Kevin Drum

Quote of the Day - 4.3.09

| Fri Apr. 3, 2009 2:01 PM EDT
From Barack Obama, at a meeting with bank CEOs last week:

“My administration is the only thing between you and the pitchforks.”

That's what FDR said too, and the captains of industry didn't believe him either.  But he was right, and for better or worse, Obama probably is too.

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Gaming Geithner

| Fri Apr. 3, 2009 1:23 PM EDT
Via the Wonk Room, the Financial Times reports on plans for banks to game Tim Geithner's toxic waste plan by bidding on each other's assets:

US banks that have received government aid, including Citigroup, Goldman Sachs, Morgan Stanley and JPMorgan Chase, are considering buying toxic assets to be sold by rivals under the Treasury’s $1,000bn (£680bn) plan to revive the financial system.

....Wall Street executives argue that banks’ asset purchases would help achieve the second main goal of the plan: to establish prices and kick-start the market for illiquid assets.  But public opinion may not tolerate the idea of banks selling each other their bad assets. Critics say that would leave the same amount of toxic assets in the system as before, but with the government now liable for most of the losses through its provision of non-recourse loans.

Administration officials reject the criticism because banking is part of a financial system, in which the owners of bank equity — such as pension funds — are the same entities that will be investing in toxic assets anyway. Seen this way, the plan simply helps to rearrange the location of these assets in the system in a way that is more transparent and acceptable to markets.

Italics mine.  Look: I'm no financial rocket scientist, but I'm at least a halfway reasonable judge of bullshit.  Are the Treasury boffins seriously suggesting that the aim of their plan is merely to "rearrange" the assets from one distressed bank to another?  Someone might want to take a wee look at public opinion on this before they put their feet any further in their mouths trying to explain why this is such a great idea.  It's not gonna fly, folks.

Gay Marriage in the Heartland

| Fri Apr. 3, 2009 12:58 PM EDT
The Iowa Supreme Court has decided unanimously that a law banning same-sex marriage violates the state constitution.  Basically, the court made a common sense ruling that the Iowa ban did indeed discriminate on the basis of sexual orientation:

Our responsibility [] is to protect constitutional rights of individuals from legislative enactments that have denied those rights, even when the rights have not yet been broadly accepted, were at one time unimagined, or challenge a deeply ingrained practice or law viewed to be impervious to the passage of time....As Justice Oliver Wendell Holmes poignantly said, “It is revolting to have no better reason for a rule of law than that so it was laid down in the time of Henry IV. It is still more revolting if the grounds upon which it was laid down have vanished long since, and the rule simply persists from blind imitation of the past.”

....[E]qual protection before the law demands more than the equal application of the classifications made by the law. The law itself must be equal. [...] In other words, to truly ensure equality before the law, the equal protection guarantee requires that laws treat all those who are similarly situated with respect to the purposes of the law alike.

....It is true the marriage statute does not expressly prohibit gay and lesbian persons from marrying; it does, however, require that if they marry, it must be to someone of the opposite sex. Viewed in the complete context of marriage, including intimacy, civil marriage with a person of the opposite sex is as unappealing to a gay or lesbian person as civil marriage with a person of the same sex is to a heterosexual. Thus, the right of a gay or lesbian person under the marriage statute to enter into a civil marriage only with a person of the opposite sex is no right at all....By purposefully placing civil marriage outside the realistic reach of gay and lesbian individuals, the ban on same-sex civil marriages differentiates implicitly on the basis of sexual orientation.

That's nicely and plainly said.  Very midwestern.  The court then went through the usual list of reasons for banning gay marriage (maintaining traditional marriage, promotion of optimal environment to raise children, promotion of procreation, promoting stability in opposite-sex relationships) and concluded that none of them had enough substance to overcome obvious discrimination against a relatively powerless class.  And that was that.

So for now, anyway, Iowa has gay marriage and California doesn't.  Who would have guessed?

Deconstructing Evan Bayh

| Fri Apr. 3, 2009 12:19 PM EDT
What is his deal, anyway?  Ezra Klein tries to figure it out with logic here and statistics here.  But the mystery only grows deeper.

Employment Update

| Fri Apr. 3, 2009 12:04 PM EDT
In short: it's bad.  We're losing lots of jobs and we're losing them fast.  Jonathan Stein parses the numbers.  Calculated Risk provides the chart below.  Brad DeLong says we need a bigger stimulus.

Obama's Deal

| Fri Apr. 3, 2009 11:53 AM EDT
I note for the record that every major paper — the LA Times, New York Times, Washington Post, Wall Street Journal, and McClatchy — has a front page story today mentioning Barack Obama's diplomatic coup in brokering a deal to "take note" of tax havens instead of directly recognizing them.  The White House must really be anxious to make sure everyone knows about this.

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Making Money the Old Fashioned Way

| Fri Apr. 3, 2009 11:22 AM EDT

Suppose Congress passed a bill that gave you a tax credit if you mixed in some alternative fuels — ethanol or biodiesel, say — with your ordinary gasoline.  That's actually a dumb idea, probably, but at least it's pretty understandable.  In theory, the alternative fuel is greener than the fossil stuff, so creating the mixture is good for the environment and the government should encourage its use.

But what if there were an industry that already used a 100% alternative biofuel?  Could they qualify for the tax credit by mixing in some fossil fuel?  Obviously that's not what Congress intended, but hey — a mixture is a mixture.  The law doesn't say how you have to get there because it never occurred to lawmakers that anyone would do it this way.

