Kevin Drum - February 2009

Ol' Blue Eyes

| Tue Feb. 17, 2009 12:05 PM EST
OL' BLUE EYES...In the LA Times today, Allen Goldberg worries that genetic screening for inherited diseases is being corrupted to "satisfy the whims of parents":

Recently, the Los Angeles-based Fertility Institutes announced that it would soon be offering patients at its clinics the chance to choose traits such as "eye color, hair color and complexion." The clinics already offer gender selection to patients undergoing in vitro fertilization.

The Fertility Institutes employs a technique known as "preimplantation genetic diagnosis," which allows doctors to screen embryos soon after they are created in a petri dish and implant only the ones that meet certain criteria. The technique was invented to help high-risk families avoid or manage potentially deadly genetic traits, and to help women who've had multiple miscarriages conceive babies they can carry to term.

Now the Fertility Institutes is corrupting this lifesaving clinical procedure by using it to help families create designer babies, and I worry that their excesses will turn public sentiment against all preimplantation genetic diagnosis. That would be wrong.

I confess that this particular controversy has always perplexed me.  If, for religious reasons, you flatly oppose the creation and destruction of embryos, then I disagree with you but I understand your objection.  Outside of that, though, who cares if parents start selecting for left-handed saxophone players with a gift for languages?  It's true that as the technology progresses, it will probably become possible to perform more problematic types of screening — perhaps for behavioral traits like sexual orientation or political persuasion — but there's every reason to think that this is a lot harder than it sounds no matter how good the technology gets.  And in any case, parents already select for these traits constantly when they make decisions about how and where to raise their children, and nobody objects to that.

Like every other medical procedure, this one will eventually be bound up in a rigid code of ethics that will be the end result of the usual messy political process.  And there will always be a few parents willing to fly to Burma or Albania or wherever to get treatments they can't get at home.  If that becomes a big problem 30 years from now, we can deal with it then.  In the meantime, if you've always wanted a blue-eyed kid (and we blue-eyed kids are pretty adorable), then go ahead and have a blue-eyed kid.  It's OK with me.

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The Treasury Plan

| Tue Feb. 17, 2009 11:13 AM EST
THE TREASURY PLAN....The Washington Post has a brief tick-tock today explaining why Tim Geithner's bank rescue plan, announced last week, was so anemic and lacking in detail.  And I have to say that it didn't leave me brimming with confidence in my economic betters.  The basic problem, they say, was that at the last minute the Obama economic team decided that their plans were unworkable:

Senior economic officials had several approaches in mind, according to officials involved in the discussions. One would be to create an "aggregator bank," or bad bank, that would take government capital and use it to buy up the risky assets on banks' books. Another approach would be to offer banks a government guarantee against extreme losses on their assets, an approach already used to bolster Bank of America.

As the first week of February progressed, however, the problems with both approaches were becoming clearer to Geithner, said people involved in the talks. For one thing, the government would likely have to put trillions of dollars in taxpayer money at risk, a sum so huge it would anger members of Congress. Officials were also concerned that the program would be criticized as a pure giveaway to bank shareholders. And, finally, there continued to be the problem that had bedeviled the Bush administration's efforts to tackle toxic assets: There was little reason to believe government officials would be able to price these assets in a way that gave taxpayers a good deal.

Say what?  After nearly two years of crisis and weeks of work, they suddenly discovered that buying up toxic assets from banks was problematic because the assets were expensive, hard to value, and risky for taxpayers?  That's not exactly rocket science.  Hell, someone who had only casually browsed through the blogosphere over the past year would know that.  And not even the financial blogosphere.  Just ordinary lay blogs like this one.

I really don't know what to think of this.  Maybe the Post has it wrong.  (Though their account matches others I've read.)  Maybe the problems were actually more subtle than the Post lets on.  But it sure sounds as if the Treasury team spent months discovering little more than that the world is round.  WTF?

Insolvency

| Mon Feb. 16, 2009 2:34 PM EST
INSOLVENCY....Is the U.S. banking system insolvent?  John Hempton provides five different definitions of insolvency and suggests that the answer isn't as clear as we might like:

Now when a blogger or an analyst tells you a bank or the system is insolvent then ask them what definition of insolvency they are using and test them against that definition. Then test them against others — and work out — in the context given — whether the institution is solvent against the definition appropriate for the circumstances. People who do not think clearly as to definition of insolvent are being sloppy — and that includes most the bloggers I most admire including Paul Krugman. The context in which the banking system is insolvent is that (a) it is illiquid because people don’t trust it and (b) it can’t get enough liquidity because it has to sell assets into a market in which they are trading considerably below their “yield to maturity or GAAP price” and if you sell it at that price you reveal “mark-to-market” insolvency as per Roubini. However provided the banking system could remain liquid it is unlikely it will actually be insolvent though individual banks might be. [I should note that this is a US conclusion. The UK banks started much more thinly capitalised and I think they are insolvent.]

