Kevin Drum - November 2008

Movement Drivel

| Mon Nov. 17, 2008 12:36 PM EST

MOVEMENT DRIVEL....After listening to George Will this weekend, Brad DeLong is confused:

I have never been able to make any sense at all of the right-wing claim that the New Deal prolonged the Great Depression by creating a "crisis of confidence" that crippled private investment as American businessmen feared and hated "that Communist Roosevelt." The crisis of confidence was created by the stock market crash, the deflation, and the bank failures of 1929-1933. Private investment recovered in a very healthy fashion as Roosevelt's New Deal policies took effect.

There's a good reason Brad has never been able to make sense of this claim: it was never made in good faith in the first place. Movement conservatives don't like the New Deal, so they did what they always do when confronted with something they don't like: they went searching for some content-free but semi-plausible argument against it that they could use to con the rubes. Then, once they found something glib enough to pass muster, they repeated it often enough that it took on the patina of conventional wisdom. Conventional enough even for the likes of George Will.

For the first time in a while, though, liberals have the luxury of mostly ignoring this nonsense. In this case — George Will spouting economic drivel on ABC's This Week — Paul Krugman batted down the nonsense in the course of a few seconds and the conversation moved on. End of story. Very refreshing.

So today's moral is: make an argument in good faith, and it will (or should, anyway) be engaged. Spew movement nonsense and you will be quickly corrected and then ignored. It's a good system.

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The Military-Conservative Complex

| Mon Nov. 17, 2008 12:17 PM EST

THE MILITARY-CONSERVATIVE COMPLEX....Via TPM, Bernard Finel writes about military-civilian relations:

In the mid-1990s, congressional Republicans, concerned that the Clinton administration was allowing the Department of Defense to run on inertia, mandated the Pentagon produce a Quadrennial Defense Review (QDR)....The roots of former Defense Secretary Donald Rumsfeld's dicey relations with the uniformed military stemmed from his refusal to accept a fait accompli in the form of a [2000-01] QDR largely drafted without his input. The consequences of the rift were severe.

This has since changed, of course. The QDR review is now conducted not in the last year of a presidency, but in the first. The next QDR will be conducted in 2009, and released in early 2010. It will be an Obama-influenced product from start to finish.

Or will it? Finel says that the uniformed services have already tried to hijack the process by teaming up with conservatives to make sensible defense spending a political impossibility:

Earlier this year, briefing slides showing $60 billion to $80 billion per year in new expenditures started making the rounds inside the Beltway, supported by a public campaign by conservative think tanks and politicians to establish a floor on defense spending at 4 percent of GDP.

The uniformed services are trying to lock in the next administration by creating a political cost for holding the line on defense spending. Conservative groups are hoping to ramp up defense spending as a tool to limit options for a Democratic Congress and president to pass new, and potentially costly, social programs, including health care reform.

....There are so many things wrong with this emerging process that it is hard to address the issue concisely. Promoting overspending on defense in order to forestall popular social spending is undemocratic — it creates a false tension between national security and other public policy goals.

The informal alliance between the services and conservative think tanks threatens to further politicize the military. The abuse of national security arguments to win political arguments is both morally suspect and threatens the security of the nation by delinking strategic assessment from public policy.

This is nothing new. The Pentagon has been highly politicized pretty much forever, and has worked hand-in-glove with hawkish conservatives for its entire existence. The fact that the service chiefs want more money and are laying the groundwork to get it is entirely unsurprising.

Which is why Obama's most important cabinet appointment probably won't be either State or Treasury, but Defense, where his personal experience is at its lowest. It's also what makes the possibility of Robert Gates staying on so interesting. In his favor: he has the background and conservative cred to fight off the kind of power play Finel writes about. On the other hand, the QDR he produces would set Pentagon priorities for four years. Does Obama really want a Bush holdover wielding that kind of influence?

I'm not sure myself. But here's an interesting observation: there's been loads of scuttlebutt about who Obama's picks for State and Treasury will be, but very little about his pick for Defense. There's been lots of talk about whether Gates will or won't stay, but not so much about who's in line for the job if he leaves in January. Why is that?

