Kevin Drum - May 2011

Friday Cat Blogging - 6 May 2011

| Fri May 6, 2011 1:58 PM EDT

Domino was sunning herself in the doorway yesterday — it's been in the high 80s all week here — and I happened to have the camera out when Inkblot decided he wanted to go inside. What a hulking presence! Domino is obviously not excited by the idea of letting him by, but as it turned out, all went smoothly. Over on the right, however, we see how to make Inkblot look positively puny: just put him inside a gigantic garden pot. Perspective is everything.

Need more cats? Check out Slate's "The Cats of War." Good stuff.

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No, We Will Never Be Oil Independent

| Fri May 6, 2011 1:41 PM EDT

Republicans have lately ratcheted up their "Drill Baby Drill" rhetoric, and they can now frequently be found claiming that the United States has enormous oil reserves that could make us energy independent if only we opened up drilling everywhere within shouting distance of our borders. This came up yet again during last night's Republican debate and I briefly thought about mentioning how inane this has all become in a blog post. But it was only a few minutes until dinner time, so I skipped it.

Luckily, Michael McAuliff at the Huffington Post has done it for me. You can click the link for details, but the bottom line is that if we damned the torpedoes and drilled like maniacs in every single oil-bearing formation in the country, it would....barely make a dent. Global oil prices would hardly respond at all and we'd continue to import huge amounts of oil every day.

We do have lots of coal, and we also potentially have lots of natural gas depending on whether fracking can be done without destroying the environment. The jury is still out on that. But oil? Forget it. We just don't have very much no matter how crazy we go.

The bin Laden Announcement

| Fri May 6, 2011 12:48 PM EDT

If President Obama had delayed the announcement of Osama bin Laden's death, it might have given the CIA more time to trawl through the data seized in the raid and track down other al-Qaeda leaders. So why announce it right away?

Following the operation, officials across U.S. government agencies told their Pakistani counterparts what had happened. As they did, the U.S. government was considering not immediately announcing that they had killed bin Laden, a U.S. official tells Time. But the Pakistanis, uncomfortable with having the information leak out slowly, “encouraged the United States to go public right away,” according to the U.S. official.

That's sort of interesting. Most likely, though, it wasn't so much that the Pakistanis "encouraged" us to announce the raid quickly as it was that they made it clear that the chances of keeping the raid secret were close to zero. Not only was there that downed helicopter in the middle of Abbottabad, but bin Laden's wife and daughter were in Pakistani custody, and word of that would almost certainly leak through ISI or other military sources almost instantly. At least, that's my best guess.

Old Hidden Fees, Meet New Hidden Fees

| Fri May 6, 2011 11:56 AM EDT

David Lazarus writes about Bank of America's latest attempt to improve its bottom line via hidden fees:

In the past, BofA would charge 90 days worth of interest for early withdrawals from a CD good for 12 months or less. In other words, a $10,000, 12-month CD with an annual yield of 0.3% would entail an early withdrawal penalty of about $7 if you took out the entire amount.

Now BofA is charging a flat $25 plus 1% of the amount withdrawn for CDs with terms under 12 months and 3% for longer terms.

That means the early withdrawal penalty for that same $10,000, 12-month CD now runs $125 — a nearly 1,700% increase. The penalty for a five-year, $10,000 CD is $325 — a roughly 1,600% increase.

This is yet another example of a fee that (a) most people don't really know much about, (b) most people don't think they'll ever incur, and (c) generally gets paid by people in some kind of distress. In the modern banking industry, that makes it a perfect target for a huge increase. They will do anything — anything — to avoid charging simple, flat, open fees. That would require actual competition with other banks, after all.

Unfortunately, I don't really know what the answer to this is. I have a visceral aversion to doing business like this, but I also understand why they do it: any bank that charged simple, flat, annual fees would lose all of its good customers, who would migrate to banks that make most of their money from penalty fees that they'll never have to pay. Bad customers, conversely, would eventually migrate to the bank with flat fees as they came to realize that it was a better deal for them. So the nice bank would have lots of bad customers and the evil bank would have all the good customers.

If every bank charged simple, open fees, there would be an equilibrium of sorts. But how do you get there? And should we even try? I'd like to, but I can't pretend it's very likely to happen, or even that it's in the top 20 problems facing the poor. So here we stay.

