Kevin Drum - July 2011

Banks Are the New Banks

| Wed Jul. 20, 2011 10:47 AM EDT

From the Wall Street Journal today:

Long envied as one of the savviest gamblers around, Goldman Sachs Group Inc. surprised Wall Street with a steep decline in trading revenue because it stopped rolling the dice...."I don't want to sugar coat it…Maybe we made a bad decision in taking too little risk," David Viniar, Goldman's chief financial officer, told analysts Tuesday. "I don't know."

But before you start feeling too sorry for them, there's also this:

In the second quarter, Goldman's revenue from trading bonds, commodities and currencies plunged 53% to $1.6 billion from $3.37 billion a year earlier. That badly bruised the New York company's bottom line, even though overall profit jumped 78% to $1.09 billion from an anemic year-ago quarter.

And this from the LA Times:

Just a year ago, banking executives argued vehemently against the most sweeping overhaul of financial regulations since the Great Depression, saying the law enacted then would stifle innovation and erode profits. But in the last two weeks, they have been reporting billions of dollars in profits — including a record quarter for Wells Fargo & Co. — with nary a word about how the so-called Dodd-Frank financial reform law was hindering them.

....On Tuesday, Wells Fargo, the nation's third-largest bank, posted record earnings of $3.9 billion for the second quarter. JPMorgan Chase & Co. reported last week that its revenue and profit were higher in the first half of this year than in the first six months last year, before Dodd-Frank was passed. Nor did the law seem to deter Goldman Sachs Group Inc., Bank of America Corp. and Citigroup Inc.

Dodd-Frank hasn't taken full effect yet — nor have new capital requirements — but this is an ominous sign anyway. In the long run, if banks end up as profitable as they were before the law was passed, it almost certainly means that dangerous behavior really hasn't been reined in significantly. In other words, despite the astonishing display of self-pitying doomsaying from Wall Street, nothing much has changed at all. As Felix Salmon said to me at lunch a few weeks ago, when we were talking about which segment of the financial industry was likely to cause trouble in the future (hedge funds? private equity? some brand new hidey hole in the shadow banking system?), "Banks are the new banks." Banks caused the last crisis, and they're all set to cause the next one too.

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Contraception Coming Soon to a Healthcare Plan Near You

| Wed Jul. 20, 2011 12:48 AM EDT

Here's yet another sign of the encroaching Muslim Kenyan socialist Sharia law hellscape that is Barack Obama's Amerika:

Virtually all health insurance plans could soon be required to offer female patients free coverage of prescription birth control, breast-pump rentals, counseling for domestic violence, and annual wellness exams and HIV tests as a result of recommendations released Tuesday by an independent advisory panel of health experts.

....Jeanne Monahan, director of the Center for Human Dignity at the socially conservative Family Research Council, said that many Americans may object to birth control on religious grounds. “They should not be forced to have to pay into insurance plans that violate their consciences. Their conscience rights should be protected,” she said.

Uh huh. Everyone should have the right to insist that they be covered by an insurance company that doesn't cover anything they disapprove of for other people. That sounds pretty sensible.

In any case, the rest of us look forward to joining the 21st century. This includes, by the way, virtually every single person that Jeanne Monahan thinks she's speaking for: "A Guttmacher study found that 98 percent of sexually active Catholic women and nearly 100 percent of evangelicals have used contraception at some point, compared to 99 percent of women overall." If that number is right, it sure doesn't sound like very many people actually object to birth control on religious grounds, as opposed to pretending they object, does it?

Are You Smarter Than a 12th-Grader?

| Wed Jul. 20, 2011 12:21 AM EDT

The latest National Assessment of Educational Progress results in geography were released today. So how did the youth of America do? You know the drill:

Geography Report Card Finds Students Lagging

Roger that. But with the pro forma wailing out of the way, how did our kids really do? Answer: Fourth-graders did better than in the past and 8th- and 12th-graders did about the same. But I gotta tell you: I went through the five sample questions for 12th-graders, and they were pretty damn hard. This was not "identify France on a map" stuff. I ended up getting them all right, but I was half guessing on some of them.

After I went through the samples, I checked out a wider variety of questions from the latest test, and they want you to identify continents by cross section, explain why Amazon deforestation is bad, understand how the Great Lakes were formed, pick out the probable result of poor irrigation practices, explain why Libya and Australia have a population density of six people per square mile, and then my favorite of all: "You are forming a United Nations committee to study the world crisis of desertification and what to do about it. List four different professions from which you will select your experts. Explain why you selected those specific professions and what each expert will be expected to contribute."

(Plus my favorite question from the 4th-grade test: "Identify two ways that helicopters are able to help people in a city." What exactly does this have to do with geography?)

