Kevin Drum

Is the Crisis in Ukraine About to Wind Down?

| Tue Apr. 15, 2014 9:03 AM PDT

I've been watching the unfolding events in Ukraine with the usual rising mix of apprehension and horror, but I haven't blogged about it much since I don't have anything to add in the way of insight or analysis. So instead I'll turn the mike over to Fred Kaplan, who does:

Contrary to appearances, the crisis in Ukraine might be on the verge of resolution. The potentially crucial move came today when interim President Oleksandr Turchynov said that he would be open to changing the country’s political system from a republic, with power centered in the capital Kiev, to a federation with considerable autonomy for the regional districts.

That has been one of Russian President Vladimir Putin’s key demands....If Putin can win this demand—and the political, economic, and cultural inroads it would provide—an invasion would be not just be unnecessary, it’d be loony. War is politics by other means, and a revamping of Ukraine’s power structure would accomplish Putin’s political aims by less costly means.

....Sending [NATO] fighter aircraft to Poland and the Baltic states, mobilizing warships to the Black Sea, ratcheting up sanctions with threats of more to come—all this sends a signal that the West won’t stand by. In fact, Putin has done more to rivet the NATO nations’ attention, and perhaps get them to boost their defense budgets, than anything in the past decade.

But Obama and the other Western leaders also know they’re not going to go to war over Ukraine. Putin knows this, too. At the same time, if he’s at all rational (and this is the worrying thing—it’s not clear that he is), Putin would calculate that escalation is not a winning strategy for him. He could invade the eastern slices of Ukraine, especially around Donetsk, but he couldn’t go much further. The move would rile the rest of Ukraine to take shelter under the EU’s (and maybe NATO’s) wing, and it would rouse the Western nations to rearm to an extent unseen in 20 years (and to a level that the Russian economy could not match).

I keep thinking that even from a nationalistic Russian point of view, the cost of invading and holding eastern Ukraine is simply too large. The game isn't worth the candle. And yet....who knows? Rationality is sometimes in short supply. I'd still bet against a Russian invasion, especially if Putin can get much of what he wants without it, but it would be a pretty iffy bet.

In any case, I wonder how long this "federation" will last? If Putin is smart, he can bide his time and just wait. A federated Ukraine could organically turn into eastern and western Ukraine with a bit of patience and without firing a shot. In the end, that would probably suit Russia's interests better than outright annexation.

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Cliven Bundy Exposes the Cravenness of the Modern Right

| Tue Apr. 15, 2014 8:12 AM PDT

Like a lot of people, Ed Kilgore is distressed at the outpouring of support on the right for Nevada rancher Cliven Bundy:

Call it "individualism" or "libertarianism" or whatever you want, but those who declare themselves a Republic of One and raise their own flags are in a very literal sense being unpatriotic.

That's why I'm alarmed by the support in many conservative precincts for the Nevada scofflaws who have been exploiting public lands for private purposes and refuse to pay for the privilege because they choose not to "recognize" the authority of the United States. Totally aside from the double standards involved in expecting kid-glove treatment of one set of lawbreakers as opposed to poorer and perhaps darker criminal suspects, fans of the Bundys are encouraging those who claim a right to wage armed revolutionary war towards their obligations as Americans. It makes me really crazy when such people are described as "superpatriots." Nothing could be more contrary to the truth.

The details of the Bundy case have gotten a lot of attention at conservative sites, but the details really don't matter. Bundy has a baroque claim that the United States has no legal right to grazing land in Nevada; for over a decade, every court has summarily disagreed. It's federal land whether Bundy likes it or not, and Bundy has refused for years to pay standard grazing fees—so a couple of weeks ago the feds finally decided to enforce the latest court order allowing them to confiscate Bundy's cattle if he didn't leave. The rest is just fluff, a bunch of paranoid conspiracy theorizing that led to last week's armed standoff between federal agents and the vigilante army created by movement conservatives.

The fact that so many on the right are valorizing Bundy—or, at minimum, tiptoeing around his obvious nutbaggery—is a testament to the enduring power of Waco and Ruby Ridge among conservatives. The rest of us may barely remember them, but they're totemic events on the right, fueling Glenn-Beckian fantasies of black helicopters and jackbooted federal thugs for more than two decades now. Mainstream conservatives have pandered to this stuff for years because it was convenient, and that's brought them to where they are today: too scared to stand up to the vigilantes they created and speak the simple truth. They complain endlessly about President Obama's "lawlessness," but this is lawlessness. It's appalling that so many of them aren't merely afraid to plainly say so, but actively seem to be egging it on.