Republicans and Medicare

| Fri May 6, 2011 11:18 AM EDT

Proposing to gut Medicare has been politically disastrous for Republicans, and it was pretty obvious that it was going to be a disaster even before they voted on it. So why did they do it? Jonathan Bernstein and Jon Chait offer a few possible reasons:

  1. Fear of primary challenges.
  2. Didn't realize it would be unpopular.
  3. Incompetence.
  4. Creates leverage for budget negotiations.
  5. Helps their deficit narrative.
  6. Makes it easier to pass if they win the presidency in 2012.

Well, sure, I guess it could be any of those things. But Jon Chait almost certainly nails the real reason at the end of his post: "I think Republicans more likely just got caught drinking their own Kool-Aid about how the public agrees with their vision."

Yep. It's the nature of political parties to overreach now and again, but usually they learn from their overreaching. Democrats, for example, have wanted to pass universal healthcare for decades, but they've learned from their losses and introduced steadily more moderate plans each time around. Eventually they finally passed one. But Republicans never seem to get it. They win a big victory (or even a not-so-big victory) and then see sugar plums dancing in front of their eyes when they read the poll numbers. America is a conservative country! Now let's cement their support by being real conservatives!

But America, as always, is ideologically (moderately) conservative and operationally (moderately) liberal. This hasn't changed much since the Nixon era, but Republicans just can't seem to wrap their heads around it. So Ronald Reagan implodes over Social Security in 1982, Newt Gingrich implodes over Medicare in 1995, George Bush implodes over Social Security in 2005, and the tea party Republicans implode over Medicare in 2011. Americans, in the least surprising news ever, still don't trust Republicans to screw around with Medicare or Social Security. Even Republicans don't trust Republicans to do it. Probably it's because Republicans have hated both programs from the beginning and keep trying to wreck them every time they get their trigger fingers anywhere close to the levers of power.

What makes this even weirder is that in just the past decade Republicans have helped their political cause by standing up for Medicare: first in 2003 when they passed the prescription drug plan and then in 2010 when they won a big House majority by beating up Democrats for cutting Medicare. But despite all this, they still don't get it. They're still convinced that someday Americans are going to blink their eyes and suddenly agree that Social Security and Medicare are liberal boondoggles that need to be privatized and slashed. It's just an astonishing unwillingness to accept reality.

Good News, Bad News

| Fri May 6, 2011 10:27 AM EDT

Yesterday we had a slew of bad economic reports, including a huge rise in the number in new unemployment claims. Today we have good news: the number of new jobs is up strongly. Conclusion: who knows? Basically, we're undergoing a fragile, unsteady recovery, and I'm not sure you can say an awful lot more than that with any confidence. Steve Benen's chart showing the long-term trend is below.

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Slumlord Millionaire

| Fri May 6, 2011 5:00 AM EDT

A couple of days ago the Los Angeles city attorney's office sued Deutsche Bank. Why? Because it's a slumlord:

The Frankfurt, Germany-based bank has foreclosed on more than 2,000 homes over the last four years in neighborhoods across the city, according to the suit — many concentrated in the northeast San Fernando Valley, northeast Los Angeles and South Los Angeles.

Los Angeles officials say the bank has been a dreadful landlord and neighbor. Prosecutors say that during a yearlong investigation, they found evidence that Deutsche Bank had illegally evicted some tenants, let others live in squalor and allowed hundreds of unoccupied properties to turn into graffiti-scarred dens for squatters, gang members and other criminals.

Deutsche Bank, unsurprisingly, is passing the buck: they say the party responsible for keeping up foreclosed houses is the loan servicer, not the bank. But loan servicers, who make their money from the fees they collect during the foreclosure process, are notoriously unwilling to spend money once the foreclosure is finished, and they're also notoriously hard to prosecute. So Los Angeles is trying a different tack: holding the ultimate owner of the property—Deutsche Bank, in this case—responsible for the condition of their property. They're the ones who hired the slumlord, after all.

