Kevin Drum - April 2010

Fact Checking the Sunday Talkers

| Tue Apr. 20, 2010 2:31 PM EDT

A few weeks ago, Jake Tapper of ABC's This Week asked PolitiFact to fact check his show. None of the other Sunday shows have followed suit, and Jay Rosen wonders why. In particular, he wonders why David Gregory, the host of NBC's Meet the Press won't do it:

I see two other possibilities for his refusal to adopt the fact check: one banal, the other more troubling. The banal: He's too proud to adopt something that a competitor picked up on first; it would look like a "me too" response and he is the market leader, first in the ratings and heir to the chair that Tim Russert held. The more disturbing possibility is that he thinks Tapper's policy may give Meet the Press a competitive edge in booking guests who won't want to be checked so vigorously. (As opposed to competing with an even better fact check, which would probably cause Bob Schieffer at Face the Nation to adopt the same policy, forcing the guests to accept the new rules or flee to cable, which has a fraction of the viewers.)

Look at it this way: the Washington politician who's been on Meet the Press more than any other is John McCain. On April 6, Politifact's truth-o-meter rated McCain a pants-on-fire liar for claiming that he never called himself a maverick. See what I mean?

This whole thing has always struck me as just a little odd. Does fact checking guests motivate them to stay away from your show? If the fact checking were aired on the following week's show it might have an impact, but all Tapper is doing is posting the PolitiFact writeups on the show's website later in the week. Are there really any politicians who are afraid of this?

The whole fact checking idea seems like it has possibilities, but unless it's done on the air by a group with editorial independence, it's hard to see it having much impact. A web-based fact check just doesn't draw much of an audience. (Via Steve Benen.)

UPDATE: Tapper responds via Twitter: "Rome wasn't built in a day. The original @jayrosen_nyu proposal was for a web-based fact check, we're trying it out."

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Hating on Wall Street

| Tue Apr. 20, 2010 2:13 PM EDT

Via John Sides, here's the result of a Gallup poll that tested question wording on financial reform:

This isn't a huge difference, but it's certainly worth noting. The spread in favor of regulation is 14 points when you mention "Wall Street" banks but only 3 points when you don't. Republicans, of course, are well aware of this already, which is why they've chosen to endlessly repeat "Wall Street bailout" as their preferred lie about what the Senate financial reform bill does. Surely the good guys should be doing the same?

(Not lying, that is. The "Wall Street" thing.)

Today is Weed Day

| Tue Apr. 20, 2010 12:56 PM EDT

The first time I ran into the term "420" as a reference to marijuana smoking was last year when I was writing my magazine piece about pot legalization. Why did it take until I was age 50 to hear about this? Because I'm practically Mormon in my personal habits and for some reason the term has never really gotten a lot of play in mass culture. But just for fun, here's Ryan Grim explaining where it came from:

A group of five San Rafael High School friends known as the Waldos — by virtue of their chosen hang-out spot, a wall outside the school — coined the term in 1971. The Huffington Post spoke with Waldo Steve, Waldo Dave and Dave's older brother, Patrick, and confirmed their full names and identities, which they asked to keep secret for professional reasons. (Pot is still, after all, illegal.)

....One day in the Fall of 1971 — harvest time — the Waldos got word of a Coast Guard service member who could no longer tend his plot of marijuana plants near the Point Reyes Peninsula Coast Guard station. A treasure map in hand, the Waldos decided to pluck some of this free bud.

The Waldos were all athletes and agreed to meet at the statue of Loius Pasteur outside the school at 4:20, after practice, to begin the hunt. "We would remind each other in the hallways we were supposed to meet up at 4:20. It originally started out 4:20-Louis and we eventually dropped the Louis," Waldo Steve tells the Huffington Post.

The first forays out were unsuccessful, but the group kept looking for the hidden crop. "We'd meet at 4:20 and get in my old '66 Chevy Impala and, of course, we'd smoke instantly and smoke all the way out to Pt. Reyes and smoke the entire time we were out there. We did it week after week," says Steve. "We never actually found the patch."

But they did find a useful codeword. "I could say to one of my friends, I'd go, 420, and it was telepathic. He would know if I was saying, 'Hey, do you wanna go smoke some?' Or, 'Do you have any?' Or, 'Are you stoned right now?' It was kind of telepathic just from the way you said it," Steve says. "Our teachers didn't know what we were talking about. Our parents didn't know what we were talking about."

At 4:20 today I'll probably be.....blogging. Or reading a paper on financial reform. Or ingesting another chapter of This Time Is Different. Exciting! For the rest of you who plan to mark April 20 with a little more gusto, happy toking. Maybe soon you'll be able to do it legally.