Blood Moon!

| Tue Apr. 15, 2014 12:35 AM PDT

It turns out that timing is everything with the blood moon. We had a thin little haze of clouds passing across the sky here in Irvine, so I couldn't get a very sharp image, but at 11:24 pm, the moon was still disappointingly moon-colored. By 12:03 am, however, it was satisfyingly florid. Enjoy.

Big Government Run Amok Decides to Back Down

| Mon Apr. 14, 2014 3:46 PM PDT

The Washington Post gets results!

The Social Security Administration announced Monday that it will immediately cease efforts to collect on taxpayers’ debts to the government that are more than 10 years old.

....“I have directed an immediate halt to further referrals under the Treasury Offset Program to recover debts owed to the agency that are 10 years old and older pending a thorough review of our responsibility and discretion under the current law,” Social Security’s acting commissioner, Carolyn Colvin, said in a statement.

So there you have it. If your mother—maybe, possibly—got overpaid 40 years ago when you were a five-year-old child, the Social Security Administration will no longer seize your tax refund check in order to recover her alleged debt. Progress!

Anyway, Eric Posner says the government's legal position here was untenable all along. That's good to know.

Today Brings Good News/Bad News on Obamacare

| Mon Apr. 14, 2014 11:02 AM PDT

The CBO released a small bit of good news/bad news about Obamacare today. The good news: they now estimate that the 10-year cost of the program will be $104 billion less than they previously thought—which, in turn, was less than they had projected in 2010. This is primarily because exchange premiums have come in lower than CBO originally estimated, which means that federal subsidies will be lower.

The bad news: the lower cost of premiums is primarily because the quality of the plans coming from insurers is lower than CBO originally estimated: "The plans being offered through exchanges in 2014 appear to have, in general, lower payment rates for providers, narrower networks of providers, and tighter management of their subscribers’ use of health care than employment-based plans do. Those features allow insurers that offer plans through the exchanges to charge lower premiums (although they also make plans somewhat less attractive to potential enrollees)."

CBO didn't update its projection of Obamacare revenues, but if those don't change, it means that Obamacare will reduce the deficit even more than we thought.

But here's an interesting thing: CBO continues to project that Obamacare will lead to no short-term change in employer-based insurance. But the latest Rand poll suggests that employer insurance has increased by about 7 million since Obamacare enrollment started up last year. If that number turns out to be real, I wonder how that will affect CBO's budget estimates? It all depends on how this feeds into their models, but it seems like it would be a positive thing one way or the other.

How to Lose Money and Come Out OK Anyway

| Mon Apr. 14, 2014 8:37 AM PDT

TIAA-CREF is buying Nuveen Investments for $6.25 billion from Madison Dearborn, a private equity shop that bought Nuveen in 2007. Nuveen has performed poorly since then, but insiders say that the TIAA-CREF deal ensures that the Madison Dearborn will at least break even on its investment. Felix Salmon is gobsmacked after running through the numbers:

So here’s my back-of-the-envelope math: you buy a company for $2.7 billion in cash, plus debt which you refinance a few times. While you’re running the company, it loses a total of $2.4 billion. And then you sell the company for $1.75 billion in cash. Total going out the door: $5.1 billion. Total coming in, at exit: $1.75 billion. Net loss: some $3.35 billion, give or take.

All of which raises some big questions about the WSJ’s claim that Madison Dearborn “will have at least broken even on its Nuveen investment”. If that claim is even close to being true, then at the very least we can’t take Nuveen’s public filings at face value at all....This is worth remembering, when private-equity types (think Mitt Romney) claim that their interests are aligned with the interests of the companies they buy. That certainly doesn’t seem to have been the case here. Nuveen is being sold with about $1.5 billion more debt than it started with, and with cumulative losses under Madison Dearborn’s ownership of some $2.4 billion. That’s not a great legacy for TIAA-CREF to inherit. If Madison Dearborn really is breaking even on this deal, that only goes to show the enormous disconnect between the economics of private equity companies — the wealthy rentiers of society — versus the economics of the real-world companies they buy and sell.

