION....Apparently there was a panel discussion on the financial crisis last night, and both Matt and Ezra report that the main takeaway was not to worry too much about trying to cure the precise causes of our current catastrophe. See, we've learned our lessons and the next catastrophe will almost certainly be caused by something different. Better instead to focus on broader regulations aimed at things like limiting leverage and taming asset bubbles slightly.

(That "slightly" is an important qualifier. There's plenty of legitimate controversy over whether the Fed can identify asset bubbles at all, and even if they can, whether the cure is worse than the disease. My own take is that I'll bet we can identify the worst asset bubbles if we make it a priority, and can probably do it early enough to provide mild corrections. That might not sound like much, but if the housing bubble had peaked out even 20% lower than it did in real life, I'll bet that would have made a noticeable difference in the severity of the ensuing financial meltdown. We still would have had a bubble, and its bursting still would have caused huge problems, but huge problems are still easier to deal with than catastrophic problems.)

In any case, I think Ezra is properly skeptical of this advice, since bankers will in fact make the exact same mistakes they made this time around if we allow them to. It'll take 20 years, but they'll do it. Here in Southern California, just to provide an example close to home, the fact that we had a disastrous housing bubble in the late 80s didn't put any brakes on the housing bubble in the early 2000s. In fact, the housing bubble was worse here than just about any other place in the country. It took us a grand total of 15 years to go from the peak of one housing bubble to the next.

Still, broad regulation is probably better. Leverage is obviously a common factor in lots of financial meltdowns and pretty clearly needs to be addressed seriously this time around — and that includes hedge funds, which have collectively grown big enough that they really can't be left to their own devices any longer. The CDS market allows risk to be laid off and spread around, which is good, but we probably ought to give a little more thought to whether it's really such a good thing when it happens on a gigantic scale. Perhaps forcing loan originators and bond underwriters, who (supposedly) understand their customers better than anyone, to retain more of their own risk acts as a natural brake on irrational exuberance. Transparency in financial transactions is another obvious target for regulators: more is almost always better. Finally, the obvious conflict of interest in rating agency behavior might or might not have been a major contributor to our current problems, but it was certainly part of the problem, and some modest regulations on that score couldn't hurt. David Zetland suggests that setting standard fees for rating financial instruments and then adjusting those fees over time based on their accuracy would be a good place to start.

What else? I wonder if anyone is seriously suggesting any macro solutions to what happened? If, for example, the global savings glut (or investment drought, depending on your view of the matter) really did produce such a tidal wave of idle cash that it was going to find stupid places to go no matter what regulations we had in place, then what's the answer to that? Is there one? Or should that simply be considered a specialized example of an asset bubble itself?

Too many questions, not enough answers. I'd sure like to hear more about this stuff from the econosphere, though. It would be nice for us laymen to start hearing about the issues and taking part in the debate before the conventional wisdom gets set too far in stone and there's nothing much we can do about it.

Deflation

| Wed Nov. 19, 2008 12:17 PM EST

DEFLATION....Economists have been warning about the possibility of deflation for the past several months, and it looks like we might finally be getting it:

The Consumer Price Index, a key measure of how much Americans spend on groceries, clothing, entertainment and other goods and services, fell by 1 percent in October....Energy prices led the decline, falling 8.6 percent in October as the price of gasoline continued its steady slide from highs of more than $4 a gallon.

....In Wednesday's report, even excluding volatile food and energy prices, prices dropped 0.1 percent in October. It was the first such decline in more than two decades and raises the specter of deflation as the economy contracts and demand for goods and services across the board plunges.

"This month it's more than slowing, it's outright contraction," [James] O'Sullivan said. "And yes, if you extrapolate that, it's deflation."

It's only 0.1% and it's only for one month — so far. But that's the biggest drop since 1982, and the drop in the primary CPI number is the biggest since 1947, yet another indication that our current recession is on track to be the worst we've suffered since World War II. More stimulus, please.

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New Site Update

| Wed Nov. 19, 2008 1:59 AM EST

NEW SITE UPDATE....I think I've mentioned before that we're working on a major redesign of the site (hooray!). We're still a few weeks away from rolling it out, but we're looking for beta testers willing to test drive the new site before the final unveiling. If you'd like to help out, go here and enter your email address. We'll notify you a week or so before the rollout date and provide a URL to poke around on the test site and give us your feedback. All help is much appreciated, since it will help us work out the bugs before we go live. Thanks!

Eric Holder

| Tue Nov. 18, 2008 9:40 PM EST

ERIC HOLDER....I've been scanning a bunch of stuff about Eric Holder, Obama's apparent pick for attorney general, and the conventional wisdom appears to be pretty simple:

  1. He's basically a decent guy: sound views, hard worker, smart, honest, and generally well thought of.

  2. Conservatives are going to try their damnedest to work everyone into a lather over his rather modest involvement in the Marc Rich pardon eight years ago.

From what I can tell, though, conservatives would be smarter to lay off. Holder really does appear to be honest, well briefed, straight shooting, and temperamentally moderate. They're going to get a liberal AG whether they like it or not, and they could do a lot worse than Holder if they somehow manage to torpedo his nomination.

Pizza on Demand

| Tue Nov. 18, 2008 6:44 PM EST

PIZZA ON DEMAND....Via Hit & Run, my cat's pizza company, in partnership with TiVo, engages in some hyperbole:

"This is the first time in history that the 'on-demand' generation will be able to fully experience couch commerce by ordering pizza directly through their television set. You'll see a television ad for Domino's and you'll click 'I want it' through your remote. In about 30 minutes, your pizza will show up at your door."

Oh please. I worked for a video-on-demand company back in 2002, and even then "pizza on demand" was a cliche. It turns out that just about the first thing every shiny new broadband offering offers is....pizza delivery via your TV. I think the first time was 1994. It never went anywhere, though, because it turned out that ordering pizza by phone isn't really much of a hassle.

But hey — everything old is new again. Maybe this is finally PoD's time. After dozens of tries, it's bound to catch on sometime.

Housing Bust Update

| Tue Nov. 18, 2008 4:23 PM EST

HOUSING BUST UPDATE....The latest from ground zero of the housing bubble:

For the first time in the current housing downturn, the majority of Southern California homes sold in October — 51% — had been foreclosed, a real estate information service reported today. The median sales price for homes fell to $300,000, a level not seen since 2003 and a 41% drop from the peak price set in the spring and summer of 2007.

A 41% drop in 18 months. Jeebus.