But this is America!  Of course there's someone who will do this.  The paper industry, it turns out, depends on an elegant process in which wood pulp is separated into cellulose fiber and a sludge called "black liquor," which is then used to generate energy for the process.  Neat.  Chris Hayes explains what happened next:

By adding diesel fuel to the black liquor, paper companies produce a mixture that qualifies for the mixed-fuel tax credit, allowing them to burn "black liquor into gold," as a JPMorgan report put it....In fact, the money to be gained from exploiting the tax credit so dwarfs the money to be made in making paper — IP lost $452 million in the fourth quarter of 2008 alone — that the ultimate result of the credit will likely be to push paper prices down as mills churn at full capacity in order to grab as much money from the IRS as it can.

If there's a cloud hanging over the elation in the industry, it's the sneaking suspicion that once Congress gets wind of this racket, it will shut it down. "The one comment I do get from people [in the paper industry]," says [Brian] McClay, "is whether it's going to be rescinded or redrawn before the end game.

....So far, though, to the surprise of McClay and others, there's been not a peep from Capitol Hill.

This is American ingenuity at work.  You'd only be making a mistake if you thought it was anything unusual.  In fact, this kind of tax engineering is so commonplace that the spokesperson for International Paper doesn't even see the need to defend it.  "It is what it is," she shrugged when Chris called for comment.  And indeed it is.

CEO Blues

| Fri Apr. 3, 2009 1:58 AM EDT
The Wall Street Journal reports that CEO pay was down a whopping 3.4% last year.  But wait!

CEO compensation decreased more sharply at banks and brokerages, long the source of some of the biggest paychecks. Median annual cash compensation for CEOs in the financial industry fell 43%, to $976,000. Total direct compensation fell 14.2%, to a median $7.6 million.

So that's what happens when you destroy the global financial system: your pay goes down 14% to a mere $7.6 million per year.  I guess we showed them, didn't we?

Having the Right Enemies

| Thu Apr. 2, 2009 9:13 PM EDT
Richard Scott is rich, conservative, and hates universal healthcare.  He's all about "patients' rights," you see, and intends to spend a big chunk of his fortune making sure people know it.  But if he intends to play the role of shady financier to the anti-reform crowd — well, that's fine by me:

Once lauded for building Columbia/HCA into the largest health care company in the world, Mr. Scott was ousted by his own board of directors in 1997 amid the nation’s biggest health care fraud scandal.

....“He’s a great symbol from our point of view,” said Richard J. Kirsch, the national campaign manager for Health Care for America Now. “We cannot have a better first person to attack health care reform than someone who ran a company that ripped off the government of hundreds of millions of dollars.”

Conservative health care activists, while glad to have a potential ally willing to spend $5 million out of his own pocket, are not fully embracing Mr. Scott....“I just don’t understand why he would be a messenger people would listen to,” said Charles N. Kahn III, who was a senior executive with the insurance industry group that ran the “Harry & Louise” advertisements credited with helping to kill the Clinton plan 15 years ago but who is working for a deal now. “I don’t think people are waiting to hear from him.”

....Mr. Scott has said his sole policy interest is to see to it that whatever overhaul Mr. Obama and Congress consider does not move the country toward a socialized system and away from what he calls his four pillars of reform: “choice, competition, accountability and personal responsibility.”

Ah, yes: competition and accountability.  Let's talk about that, shall we?  Or, rather, let's outsource it to our very own Blue Girl, who just happens to have worked at HCA back when they were bilking the taxpayers out of millions of dollars.  If you want to know how they did it, she's got the story right here.  It was simple!  And it'll remind you of Enron, IndyMac, AIG, and all the other bright lights of competition and accountability in corporate America that we've come to know and hate.

And for a real zeitgeist blast, there's also this: Scott steadfastly maintains that he did nothing wrong, and for his current venture he's hired the same PR firm that represented Swift Boat Veterans for Truth in 2004.  Central casting could hardly do better.  The wingers really know how to pick 'em, don't they?

Great Moments in Diplomacy

| Thu Apr. 2, 2009 5:52 PM EDT
McClatchy's Steven Thomma reports that things were tense at the G-20 meeting until Barack Obama stepped in to save the day.  Listen and learn, grasshopper:

Heading into the summit's final hour [] it appeared that the group would fail to reach a consensus, as French President Nicolas Sarkozy pushed to have the G-20 spotlight offending tax havens based on a list published Thursday by the Organization for Economic Cooperation and Development, and China objected, largely because it doesn't belong to the OECD.

That was when Obama, long a champion of ending or curbing tax havens, decided to float a compromise and pulled Sarkozy aside....Obama proposed that the G-20 merely "take note" of the OECD list, thus opening the door to implicit but not direct endorsement of that list.

....Obama then met with Chinese President Hu Jintao and Sarkozy in a corner of the summit meeting room, as the other world leaders waited. Upon the trio's reaching agreement, the G-20 summit then agreed to note the list of tax havens.

I guess I shouldn't make fun of this stuff.  The world is what it is.  But seriously: today's big ruckus was about whether to "spotlight" tax havens or to merely "take note" of them?  Jeebus.

Of course, this is all based on the word of an anonymous White House official who's got a vested interest in making Obama look like a diplomatic powerhouse.  And this business of China objecting to an OECD list because it doesn't belong to the OECD is almost certainly bogus.  (More likely it's because Macao and Hong Kong are tax havens and China isn't keen on having them cleaned up.)  So who knows if this story is even true?

But it sounds disturbingly plausible.  Of such stuff are diplomatic communiqués made.