This is what the stakes are in the (so far incompetent) government policy as to how the banking crisis is to be dealt with. What is a marginal solvency crisis (and that is all it is on a yield to maturity basis) is being turned into the mother-of-all-liquidity-and-solvency crises. Sure the banks bought in on themselves by telling so many lies in the good times (so they are never believed now). But now the problem is beyond their ability to control.

Anyway wholesale nationalisation is not the right policy per-se. It will the inevitable result of following the wrong policies. The right policies will involve selective nationalisation — what I have described in other posts as “nationalisation after due process”.

The whole post is a long one, and hinges largely on a combination of regulatory forebearance issues and questions of whether toxic assets in the banking system are valued at fire sale prices or their most likely long-term yield.  I don't know if I agree with the whole thing or not, but I do agree that some kind of consistent and transparent test for solvency is needed to replace the ad hoc mess we've had up until now — and Hempton proposes one at the very end of the post.  The whole thing is educational and worth a read.

Filibuster Reax

| Mon Feb. 16, 2009 12:58 PM EST
FILIBUSTER REAX....Guess what?  It turns out that the blogosphere is chock full of pie-in-the-sky alternatives for doing away with the filibuster.  I've even got one myself.  But let's round up the others first.  Here's Matt Yglesias:

Pass a measure in the 111th congress saying that there will be no filibustering starting with the 113th congress. That would avoid the sense that the reform was a mere power grab.

I like this idea a lot. Unfortunately, my understanding of the rules suggests it's impossible. The only way to do away with the filibuster is via an arcane challenge to a point of order that would be sustained by the vice president while presiding over the Senate.  So it either happens or it doesn't.  There's no way for the 111th congress to pass a resolution that's binding on the 113th.

Hilzoy offers a couple of other alternatives.  She notes that modern filibusters are tepid affairs, but there's a reason for that: old-school filibusters are actually more tiring for the majority than for the filibustering minority.  Everybody got tired of that starting in the early 60s, and the reforms that were put in place eventually degenerated into today's routine requirement for 60 votes to pass virtually all legislation in the Senate.  What to do?

The Senate might make cloture votes require 60% of the votes of those who are present and voting, for instance. That would mean that the side that was mounting a filibuster would have to keep all its members around for the duration. Alternately, the Senate might adopt a rule that said that during filibusters, if a quorum was not present, the Senator who was speaking could decide to go on speaking or to allow a vote on cloture, to be decided by a majority of those present and voting. If s/he decided to go on speaking, s/he could do so, but no other Senate business could be conducted until the next business day. If s/he opted for the cloture vote, it would take place.

Maybe, though once again it's not clear how this could happen since I think it takes a two-thirds vote to change Senate rules.  Stuck again.

But as long as we're chattering about impossible things, here's my idea: a court case challenging the constitutionality of the filibuster.  Basically this would take the form of an originalist argument that the framers always intended for bills to be passed by majority votes in both Houses.  This wasn't spelled out specifically in Article 1, but that's only because it was such a deeply held assumption that nobody even thought it necessary to put it in writing.  Majority rule was quite plainly the default requirement, and in cases where a supermajority was required it was spelled out specifically.

In practice, of course, there's no chance that the Supreme Court would insert itself so deeply into the internal workings of the legislative branch, especially in the case of a custom that's been around for nearly two centuries.  So there's only one alternative left.  Steve Benen explains:

Perhaps there can be some kind of limit on the number of filibusters (kind of like NFL coaches having a limit on how many times they can challenge a referee's call on the field).

James Joyner is enthusiastic too ("Perhaps if they successfully challenge two bills, they get a third!").  Count me in as well. If it's pie-in-the-sky we're going to talk about, what better model do we have than professional sports?  The NFL might have a bad habit of changing its rules about as often as most of us change our shirts, but at least they manage to crown a champion every year.  Compared to Congress, that's not bad.