All I can say is: good for them. The foreclosure mess of the past three years has been one of the biggest black marks on both the banking industry and the Obama administration, which has essentially punted the entire issue, hoping that if it kicked the can down the road long enough the problem would just fade away as the economy improved. HAMP, its primary program for loan modifications, has not only been a miserable failure on its own merits but has failed to change the incentives in the housing industry, which are almost Dickensian in the way they reward the most egregious possible behaviors. As Mike Konczal put it a few months ago, "Obama's Treasury team took a system that had a terrible design and doubled-down on it."

The problem is simple: the HAMP program provides only modest incentives for banks to perform the kinds of loan modifications that might genuinely help distressed homeowners. Opposed to that are the lucrative fees that loan servicers make by stringing homeowners along—fees for insurance, appraisals, title searches, legal services, etc.—and then eventually allowing them to default anyway. Loan modifications, even with the HAMP incentives added in, are still net money losers. There's way more money to be made by offering homeowners a sliver of hope, collecting fees along the way, and then foreclosing after all. Peter Goodman lays out the gruesome details here.

There are plenty of ways we could change those incentives, but we haven't done any of them. So Los Angeles is trying to change them on its own. If banks are required to maintain foreclosed properties properly, that suddenly makes foreclosure a less appealing prospect and the financial incentives start to tip in the direction of making a loan modification. Sure, you take a small hit, but you avoid the cost of not being ultimately responsible for maintenance and upkeep.

Maybe it'll work. Given the bottomless legal resources of big banks, I wouldn't bet the ranch on it. But it's worth a try. Right now the foreclosure industry is practically designed to make as much money from people's misery as possible, and more misery means more money. Anything that can turn those incentives around is a step in the right direction. Here's hoping LA, as it's so often been in the past, is a trendsetter for the rest of the country.

Another Bubble Pops?

| Thu May 5, 2011 6:17 PM EDT

So, um, we had a rough day in the commodity markets:

A surging dollar and a collapse in oil prices roiled commodity markets, as fears grow that high costs for energy and raw materials are undermining the global economic recovery....That lack of confidence was pivotal in spurring a hectic retreat by investors who had bought commodities—particularly silver and oil—as a hedge against a steadily weakening dollar.

The New York Times elaborates:

 “Pop goes the bubble,” said Michael Lynch, president of Strategic Energy and Economic Research, a consulting firm. “It seems unlikely you will see any tightening in the market in the coming months. The worst of the political threats have passed us.”

....For the day, crude oil for June delivery tumbled $9.44 a barrel, or 8.6 percent, to settle at $99.80 in New York trading. Almost all commodities prices took a tumble on Thursday. Gold for June delivery dropped 2.2 percent, or $33.90, to $1,481.40 an ounce, while silver lost 8 percent or $3.148, to $36.24 an ounce. Other metals — including nickel, copper, palladium and platinum — all fell sharply. Coffee, corn, cotton, wheal and soybeans also dropped.

There's a sense in which this is almost good news. If the oil/commodity bubble pops now, it will cause some damage but it will probably be manageable. But if it had gone on for another six months or a year, the damage to the global economy could have been much greater.

This is only a few days worth of data, so take it with a grain of salt. Still, it does make you wonder if we really do have a global economy these days that's inherently built on bubbles of one kind or another. Our financial rocket scientists seem almost incapable of making money in a normal economy — making enough money to satisfy themselves, anyway — so instead they spend their time seeking out smallish bubbles and then working overtime to supercharge them enough to spin out some temporary wealth before everything crashes back down to earth. One of these days we might actually get serious about regulating leverage enough to slow this down, but it hasn't happened yet. Maybe another half dozen bubbles will finally do the trick.

Domestic Terrorism No Longer a Very Big Deal

| Thu May 5, 2011 5:21 PM EDT

Matt Yglesias on the possibility of retaliatory attacks from al-Qaeda in the aftermath of Osama bin Laden's death:

To me, the main thing we’ve learned about terrorism since 9/11 is that almost nobody living in the United States of America or any country from which you can travel to the USA without a visa (Canada, Western Europe, etc) actually wants to mount a terrorist attack. We’ve done a lot of homeland security since 9/11, but it’s obviously imperfect. You never see a terrorist detonate a bomb in an airport security line, you don’t see terrorists shooting up shopping malls, rogue drivers don’t plow their cars into crowds of pedestrians, etc. There are clearly lots of people eager to fight the United States in Afghanistan and other places, but those people either don’t want to come here or else they can’t. The idea that there’s some sleeper cell waiting for the right moment to strike was very plausible in September 2001, less so in October 2001, even less so in October 2002, and less and less and less and less plausible with every passing year.