Of course, one possibility is that Madison Dearborn is just putting a brave face on things and reporters are taking it at face value. More likely, though, there are tax games of some kind that allowed Madison Dearborn to strip a ton of value out of Nuveen over the past seven years. I suppose they're also benefiting from low interest rates, which means that Nuveen's refinanced debt is less onerous now than it was in 2007.

In any case Salmon's point is well taken. If you can break even after running a company as disastrously as Madison Dearborn has, there's something pretty badly rotten about the entire world of high finance. But then, you knew that already, didn't you?

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An Economist Answers Some of My Questions About "Capital in the 21st Century"

| Sun Apr. 13, 2014 9:40 AM PDT

On Thursday I posted a couple of very rudimentary comments regarding Thomas Piketty's blockbuster new book, Capital in the 21st Century. I had questions about Piketty's estimates of r (return on capital) and g (economic growth) in the past and—much more importantly—how they were likely to play out in the future. But all I had were amateur musings because I am, after all, only an amateur.

However, yesterday Brad DeLong tackled some of the questions I asked in a far more rigorous and disciplined way, teasing out a lot of unstated implications along the way—including the importance of various measures of r and how they relate to the probability of increasing future wealth concentration in the real world. It's a long post, and complex in places, but highly recommended. If you're willing to work your way through it, DeLong provides a framework for thinking about Piketty's model that helps you start to make sense of both the book and its conclusions.

POSTSCRIPT: I've gotten a couple of questions about why I seem unduly skeptical, or even harsh, about Piketty's book. It's obviously a landmark work, I don't really mean to be unfair. But it's a book with innovative and untested ideas that has obvious appeal to anyone left of center, and I think this is precisely the time to avoid unquestioning hosannas. Affinity bias makes us all sympathetic to Piketty's arguments, and that's why we should instead question it carefully and thoroughly.

It's Finally Time For a New Phone

| Sat Apr. 12, 2014 8:52 PM PDT

So I went out today to my local T-Mobile store to check out the new HTC One, and as far as I'm concerned they ruined it. It's now a gigantic slab, thanks to the 5-inch screen mania that's mowed down everything in its path over the past year. They should have kept the old size, even if it meant the screen might be a mere 4.8 or 4.9 inches.

So it's now off my radar, and I'm pretty much thinking I'll go ahead and get a Google Nexus 5 instead. Ironically, it also has a 5-inch screen, but it's nonetheless about the same size as the old HTC One. It's nowhere near as good looking, but it seems to be pretty functional and pretty reasonably priced. Anyone have any reason to warn me away from it?

Heartbleed is a Sucking Chest Wound in the NSA's Reputation

| Sat Apr. 12, 2014 8:01 AM PDT

On Friday, Bloomberg's Michael Riley reported that the NSA was aware of the Heartbleed bug from nearly the day it was introduced:

The U.S. National Security Agency knew for at least two years about a flaw in the way that many websites send sensitive information, now dubbed the Heartbleed bug, and regularly used it to gather critical intelligence, two people familiar with the matter said....Putting the Heartbleed bug in its arsenal, the NSA was able to obtain passwords and other basic data that are the building blocks of the sophisticated hacking operations at the core of its mission, but at a cost. Millions of ordinary users were left vulnerable to attack from other nations’ intelligence arms and criminal hackers.

Henry Farrell explains just how bad this is here. But later in the day, the NSA denied everything:

“NSA was not aware of the recently identified vulnerability in OpenSSL, the so-called Heartbleed vulnerability, until it was made public in a private-sector cybersecurity report," NSA spokesperson Vanee Vines told The Post. "Reports that say otherwise are wrong.”

The White House and the Office of the Director of National Intelligence echoed that statement Friday, saying neither the NSA nor any other part of the U.S. government knew about Heartbleed before April 2014....The denials are unusually forceful for an agency that has historically deployed evasive language when referring to its intelligence programs.

You know, I'm honestly not sure which would be worse. That the NSA knew about this massive bug that threatened havoc for millions of Americans and did nothing about it for two years. Or that the NSA's vaunted—and lavishly funded—cybersecurity team was completely in the dark about a gaping and highly-exploitable hole in the operational security of the internet for two years. It's frankly hard to see any way the NSA comes out of this episode looking good.

Friday Cat Blogging - 11 April 2014

| Fri Apr. 11, 2014 11:50 AM PDT

Here she is, the Queen of Sheba, keeping a watchful eye on her domain and her loyal subjects. Soon she will take a well-deserved nap.

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