Quote of the Day - 11.17.08

| Mon Nov. 17, 2008 11:08 AM EST

QUOTE OF THE DAY....From the Mormon church, reacting to protests against their campaign to pass Proposition 8 in California:

"People of faith have been intimidated for simply exercising their democratic rights. These are not actions that are worthy of the democratic ideals of our nation. The end of a free and fair election should not be the beginning of a hostile response in America."

I'm afraid the church elders have it exactly backward here. Churches have every right to involve themselves in political issues, but if they do then they're going to be treated as political actors. Protests, boycotts, op-eds, blog posts, and marches are exactly the democratic ideals of our nation, and being on the receiving end of them is what happens to anyone who enters the political fray. It's a little late for them to pretend they didn't know this.

Obama Speaks

| Mon Nov. 17, 2008 1:11 AM EST

OBAMA SPEAKS....There's been a lot of speculation over the past few days about Barack Obama's position on issues like torture and Guantanamo, most of it based on nothing more than a couple of early appointments mixed with content-free rumors of other appointments. Tonight on 60 Minutes, though, we got more than speculation. We got the man himself making his position clear:

Kroft: There are a number of different things that you could do early pertaining to executive orders. One of them is to shutdown Guantanamo Bay. Another is to change interrogation methods that are used by U.S. troops. Are those things that you plan to take early action on?

Mr. Obama: Yes. I have said repeatedly that I intend to close Guantanamo, and I will follow through on that. I have said repeatedly that America doesn't torture. And I'm gonna make sure that we don't torture. Those are part and parcel of an effort to regain America's moral stature in the world.

Good.

Mortgage Rescue Wonkery

| Sun Nov. 16, 2008 1:29 PM EST

MORTGAGE RESCUE WONKERY....One of the problems surrounding any plan to rescue homeowners with troubled mortgages is that most mortgages are bundled up into securities that have multiple noteholders and are governed by reams of carefully written contractual requirements. So even if the mortgage servicer wants to rewrite mortgages to prevent defaults, they probably can't. The terms of the contract don't allow it, and getting the agreement of every single noteholder is nearly impossible.

So what's the solution? The federal government doesn't have the authority to unilaterally abrogate private contracts, but via Matt Yglesias, CAPAF's Michael Barr explains a way to get in via the back door:

Servicers managing pools of loans for investors are generally barred by contract from selling the underlying mortgage loans, but the trust agreements also provide that servicers must amend the agreements if doing so would be helpful or necessary to stay in compliance with tax rules under the Real Estate Mortgage Investment Conduit, or REMIC, statute, which provide important benefits for these securitization trusts and their investors. We propose to modify the REMIC rules to ensure that servicers have the authority and incentive to sell the mortgages to Treasury.

Legislation would provide that REMIC benefits would be denied going forward if the securitization's contract provisions have the effect of barring servicers from selling or restructuring loans under Treasury's programs. Servicers would have a legal obligation to their investors to modify the agreements to stay in compliance. Servicers could then sell loans to Treasury for restructuring. Participation in the Treasury program would remain voluntary, but the key legal impediments to participation would be removed.

There's more to it, including some indemnification and accounting details, but this appears to be the main change that would allow a broad-based mortgage rescue plan to go forward. Comment is invited from anyone with the background to offer an informed opinion on whether Barr's plan would work.

And as long as we're on the subject, here's an interesting tidbit from Barr's testimony:

Under the Housing and Economic Recovery Act of 2008, an estimated 400,000 at-risk mortgages could be restructured on affordable terms with credit enhancement from the Federal Housing Administration under the "Hope for Homeowners" program....This "Hope for Homeowners" program began insuring loans in the fall of 2008, but as of mid-October had only processed 42 loans.

We sure seem to move faster when it comes to bailing out Wall Street and the auto companies than we do when it comes to helping out distressed homeowners, don't we?

Talk Radio

| Sun Nov. 16, 2008 12:48 PM EST

TALK RADIO....Via Digby, here is Dan Shelley, former news director and assistant program director at Milwaukee's WTMJ, telling us about his career working with his station's right-wing talkers:

To succeed, a talk show host must perpetuate the notion that his or her listeners are victims, and the host is the vehicle by which they can become empowered. The host frames virtually every issue in us-versus-them terms. There has to be a bad guy against whom the host will emphatically defend those loyal listeners.