Reining in Derivatives

| Tue Apr. 20, 2010 12:20 PM EDT

Noam Scheiber brings us up to speed on the state of play of derivatives regulation in the Senate finance reform bill. Big banks, it seems, are actually feeling a little fear these days:

The reason the recent developments are so remarkable is that all reforms tend to weaken as they get closer to passage, as legislators hash out compromises with powerful interests in order to secure a deal. Bizarrely, financial reform appears to be headed in the opposite direction. When it comes to derivatives, at least, the bill Senator Chris Dodd moved through his Banking Committee in March was significantly tougher than the bill the House passed in December. Then, last week, Lincoln shocked Wall Street by producing an even tougher bill than that.

....What happened? For weeks, Wall Street had viewed the Dodd language as a placeholder while Lincoln and [Saxby] Chambliss hashed out the real details. Instead, the practical effect of the Dodd language was to create a minimum standard of toughness from which Democrats would be unwilling to retreat. As Lincoln and Chambliss bargained in March, the administration began to focus on the issue and discovered its popular resonance....By the time Lincoln finally sent the administration the contours of a possible deal with Chambliss the week of March 29th, there was no way the deal could pass muster. Several days later, Michael Barr, the assistant Treasury secretary with the derivatives portfolio, told Lincoln's staff the administration would be unable to support it because it weakened the Dodd bill.

This really does seem to be the one ray of sunshine on the regulatory front right now. I'm only lukewarm toward the rest of the Dodd bill (and its House counterpart), but the soap opera over OTC derivatives regulation really has been moving in the right direction lately. And despite the best efforts of the Chamber of Commerce to pretend that regulating derivatives will hurt ordinary businesses, nobody is buying it. Derivatives may not have been the primal cause of 2008's financial meltdown, but there's no question that (a) they helped things along and (b) the social value of complex credit derivatives is pretty close to zero. It really is just the pure shuffling around of money for the sake of generating huge fees for the five big players in the market.

That makes this a pretty easy win for Democrats if they're willing to seize it. Serious derivatives regulation is good policy since Lincoln's proposal would improve the stability of financial markets. It's good electoral politics since there's no public constituency in favor of weak regulation — especially since media coverage of derivatives has actually been fairly widespread and uniformly negative. And finally, it's good partisan politics since it exposes natural fault lines in the Republican Party. "The one tactical question Democrats do agree on," says Scheiber, "is that the GOP is ready to crumple."

Blanche Lincoln's derivatives language is actually so tough that at first I didn't take it seriously. I figured it was just for show (she's facing a primary challenge from the left and needs some anti-Wall Street cred) and would get negotiated away pretty quickly. But regardless of whether that was her intent, these things sometimes gain a momentum of their own. Right now, it looks like serious derivatives regulation might have a legitimate shot at becoming law.

Why Are Banks Are So Rich?

| Tue Apr. 20, 2010 11:32 AM EDT

Annie Lowrey writes about the continuing spectacular profitability of Wall Street banks:

This is not quite a picture of a healthy industry. In a competitive marketplace, prices and fees at Wall Street firms should fall and margins should become thinner. 

....The profits point to a lack of competition. That is one thing the Dodd bill — via derivatives regulation — attempts to fix. Right now, Wall Street firms do not bid for big derivatives contracts — they simply quote a price and work over-the-counter. For that reason, derivatives are wildly profitable for the companies. The Dodd bill will force derivatives pricing to become public to the market, driving down margins as companies compete.

Over the past several decades, finance has gotten bigger, faster, more global, and more computerized. In other words, more commoditized. That should drive profits down. But it hasn't. James Crotty of the University of Massachussetts calls this Volcker's Paradox, "the seemingly strange coexistence of intense competition and historically high profit rates in commercial banking," because it was first pointed out by Paul Volcker back in 1997. And in a paper he wrote a couple of years ago, Crotty identified four reasons for this paradox:

  1. Rapid growth in the demand for financial products and services in the past quarter century.
  2. Rising concentration in most major financial industries that makes what Schumpeter called “corespective” competition and the exercise of market power possible (thus raising the possibility that competition is not universally as intense as Volcker assumed).
  3. Increased risk-taking among all the major financial market actors that has raised average profit rates.
  4. Rapid financial innovation in over-the-counter derivatives that allows giant banks to create and trade complex products with high profit margins.

So: rising demand, reduced competition, higher leverage, and the growth of opaque OTC derivatives that are easy to overprice because they're one-off products that can't be easily compared to each other. As Lowrey says, the Dodd bill might address reason #4 if it ends up truly forcing most derivatives to be exchange traded, but it doesn't do much about the other three. Most likely, then, financial sector profitability is going to stay high even after financial reform has been passed, and that means the power of bankers over Congress is going to stay high too.