You know what? I'm a pretty smart guy, and I read a lot and I keep up with things better than most people, but this was tough stuff. What's more, I can say with high confidence that I would have been clueless about at least half these topics when I was in high school. For one thing, I never took a geography course in high school. I took math, physics, German, history, English, and one elective. How could I have taken geography even if I'd wanted to? And of those other classes, only history even came close to teaching any of this stuff.

So I'm not really sure what to make of all this. People will read the headlines about these scores and think that kids can't read a map. And maybe they can't. But that's not what's being tested. They're asking some pretty sophisticated questions for a bunch of 17-year-olds, and frankly, I'm sort of surprised they do as well as they do.

Chart of the Day: Our 80-Year Love Affair with Healthcare

| Tue Jul. 19, 2011 5:09 PM EDT

Austin Frakt posts the chart on the right today, which shows healthcare spending as a function of GDP. The line is ramrod straight, which basically says that for 80 straight years, the more money we make, the more we spend on healthcare. Austin suggests there's a lesson here:

If, by action of politicians or the market, the health care spending curve is not bent, one might argue that this reflects our collective desire, our revealed preference. The history of health care spending in the US is consistent with the hypothesis that we view health care as a luxury good, one on which we spend more of our wealth as that wealth grows....The great question [this chart] suggests to me is that if health is a luxury good, why should we expect the health spending trajectory to change?

Roughly speaking, I think this is correct. Our level of healthcare spending is higher than in other countries because we have less government control over pricing and the market has allowed various actors (doctors, hospitals, insurance companies, pharmaceutical companies) to charge much higher rates than the rest of the world does. However, the growth of healthcare spending in the United States isn't wildly different from other advanced countries. What this says to me is that virtually everywhere on earth, when people make more money the first thing they want to spend it on is more and better healthcare. Collectively, whether via the market or via the political process, we've spoken loud and clear.

This will stop only when, collectively, we finally decide we're not getting enough extra benefit for the extra money we're spending. National healthcare systems have a built-in advantage on this score, since at least they make it fairly obvious to taxpayers just how much more they're being asked to pony up each year. In the United States this number is much fuzzier, since it's a combination of higher taxes, smaller pay increases at work, and rising copays.

Still, either way, healthcare costs aren't rising because we lack discipline or because we're stupid or anything like that. They're rising because we want more healthcare and, so far, despite all our bitching, we obviously feel that what we're getting is worth the price. That's starting to change a little bit, I think — thus the modest cost controls in PPACA — but only a little. Eventually it will change more, and only when that happens will we have any real chance of getting healthcare costs under control.

Tide Turning on Debt Ceiling Fight?

| Tue Jul. 19, 2011 3:25 PM EDT

Greg Sargent rounds up some evidence today that the tide of public opinion is finally shifting on the debt ceiling. This doesn't surprise me. It's easy to casually say "hey, maybe we should just default and see what happens," as a friend of mine did on July 4th, but it gets a lot harder to say that when more and more people start speaking up and explaining exactly what would happen. For a while that wasn't happening because, as Stan Collender says:

On the one hand, much of Wall Street is insisting that the whole fight is political theater and that Congress and the White house will work something out. On the other hand, congressional Republicans are insisting that Wall Street won't react negatively if a deal doesn't get done. In other words, financial markets aren't yet reacting because they think a deal is in the offing and the GOP isn't cutting a deal because it doesn't think Wall Street cares.

Of course, that's not the only reason the GOP isn't cutting a deal. Jon Chait points today to an example of one of my pet peeves, the "politicians in Washington" dodge. When news outlets report that "the Senate" did something or that "politicians" are in denial, they mask who's really responsible. William Cohan did that today in a column about the debt ceiling fight, and Chait ain't happy about it:

It's not "the politicians in Washington" who don't understand the risks of failing to raise the debt ceiling. It's the Republican Party. It was the Republican Party's idea to turn the debt ceiling vote from a symbolic opportunity for the opposition party to posture against deficits into a high-stakes negotiation over budget policy. It's the Republican Party, and only the Republican Party, which has numerous elected officials dismissing the dangers of failing to lift the debt ceiling....The problem is that various reporters, pundits, and business types appear intent on blurring that reality. That's an important reason why Republicans are playing debt ceiling chicken.

But now Wall Street is finally reacting and (most) reporters are finally telling the story pretty straight: gambling with the debt ceiling is really dangerous and it's the GOP that has its fingers on the button. Put all this together, and even Republicans in the heartland are starting to figure out that screwing around with the financial integrity of the country is a little more serious than filibustering a judge or holding symbolic votes on abortion funding. As we get closer to August 2nd, and the consequences become even clearer, I expect the polls to continue shifting. After all, Armageddon only looks interesting from a distance.