Roger that. I think it's worth pointing out that strengthened security measures are probably partly responsible for this, since they make it a lot harder to pull off attacks of any significance. If you want to set off a bomb in an airplane, you either need to hide it in a toner cartridge or in your underwear or whatnot, and that's just inherently unreliable. Even car bombs are harder to make than you think, since the precursor elements are carefully tracked.

Still, the point stands. Obviously terrorists are always trying to think of new ways of creating havoc, and we have to respond to that. Broadly speaking, though, we have responded, and that response has been pretty effective. The United States doesn't have a lot of homegrown suicide bombers, and it's really, really hard for Afghan/Yemeni/Somali/etc. suicide bombers to get over here and do anything spectacular. We're almost certain to be attacked again, but it's equally certain that attacks will be infrequent and far less damaging than 9/11. We shouldn't orient our entire worldview around increased security, and we shouldn't scare ourselves into spending vast amounts of money on it.

At least, that's true for now. In the future, who knows? There might come a time when biological weapons become easy enough to make that our security calculus needs to change. But not right now.

Who You Calling Hot?

| Thu May 5, 2011 2:40 PM EDT

Back in 1985, a group of researchers decided to test the "hot hands" theory of basketball playing. That is, do players sometimes get hot, making shot after shot because they're hot, or do players have hot streaks just because statistically you're going to make a bunch of shots in a row sometimes? Their conclusion was clear: there's no such thing as hot hands. But athletes themselves, even really smart, analytical ones, have never been able to accept this. They know the feeling of being hot, and no pointy-eared academics can tell them otherwise. I once had a (really smart) boss who felt that way, for example, and Paul Waldman agrees:

After spending a few hundred hours in pick-up games, I'd say that real hot and cold streaks happened around one out of every eight or 10 games I played. Some games were better and some worse, but every once in a while, I'd have a game where I just couldn't find the basket, and every once in a while, I'd have a game when I couldn't miss.

Ball players know that feeling — the days when every time you go up for a shot, even before it leaves your hand you just know it's in the bucket....But if those good and bad days happen infrequently enough, from a statistical point of view, they look exactly like random noise. If you flip a coin a thousand times there will be runs where you'll get 10 tails in a row, and if you play a hundred games there will be some where you'll hit 10 shots in a row. They may look the same statistically, but that's only because the magical games are infrequent. But that doesn't mean that the player isn't playing differently during that game, in ways that are so subtle they're probably impossible to detect.

Hoo boy. First off, once every eight or ten games isn't infrequent at all. In fact, it's really, really frequent. And second, unless we're invoking some kind of quantum mechanical effect on our neurons, nothing in basketball is too subtle to detect. There's nothing that's even close to being too subtle to detect.

I'm not really picking on Paul here. (OK, maybe I am a little.) I just think it's interesting how unwilling most athletes are to accept the results of this study. The feeling of streakiness is so strong that we feel it just has to be true. In reality, though, most streakiness is just a combination of chance and chance. Chance #1 is the raw probability of hitting a bunch of shots in a row every once in a while. Chance #2 is what our opponents are doing. If, by chance, they make a bunch of bad plays, or happen to be guarding you badly, your shots are going to feel good. You'll have slightly better positions, slightly longer looks, and you'll make more shots. Adrenaline will do the rest.

But why did I say "most streakiness" can be explained this way? Why not "all streakiness"? Because there's always Joe DiMaggio. That 56-game hitting streak of his really was out of this world. Statistics can't explain that.

BY THE WAY: It's possible, of course, that the hot hands study has some methodological defect. I wouldn't bet on it since Amos Tversky was one of the co-authors, but you never know. On the other hand, it's also worth noting that they did four separate tests of streakiness and then added both a study of free-throw shooting and a controlled experiment with the Cornell basketball team. Result: nothing, nothing, nothing, nothing, nothing, and nothing. There's just no there there.

AND THIS: I believe the hot hands study is correct. Really. And yet....even I have to admit that it's hard to accept that players don't have good and bad games quite aside from their statistical chance of randomly doing well once in a while. It's just....hard.