UPDATE: I've been trying to remember all day where I first saw this paper. Answer: over at Mike Konczal's place. He links to it here, along with lots of other interesting commentary about bank profitability.

Factlet of the Day

| Mon Apr. 19, 2010 10:38 PM EDT

From the Washington Post:

Pepsico has developed a new shape for sodium chloride crystals that the company hopes will allow it to reduce salt by 25 percent in its Lay's Classic potato chips.

A new shape for salt? How about that. I suppose the crystals somehow have more surface area or something like that. More importantly, though, this comes from an article describing a new FDA initiative to reduce the amount of salt in food:

The government intends to work with the food industry and health experts to reduce sodium gradually over a period of years to adjust the American palate to a less salty diet, according to FDA sources, who spoke on the condition of anonymity because the initiative has not been formally announced.

...."This is a 10-year program," said one source. "This is not rolling off a log. We're talking about a comprehensive phase down of a widely used ingredient. We're talking about embedded tastes in a whole generation of people."

I am so in favor of this. It's sort of like the Do Not Call list: I don't really care about ideology here, and I don't really care if this is nanny statism or government overreach or anything else. I'm just totally in favor. And you know what? By the time this is done, my guess is that nobody will even remember a difference. They'll just be eating healthier food that tastes better and doesn't cause as many strokes or heart attacks. Three cheers for the FDA.

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Defending Goldman Sachs

| Mon Apr. 19, 2010 10:18 PM EDT

According to the Wall Street Journal, the recent SEC vote to sue Goldman Sachs broke down along partisan lines:

The Securities and Exchange Commission decided to sue Goldman Sachs Group Inc. over the objections of two Republican commissioners, suggesting an unusual split at the agency that could politicize one of its most prominent cases in years....People familiar with the vote said [Mary] Schapiro — a registered independent — joined two Democrats on the commission, Elisse Walter and Luis Aguilar, in supporting the fraud case against Goldman. The two Republican commissioners, Kathleen Casey and Troy Paredes, were opposed, they said. 

....In a letter to be sent Tuesday to the SEC, Rep. Darrell Issa (R., Calif.) plans to ask the agency why the Goldman case was brought as the financial-regulation bill was pending, according to Mr. Issa's spokesman. "Democrats are desperate to cast Wall Street as the villain so they won't be held accountable for the country's economic condition," Mr. Issa said. "It must be nice for the Democrats that the SEC's filing against Goldman Sachs so conveniently fits into their political agenda."

Hmmm. Darrell Issa seems to think that describing Democrats as the party that wants to "cast Wall Street as the villain" will somehow be bad for Democratic fortunes. And that defending Goldman Sachs will be good for the Republican Party.

I suppose anything is possible. But I'm willing to take my chances on casting Wall Street as a villain — and the only sure way to find out who's right is to run a test. So with that in mind, I encourage the rest of the GOP caucus to join Issa's crusade to defend Goldman Sachs against the depredations of Democratic SEC commissioners. In a few months we'll see how that plays out for them.

Everybody Hates Washington

| Mon Apr. 19, 2010 8:50 PM EDT

A new Pew poll is out, and it can be summarized pretty easily: everybody hates Washington DC. "By almost every conceivable measure," says Pew, "Americans are less positive and more critical of government these days."

No surprise there. The good news comes in two places. First, if you take a look at this chart, you'll see that trust in government rebounded strongly during the Clinton administation and then sank like a stone during the Bush administration. So it's far from impossible for Obama to turn things around once the economy starts to pick up. Second, in addition to hating the government, people also hate banks and large corporations these days. This suggests a pretty obvious way for Congress and the president to get back on the public's good side, no?
 

So that's the poll. And now to random kvetching. I went ahead and took their "How satisfied are you with government?" quiz, and it turned out that I was surprisingly satisfied. More on that later. For now, though, I just want to highlight question #6 as a sign of how impoverished our discourse has become. When Pew asked about your preferred size of government, the answers ranged from "way smaller" to "the same as now." Apparently the folks who designed the poll were literally unable to believe that any significant number of people might want government services expanded. This is despite the fact that their own surveys have shown that about 40% of Americans would prefer a bigger government that offered more services. We liberals still have some work to do.

Diane Wood's Record

| Mon Apr. 19, 2010 2:28 PM EDT

Based on what I've read and heard, my favorite among the shortlist candidates to replace John Paul Stevens on the Supreme Court has been Diane Wood of the 7th Circuit Court. But I'm not a lawyer and my knowledge of her actual jurisprudence is necessarily limited.