This enemy can be a politician — either a Democratic officeholder or, in rare cases where no Democrat is convenient to blame, it can be a "RINO" (a "Republican In Name Only," who is deemed not conservative enough). It can be the cold, cruel government bureaucracy.

....Conservative talk show hosts would receive daily talking points e-mails from the Bush White House, the Republican National Committee and, during election years, GOP campaign operations. They're not called talking points, but that's what they are. I know, because I received them, too. During my time at WTMJ, Charlie [Sykes] would generally mine the e-mails, then couch the daily message in his own words. Midday talker Jeff Wagner would be more likely to rely on them verbatim.

On the groupthink/talking points front, Digby suggests that "there are some disconcerting parallels between the right wing talk radio hosts and bloggers." Do you agree?

UPDATE: Edited slightly based on feedback from Digby in comments.

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Iraq SOFA Update

| Sun Nov. 16, 2008 11:38 AM EST

IRAQ SOFA UPDATE....This took longer than I expected, but the Iraqi cabinet has voted almost unanimously to approve the latest draft of a security agreement that governs the continued presence of U.S. troops:

All but one of the 28 cabinet ministers who attended the two-and-a-half-hour session voted for the agreement and sent it to Parliament for consideration

....The draft approved Sunday requires coalition forces to withdraw from Iraqi cities and towns by the summer of 2009 and from the country by the end of 2011. An earlier version had language giving some flexibility to that deadline, with both sides discussing timetables and timelines for withdrawal, but the Iraqis managed to have the deadline set in stone, a significant negotiating victory. The United States has around 150,000 troops in Iraq.

....In a crucial development, Grand Ayatollah Ali al-Sistani, the most influential Shiite cleric in Iraq, indicated on Saturday that he would support whatever decision is arrived at in Parliament as representative of the will of the Iraqi people. Shiite officials who met with the ayatollah said eh found the latest draft acceptable, if not perfect.

Approval by parliament is likely to follow fairly quickly. This is good for the Iraqis, who really do need the U.S. presence for a little while longer; good for George Bush, who's getting a slightly longer timetable than Barack Obama would have negotiated; and good for Obama, since this essentially makes his decision to withdraw into a bipartisan agreement. After all, conservatives can hardly complain about Obama following a timetable that was negotiated and approved by Bush. Obama has enough on his plate already, and taking this issue off the table ought to be a considerable relief to him.

The South

| Sun Nov. 16, 2008 12:11 AM EST

THE SOUTH....For many years, the Democratic Party controlled the agenda of American politics and Southerners controlled much of the Democratic Party. So the South had enormous political influence.

Later, most Southerners switched to the Republican Party, but by then it was Republicans who controlled the agenda of American politics. So the South still had enormous political influence.

As of January 20th, however, the Democratic Party will control the American political agenda once again. But Southerners are still Republicans, which means that their political influence will be nearly nonexistent.

In other words, for the first time since Reconstruction, the South will be almost completely shut out of national power. There are still a few liberal Southerners who belong to the Democratic Party, of course, but the reactionary, traditionalist South is, for the time being, nearly powerless. They will not control anything, their caucus is a discredited rump, and their influence will be negligible. There is no reason to fear them or to care what they think. Their power to filibuster, itself guttering and only barely alive following the 2008 election, will be all they have left.

This is the first time this will be true in well over a century. So say it again: The South will have essentially no influence over the course of American politics for the next eight years. We live in momentous times.

The Housing Bust

| Sat Nov. 15, 2008 12:32 PM EST

THE HOUSING BUST....Matt Ygelsias says it's not really the housing bubble that's responsible for our economic woes:

Even though the deflation of a housing bubble would lead to economic problems, it's just not the case that "the economic crisis" (as folks have taken to calling it) was primarily caused by the rise and now fall of an asset bubble in the housing sector. Such bubbles and their collapse are problematic, but also somewhat banal. We had one just a few years back when the dot-com stock bubble collapsed. That provoked a recession and the loss of a lot of paper wealth in the stock market, but there was no crisis. There was no crisis because the big movers and shakers of the finance world didn't build a giant house of cards built on the assumption that tech stocks would continue to rise in value indefinitely. Some people made bad bets along those lines, of course, but nothing close to the scale of what we've seen recently.