How the Game is Played

| Tue Jul. 19, 2011 1:44 PM EDT

Jonathan Bernstein writes today about the Republican Party's big discovery of the past couple of decades:

The GOP practice, for the last twenty years or so, has been to play the "game" of politics in part by looking through the rule book for strategies that go beyond the norms of politics but are allowed under the literal reading of the rules. Examples include mid-decade redistricting, the recall of a California governor for no particular reason, and impeaching Bill Clinton. And, most notably, filibusters in the Senate as a routine measure. The idea is that in a normal, healthy, political system there's always going to be some gap between the written Constitutional and statutory rules on the one hand, and norms and practices on the other. A clever political party can gain occasional short-term advantages through exploiting that difference.

Sometimes this stuff can be clever: it was Newt Gingrich and his fellow rabble-rousers, for example, who discovered the power of late-night C-SPAN harangues in front of an empty chamber. There had never been any kind of rule against giving speeches when no one was around, it's just that no one ever did it. Gingrich figured out that C-SPAN made it a useful tool, and he was off to the races.

Other changes are more subtle than the items that Jonathan mentions. For example, the "blue slip" process for approving judicial nominees had been a pretty stable gentleman's agreement for a long time before Orrin Hatch decided that it could be changed unilaterally depending on which party held the White House. Likewise, Senate leaders had always tacitly agreed not to directly campaign against each other until Bill Frist decided to fly to South Dakota and take on Tom Daschle in 2004. Frist didn't break any rules, he just decided to break a longstanding norm. Ditto for something that everyone thought was a rule, but turned out to be a norm after all: the 15-minute time limit for votes in the House. Democrats broke this rule once under unusual circumstances in the 80s, and a decade later Republicans were breaking it routinely. That actually was a rule, but Tom DeLay and others figured out that a rule with no one to enforce it (and who can enforce this particular rule, after all?) could be broken with no ill consequences.

More recently, both judicial and executive appointments have been routinely held up just because they can be. Hell, Senate Republicans have now promised to block any nominee to head the Consumer Finance Protection Bureau just because they don't like the law and want it changed. And then there's the latest example: the debt ceiling fight. In the past, this was pretty well established kabuki: the minority party gives a few speeches about the recklessness of the majority, the president weighs in to say the U.S. has to honor its debts, and then the debt ceiling is raised. But once again, Republicans have figured out that old traditions are just that: traditions. There's no law that says you can't change them.

So where does this go from here? What's the next Capitol Hill norm that some bright young up-and-comer will figure out is just a norm — one that only naive schoolboys need to pay attention to? Beats me. But whatever it is, Republicans will find it. And our political system will grind ever closer to a complete halt.

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Understanding Bachmann's Migraines

| Tue Jul. 19, 2011 12:27 PM EDT

Last night, in a post about allegations that Michele Bachmann suffers from migraine headaches that are "frequent" and "incapacitating," I said that this was a serious charge that required a serious response from the Bachmann campaign. A regular reader of mine also suffers from migraines, and he emails to say that it's not quite that simple:

I get them, and it's not such an easy thing to explain. Without medication, they knock me out as bad as they describe with Bachmann (although usually it's a day, not days). With medication, it's pretty manageable. The medication you take for an oncoming migraine (I take Relpax) is a miracle drug, and without it I probably couldn't manage in a job half as stressful as what I do. The preventative drugs I'm given are more of a crapshoot, that's just the unfortunate reality.

So like Bachmann, I'm on a shitload of drugs, and it's not an easy thing to explain; it's a lot of drugs and it's an everchanging regimen. I'm trying to taper off two of the drugs because a third seems to work better, and even when a preventative drug is no good, going off cold turkey induces more headaches. On top of it all, these drugs have primary uses for even more stigmatized medical conditions — two years ago my doctors talked me into taking one that's mainly for epilepsy, and not only did it not work, it put me in the hospital with an ulcer. Now one of the drugs I'm taking (but gradually trying to phase out) is mainly used for depression, something I didn't even know until I'd been on it for over a year.

So, needless to say, it's very easy to understand why she finds this hard to explain. For starters, the most effective thing is to be taking a lot of painkillers indefinitely, and that doesn't look good. Then you're on a boatload of preventative drugs that are also for things like epilepsy, depression, etc. No one really understands why the people who get these things at a severe level get them, or why it's different from a passing ache or pain. Plus, when you do get one that's not controlled, it's like someone flipped an off-switch on your body. In a situation where you don't have the luxury of lying down, you can power through on adrenaline, but you're still not the same person.