Glenn Greenwald, however, is a lawyer, and he's spent the past week reviewing her record and talking to Wood's former clerks to get a better sense of where she stands. His conclusion: she's not a truly left wing candidate (none of those are even on the shortlist), but she does have a "long, clear, inspiring record" on issues of both civil liberties and economics. Glenn goes into some detail about her defense of the rule of law shortly after 9/11 — which you should read — but the thing about Wood that has most impressed me is that she's not just someone with a solid progressive view of the law, but someone with the intellectual heft to make a difference on the court. Here's Glenn:

Her expertise in anti-trust law and economics is (a) especially relevant now given the cases likely to come before the Court in the wake of the financial crisis and (b) rare for a federal judge on the liberal/Democratic side.

....What makes Wood so unique is that she combines her principled convictions with an extraordinary ability to secure the support of other judges for her opinions. Her creative and flexible intellect enables her simultaneously to stay within the confines of the law while finding the most equitable outcomes that attract a broad range of support. The 7th Circuit is one of the most conservative circuits in the country, yet Wood's influence on that court and her ability to induce right-wing judges to support her rulings is remarkable, an attribute particularly important for replacing Justice Stevens.

....Vince Buccola, who clerked last year for the right-wing Judge Easterbrook, described to me the close professional and personal relationship Wood has developed with the court's conservatives. "She’s lightning quick, amazingly well-prepared, very smart and also very knowledgeable about law," he said....Margo Pave, another former clerk and now a partner in a D.C. law firm, added: "Throughout her entire time on the bench, she has had that ability to convince her conservative colleagues, as well as her moderate and liberal colleagues, to adopt her view of an issue. She does this by figuring not only what is the right interpretation of the law, but an approach to it and argument for it that even convinces the Judge Posner and Easterbrooks of the world." For that reason, Pave — who, like most people I spoke with, described Judge Wood as "brilliant" — said she'd make a "phenomenal addition to the Court, particularly for the seat being vacated by Justice Stevens, who has also excelled at forging consensus with Court conservatives."

I think this is quite likely the most important trait in a Supreme Court choice right now. Not only does Wood have basically sound views, but she has a track record of using those views to actually make a difference. She speaks her mind and doesn't back down from a fight, but she also knows how to win fights. That's something we need right now. Glenn's entire piece is worth a read.

Capitalism and Climate Change

| Mon Apr. 19, 2010 12:58 PM EDT

Over at the Climate Desk, Clive Thompson writes that although politicians can posture and bleat about climate change denialism without fear of paying a price, the business community doesn't have the same luxury:

This makes capitalism a curiously bracing mechanism for cutting through ideological haze and manufactured doubt. Politicians or pundits can distort or cherry-pick climate science any way they want to try and gain temporary influence with the public. But any serious industrialist who's facing "climate exposure" — as it's now called by money managers — cannot afford to engage in that sort of self-delusion.... Consider, as one colorful example, the skiing industry. Beginning 10 years ago, the Aspen Skiing Company began noticing that European ski lodges were being slowly destroyed by warmer weather. Europe's ski resorts tend to be located on lower mountains — about 6,000-8,000 feet high, compared to American peaks up around 11,000 feet — so they're vulnerable to even extremely tiny increases in global temperature. The 2 percent temperature rise in the 20th century was enough "to put a lot of them out of business," says Auden Schendler, executive director of sustainability for Aspen Skiing, which operates two resorts spread across four mountains.

But now Aspen's own season is getting shorter: "More balmy Novembers, more rainy Marches," Schendler says. "That's what we're seeing, and that's what the science suggests would happen. If you graph frost-free days, there are more and more in the last 30 years." Climate-change models also predict warmer nights. Aspen Skiing has noticed that happening too, and the problem here is that nighttime is when ski lodges use their water-spraying technology to make snow — "and if you make it when it's warmer it's exponentially more expensive." The increasing volatility of weather overall — another prediction of climate change — poses a particular danger for ski resorts, because they operate in the red most of the year, making up their deficit during the busy spring break in March. So if the weather is terrific for the entire winter but suddenly balmy during March break, that can ruin the whole fiscal year.

So what is this "Climate Desk" thing, anyway? It's a new collaboration between the Atlantic, the Center for Investigative Reporting, Grist, Mother Jones, Slate, Wired, and the new PBS current affairs show "Need to Know." And it's dedicated to reporting on climate change. But you probably already figured out that part. It's kicking off with a two-week series of pieces about how businesses are adapting to climate change that includes both Thompson's article and a piece by Felix Salmon explaining why business adaptation isn't even more widespread.

The main site is here. The RSS feed is here.  Or you can follow us on Twitter at theclimatedesk.