And the essence of the crisis is right there. Not in the deflation of the bubble as such, but in what was done on top of the bubble with leverage and so forth so as to create a situation so precarious that credit markets were on the verge of total collapse a little while back.

Superficially, this seems plausible. In the U.S., the dotcom bust destroyed about $7 trillion in wealth, while the housing bust has destroyed (so far) about $5 trillion in wealth. So it seems like the difference in effect must be due to all the derivative speculation piled on top of the housing bubble.

There's a lot to that, but it's not the whole story. The housing bust really is different for several reasons:

  • Dotcom wealth was mostly held by individuals and funds. Mortgage debt is mostly held by banks, and when it disappears it causes massive capital losses in the banking system. Those losses (again, so far) appear to be about half a trillion dollars or so, but half a trillion dollars in lost bank capital reduces lending capacity by $5-10 trillion or so. The lost capital causes bank failures and a loss of trust in the system, while the reduced lending capacity causes a huge credit crunch, something that just didn't happen during the dotcom bust.

  • Dotcom wealth was fairly transitory. Most of it was built up over the space of 18 months or so and was lost just as quickly. What's more, a lot of it was in the hands of rich people and venture funds, so its loss hit a relatively narrow segment of the population and thus had a substantial but not catastrophic effect on spending.

    Conversely, housing wealth is spread very widely among ordinary consumers, many of whom were using their homes as ATM machines. When that got cut off, it hit consumer spending hard. Additionally, housing wealth for most people is psychologically far more permanent and far more important than a brief spell of prosperity caused by a stock market bubble. So even beyond the direct shutdown of the HELOC ATM, the wealth effect from the housing bust has been more damaging to consumer spending than the dotcom bust.

  • Unlike the dotcom crash, which was fairly self-contained, the housing crash has precipitated a stock market crash all its own. I'm cheating a little bit here since part of this is a result of all the side bets and financial manipulation, but at least part of it is purely a result of the housing bust. So add on another $4-5 trillion in wealth effect problems directly attributable to the housing bust.

  • The dotcom crash came at the end of a period of broadly rising wages. The housing crash came at the end of a period of broadly stagnant wages. So even if the housing crash had been just a housing crash, it still would have affected the U.S. economy more severely than the dotcom bust.

  • The dotcom bust was ameliorated by the rise of the housing bubble. This time, there's no other bubble in sight. It's just a pure crash.

That said, there's no question that all the side bets and opaque financial instruments that swirled around the housing bubble made it far worse than it would have been all by itself. But even without all that stuff, it still would have been different. Not only did it affect consumers much more directly, but within the banking system housing and mortgages simply have a far bigger and more important role than equities,

Further comments and corrections are welcome since my usual caveat applies here: I'm still trying to figure all this stuff out, and I haven't managed to do it yet. What else am I missing?

Sweat Shops

| Fri Nov. 14, 2008 9:40 PM EST

SWEAT SHOPS....For some reason the blogosphere is alive today with talk of teachers unions and tenure. I don't really have much of a dog in this fight, but here's an email a teacher sent to Andrew Sullivan:

I cannot stress enough that the success of our school is in large rooted in the fact that there is no teachers' union presence here.

Teachers at my public charter school, including myself, routinely put in 12 hour days. We spend the time perfecting lessons, tutoring students, grading work, and working with families. We do it because we are dedicated to our jobs and want to close the achievement gap.

I hear this kind of thing a lot, but look: this isn't a weakness of unions, it's what they're for. Whatever faults teachers unions may have — protecting incompetents, fighting accountability, and resisting merit pay among them — insisting on an 8-hour day isn't one of them. What's more, punishing hours aren't a broad-based answer to our educational problems anyway. There are some teachers, at certain stages of their careers, who may be willing to put in 12-hour days in service of the greater good, but there aren't 3 million of them. And there's no reason there should be. This isn't charity work, after all. It's a job. Maybe there are other union demands that are objectionable in one way or another, but demanding a 40-hour work week for a position that pays roughly a median salary is hardly some kind of thuggish big labor cramdown.