Look, I think you know that nothing is going to change my opinion that Michele Bachmann is a dangerous fruitcake. But this condition is very complicated and it doesn't sound like she's in any different pair of shoes than the many people — including many high performing professionals — who suffer from it. So, I guess this hits a nerve for me because this really is not evidence of her nature as a dangerous fruitcake, although it's easy for me to see how she will be unable to avoid that appearance. I think that ultimately this will do a lot of people who suffer from the same condition a disservice.

For the record, I don't think Bachmann's migraines have anything to do with her crazy ideas about how to run the country. But I do think that a condition that's potentially incapacitating during times of stress is very much an issue for a prospective president. We only learned after the fact about JFK's massive cocktail of medical problems, and it was probably just dumb luck that they never caused any serious problems. But it's not 1960 anymore. This might not be easy to explain, but it still needs to be explained. In a followup email, my correspondent agrees:

Of course it's relevant. Even if it had less of an impact than it does, running for President is an open-kimono exercise, so any desire to have some privacy around this is out the window. My fear though is that our very immature discourse combined with the still evolving courses of treatment could distort the depiction of this condition in two different directions: it's literally "in her head," because she's nutty; or it's so serious that it's disqualifying. My view as a sufferer is that it's all too real, but it's manageable like any other chronic health condition, like diabetes.

Sheep, Cows, and Priuses

| Tue Jul. 19, 2011 11:46 AM EDT

Matt Yglesias is startled by the chart below, which shows the greenhouse gas emissions produced by various kinds of food: "The carbon gap between lamb & beef on the one hand and pork & chicken on the other is larger than the gap between between pork & chicken and vegetarianism."

Ezra Klein reposts something from a column he wrote a while back:

Two researchers at the University of Chicago estimated that switching to a vegan diet would have a bigger impact than trading in your gas guzzler for a Prius. A study out of Carnegie Mellon University found that the average American would do less for the planet by switching to a totally local diet than by going vegetarian one day a week....A Montanan who drives 40 miles to work might not have the option to take public transportation. But he or she can probably pull off a veggie stew.

This, of course, highlights the genius of the best answer to all of this: a carbon tax. If you tax carbon, nobody makes these decisions for you. You make them for yourself just by deciding what you want to spend your money on. If a carbon tax increases the price of carbon-intensive activities, some people will prefer giving up their hot rod to going without beef. Some will prefer eating more vegetables to giving up their SUV. Some will end up doing neither and giving up something else. But whatever it is, each individual will reduce his or her carbon use in the way that's the least personally onerous. No regulation can do that and no PR campaign can do that, but a price on carbon can. And in addition to all the awesomeness of letting the market work its magic to reduce carbon emissions with minimum pain and maximum consumer surplus, it also produces a pot of money that can be used to motivate research into better energy alternatives for everyone. We are almost literally insane for not doing this.

Getting to the Point of No Return

| Tue Jul. 19, 2011 10:52 AM EDT

The FT's Neil Hume quotes Harvinder Sian of the Royal Bank of Scotland:

Spain has entered the danger zone for yield levels. The chart below shows the yield moves in the constant maturity 10y paper for the GIIPS countries. These markets traded a range between 6 per cent and 7 per cent but ultimately this proved to be a pause before the move to higher yields then accelerated. There is no consistent yield trigger level inside this range but market talk of point-of-no-return around the 6 ½% is not without foundation either.

....The conditions for a near death experience for the Euro are in place now, which in turn should finally galvanise a more serious policy reaction. In the interim, risk assets can be crushed.

This is not, repeat not, a good time to be screwing around with the possibility of defaulting on U.S. debt. Repeat: not, not, not. It's time for the Republican leadership to start facing reality and getting their troops in line. Playtime is over.

Wall Street Starts Getting Nervous About the Tea Party

| Tue Jul. 19, 2011 12:59 AM EDT

From the Wall Street Journal:

Worries about government debt rocked capital markets on both sides of the Atlantic Monday, as fears that the Greek crisis will spread combined with concerns at the standoff over the U.S. debt ceiling....Adding to the market woes were indications that, after months of shrugging off the debate over the U.S. debt ceiling, investors are getting edgy over Washington inaction ahead of an Aug. 2 deadline. The discomfort was reflected in the recent underperformance of the 30-year Treasury bond, traders and analysts said.

Hey, maybe investors are finally starting to understand that a big chunk of the Republican Party is really, truly batshit insane. They're not faking it! But here's a guess: all it will take to get the tea partiers in line is a thousand-point drop in the Dow. Suddenly, playing games won't seem like quite so much fun anymore, and it's about the only thing that seems to get their attention. I figure it should happen sometime around August 3rd or so.