Sphere of Influence

| Mon Feb. 16, 2009 12:05 PM EST
SPHERE OF INFLUENCE....In the LA Times, Megan Stack reports that Russia is playing both parts in a good-cop-bad-cop routine directed at the United States:

In recent days, Russian officials have rushed forward to offer logistical help to NATO troops in Afghanistan — at the same time dipping into a dwindling budget to offer impoverished Kyrgyzstan more than $2 billion in an apparent payoff for ejecting a U.S. military base crucial to the war against the Taliban.

In fact, Russia is tugged between two strong, conflicting impulses. It distrusts U.S. motives, especially when it comes to America's penetration of former Soviet states. But Moscow's sense of invulnerability appears shaken by falling oil prices and the precarious economy. Many analysts believe the Kremlin is looking for an opening to make nice with the West. Nearby Afghanistan, where instability also spells danger for Russia, presents a handy opening.

And so Russian officials offer help with one hand, lash out with the other.

....The message from Moscow these days appears to be that the United States should not expect to cut deals with the Kremlin-backed governments of Central Asia. If Obama wants something from the region, he'll have to ask Moscow.

The key question seems to be: how scared is Putin of Islamic extremism near Russia's border?  And how badly do we want Russian help?  Stay tuned.

Treasury Bubble Watch

| Mon Feb. 16, 2009 11:36 AM EST
TREASURY BUBBLE WATCH....Is the appetite for treasury bonds with minuscule yields finally waning?  The Wall Street Journal reports:

Time and again the U.S. Treasurys market has escaped the correction many believe is inevitable for a market that is so buoyant, it could be mistaken for a bubble. This week, it may not be so fortunate.

Prices of government bonds started to fall Friday, ahead of the vote by the House of Representatives that approved the $789.5 billion stimulus package. This decline could be the beginning of the capitulation the market has been bracing for since the administration of President Barack Obama took over, with promises of a recession-era boom in government spending.

Personally, I wouldn't read too much into this.  But it's something worth keeping an eye on.  The treasury bubble is going to pop eventually.

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What Obama Did

| Sun Feb. 15, 2009 3:07 PM EST
WHAT OBAMA DID....Our obsessive modern media environment — talk radio, 24/7 cable news, constant blog chatter, etc. — turns every molehill into Mt. Everest.  Every bill is a cliffhanger.  Every amendment is a fight for the future of the party.  Every procedural vote is a referendum on the president and his entire program.

Except, you know, it's not.  The fantastic amount of sturm und drang from all sides to the contrary, here's what happened with the stimulus bill.  (1) Obama recommended a $775 billion package.  (2) The House futzed around with it a bit.  (3) The Senate futzed around a little more.  (4) The final confererence report ended up within a few percent of what Obama asked for in the first place: Slightly less spending, but more front-loaded; about the same amount of tax cuts; and the addition of a tweak to the AMT, which would have happened anyway later in the year.  Some of the net changes were good (more rail, more energy spending) and some were bad (housing subsidies, state aid cuts), but in the grand scheme of things this is pretty small potatoes.  Mark Kleiman notes that now that the sound and fury have died away, the media has finally figured out what happened:

Espo's [AP] story carries no hint of the earlier widely-repeated nonsense about how the failure of Republicans to vote for the bill even after it had been somewhat tailored to meet their original objections constitutes a defeat for Obama's post-partisan ambitions. It seems far more likely to constitute an act of collective political self-immolation. The stimulus bill and Obama are both quite popular, and the Republicans just the opposite. The public doesn't seem to have had nearly as much trouble as, for example, the editorial page of the Washington Post in figuring out which side is extending the hand of friendship and which side is biting it.

I would have thought that, by now, smart observers of the political scene would have developed some hesitancy about claiming that the Obama machine has blundered. Apparently not yet. But Ron Brownstein puts his finger on what seems to me the key fact about Obama as a politician: "flexible about tactics and unwavering in his goals."

And, I would add, patient. Obama is a low-discount-rate player in a very high-discount-rate town. And he understands what the pundits don't: this is a repeat-play game. His summary of the stimulus bill: "not 100 percent of what we would want ... but a very good start on moving things forward."

Obama has obviously had a few stumbles during his first month in office, but aside from losing Tom Daschle none of it was serious.  (The Commerce Department?  Please.  Sure, it's a little embarrassing to lose two candidates in a row, but in the end, nobody cares a whit.)  On the plus side, his team is in place, he's passed both a healthcare bill and an anti-discrimination bill, and he's now got the single largest stimulus bill in the history of the country sitting on his desk waiting for his signature.  And he still has 205 weeks left to go in his first term.  Were you really expecting very much more from the first three?

GOP Lemming Watch

| Sun Feb. 15, 2009 1:54 PM EST
GOP LEMMING WATCH....You think DC Republicans are nuts?  Come to California for the real thing.  We're in a $41 billion hole, and after weeks of grinding negotiations Gov. Schwarzenegger and Democratic leaders finally agreed on a package that contained $15 billion in spending cuts, $15 billion in temporary tax increases, and $11 billion in new borrowing.  So what happened?

Nothing.  The package needs a grand total of three (3) GOP votes in the state Senate, and it turns out there are only two.  All the others are still dead set on allowing California to run off a cliff rather than vote for any tax increases whatsoever no matter what the circumstances.  (Sen. Tony Strickland, R-Moorpark: The package, if passed would be remembered as "the Valentine's massacre on California taxpayers.")  In the Assembly, my representative, Chuck DeVore, tried to lead a revolt against the sellout Republican leadership, failed, and then promptly resigned his position as minority whip.  (Brian Leubitz at Calitics: "In the Byzantine world of Yacht Party politics this of course is good news for his chances of winning the party's nomination to get pummeled by Barbara Boxer in 2010.")  The Assembly then went into lockdown overnight.  (John Myers via Twitter: "A lockdown really is a lockdown. Assembly sergeants are at all exits of the chambers.")  The Senate pulled an all-nighter too, but by dawn the third GOP vote was still nowhere to be found.  Senate Dems even slashed some spending for children's healthcare, a project always near and dear to moderate Republicans, but it wasn't enough to get Sen. Dave Cox on board.  So they're still a vote shy.

Anyway, no big point to make here except that Republicans in California are certifiably insane.  Unfortunately, they're also pretty much invulnerable.  Over the past decade their ranks have dwindled to about a third of the legislature, but thanks to the cozy gerrymandering deals of the recent past they represent districts that are far more likely to punish them for compromise than for constructive engagement.  And since California requires a two-thirds majority to pass a budget, they can stamp their feet, hold their breath, give rousing speeches to their neanderthal constituencies, and run the state off a cliff just for giggles.  Aren't you glad you don't live here?

Geithner's Plan

| Sun Feb. 15, 2009 12:43 PM EST
GEITHNER'S PLAN....Treasury Secretary Tim Geithner was pummeled last week for offering up a vague and unsatisfactory plan for dealing with the U.S. banking crisis.  But he had better luck with his fellow economic mandarins at yesterday's G7 meeting:

Going into the meeting, Canadian Finance Minister James M. Flaherty called the U.S. financial rescue "less than clear," echoing comments made by financial chiefs in France and Germany. Afterward, many of the officials appeared reassured, saying that Geithner provided clear answers to their questions.

Several officials said Geithner was particularly helpful in explaining how the various elements of the administration's initiatives tie together as well as how he plans to combine public funds with private resources to get more bang out of every rescue dollar the governments spends.

That's great! So how about if he provides the American public with the same clear answers he offered to foreign central bankers? Apparently that's not going to happen:

Withholding critical details was a conscious choice by Geithner and his team, the official said in an interview. They wanted to avoid the mistakes of the Bush administration, which announced proposals before fully debating them and then quickly abandoned them when it realized they would not work.

Geithner and his staff also wanted to coordinate their proposals with lawmakers, the private sector and their counterparts overseas. This need for coordination is more than just rhetoric, officials said. If the United States develops a method to examine the books of banks and evaluate the real worth of their assets, it would likely affect financial firms around the world.

So let me get this straight.  The story we're asked to believe is that Geithner deliberately mumbled his way through Tuesday's press conference, but then, four days later, working from "a few pages of notes that he had quickly scribbled in a small notebook," provided a brilliant explanation of his plan that satisfied the most sophisticated economic audience on the planet?  What's wrong with this picture?

Happy Valentines Day

| Sat Feb. 14, 2009 8:34 PM EST
HAPPY VALENTINES DAY....Craig Childs defends the refinement and discrimination of pre-Columbian cultures in North America:

A thousand years ago, people in the Southwest had not invented the wheel, had no armies and relied on stone tools, which has marked them as uncivilized. They are imagined as cavemen. But the recent discovery of chocolate in a broken jar from pre-Columbian New Mexico might be enough to change that kind of thinking.

Consider it changed!  If chocolate isn't the mark of a great civilization, what is?