Kevin Drum

Who Runs Pakistan?

| Wed Apr. 1, 2009 1:01 PM EDT
So who really runs Pakistan these days?  Foreign Affairs sponsored a roundtable of experts that produced this rollicking, contentious clash of opinions:

Sumit Ganguly: Is there any doubt about that? The army, for all practical purposes, has been and remains in charge....Shaun Gregory: I agree with Sumit on this. The civilian government is very weak. The Pakistani army retains de facto control of foreign policy, defense policy, internal security, and nuclear policy, and will defend its expanded economic interests....Ashley Tellis: Sumit has it dead-on. The army rules on all the critical issues important to it: the nuclear program, the budget, security policy, relations with key foreign partners....Aqil Shah: The military has withdrawn from exercising direct government power by passing the baton to elected civilians, as it has done several times in the past, but it would be naive to expect it to loosen its control over what it sees as its legitimate "structural" missions [...] Once the army chief signs off on a policy, the costs of disobedience can be prohibitively high....Stephen Cohen: The army cannot govern Pakistan but won't let anyone else govern it either. It's a chicken-egg situation, worsened by the total collapse of the economy and the withering away of state institutions.

Hmmm.  Reading between the lines, then, the answer is "the Pakistani army"?  Right?  So, to echo Freud, what does the army want?  Aqil Shah again:

Any desire to deal firmly with cross-border militancy is trumped by the military's perceived need to retain its ties to this or that militant group in order to counter Indian influence in Afghanistan. The army continues to fear that the United States could simply lose interest in Afghanistan once it captures the senior leadership of al Qaeda (as Washington did after the Soviet withdrawal from Afghanistan), leaving Pakistan exposed to Indian (and Russian) "encirclement".

....There appears to be a pervasive belief in the army, among both mid-level and senior officers, that the United States and India are destabilizing FATA [Federally Administered Tribal Areas] and the rest of the country as a prelude to depriving Pakistan of its nuclear weapons. Officers who have served in FATA have told me that they face a U.S.-Indian combined offensive and that the local Taliban receive their funds from across the border. The army might inculcate such beliefs in order to motivate its soldiers, but they also connect to the military's larger worldview. For the generals, the U.S.-Indian nuclear deal is proof of an evolving Indo-U.S., or even Indo-U.S.-Israeli, strategic alliance — not to mention American duplicity.

This is a point that Matt Yglesias is fond of making, and for good reason: we tend to think that foreign policy everywhere is focused on the United States, but it ain't so.  Pakistan obviously cares a lot about its relationship with America, but it cares a whole lot more about its relationships with India, China, Iran, and Afghanistan, which are right on their doorstep and are never going away.

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Stevens Walks

| Wed Apr. 1, 2009 12:12 PM EDT
Prosecutorial misconduct in the Ted Stevens case will apparently allow Stevens to go free:

The Justice Department filed court papers this morning asking a federal judge to toss out the conviction of former senator Ted Stevens (R–Alaska) on corruption charges.

....In a statement, Attorney General Eric H. Holder Jr. said he and other Justice lawyers had reviewed the case and "concluded that certain information should have been provided to the defense for use at trial."

...."The Department's Office of Professional Responsibility will conduct a thorough review of the prosecution of this matter," he added. "This does not mean or imply that any determination has been made about the conduct of those attorneys who handled the investigation and trial of this case."

It's a shame that Stevens is getting off, since the evidence very strongly suggests that he was guilty.  But misconduct by federal prosecutors is far too widespread, and it stays that way because it's almost never punished by anything more than a tonguelashing.  Good for Holder for sending a message that he takes it more seriously than that.

Travel to Cuba

| Wed Apr. 1, 2009 11:47 AM EDT
A sliver of good news out of Congress:

A bipartisan group of senators predicted Tuesday that Congress was ready to pass legislation to allow all Americans to travel to Cuba.

....Sponsors said the bill would free Americans to travel to the one place in the world they can't go and encourage Cubans to push for democratic reforms by exposing them to new people and information.

The trade embargo against Cuba has long outlived whatever usefulness it might have had.  It accomplishes nothing and has turned us into an international joke.  Still, it's well within the bounds of normal international relations.  I don't like it, but it's not fundamentally antidemocratic or an assault on basic freedoms.

The travel ban has always been in a separate class.  Autocracies and dictatorships control the movements of their subjects, but free citizens of a liberal democracy should be able to travel wherever they want. So whatever happens with the trade embargo, removing the travel ban should be a no-brainer.  This is America, not North Korea.

Tweet Tweet Tweet

| Wed Apr. 1, 2009 3:00 AM EDT
From the Guardian:

Consolidating its position at the cutting edge of new media technology, the Guardian today announces that it will become the first newspaper in the world to be published exclusively via Twitter, the sensationally popular social networking service that has transformed online communication.

....A mammoth project is also under way to rewrite the whole of the newspaper's archive, stretching back to 1821, in the form of tweets. Major stories already completed include "1832 Reform Act gives voting rights to one in five adult males yay!!!"; "OMG Hitler invades Poland, allies declare war see tinyurl.com/b5x6e for more"; and "JFK assassin8d @ Dallas, def. heard second gunshot from grassy knoll WTF?"

Alternatively, the Guardian, along with every other website on the planet, might be destroyed today by the Conficker worm. In which case you won't be reading this post anyway. They don't make April Fools day like they used to, do they?

Mark to Market

| Wed Apr. 1, 2009 1:34 AM EDT
The Wall Street Journal reports that FASB will vote soon on a proposal to loosen rules that force banks to value toxic assets at market prices:

The Financial Accounting Standards Board is proposing significant changes to its mark-to-market rules, allowing banks to set their own values for certain hard-to-value troubled mortgages, corporate loans and consumer loans. The new proposal, called FAS 157-e, is scheduled for a vote this Thursday.

The change was meant to assist U.S. banks after bankers complained current mark-to-market accounting rules forced them to undervalue their assets, by setting prices at deeply discounted, fire-sale values.

This is a complex issue, and it's true that mark-to-market can cause problems during financial panics as firms all start selling assets at once to cover losses, which in turn produces a spiral of plummeting prices, leading to losses, leading to more selling, leading to lower prices.  Rinse and repeat.  Unfortunately, the alternatives are generally worse, allowing banks to value assets using models that can be tweaked so egregiously that they bear only the vaguest relation to reality.  That's how IndyMac could claim it was "well capitalized" right up until the day it was taken over and shown to be a shell of its claimed self.

My tentative preference is to keep mark-to-market but soften its impact with a system of countercyclical regulatory forbearance.  The whole point of bank capital is to act as a cushion against losses, and in good times a bank might reasonably hold capital equal to, say, 8% of assets.  During a recession, as loans and other assets lose value, that capital is going to get eaten way, but then, that's the whole point of having it in the first place.  So why force asset sales in order to maintain arbitrary capital ratios when capital erosion is entirely predictable during recessions?  Why not instead require higher capital ratios in good times (which would reduce leverage and slow down credit expansion) and lower capital ratios in bad times (which would reduce fire sales and encourage banks to expand credit)?

Because banks are so good at lying about the quality and value of their assets, we're better off with a system that gives them as little leeway as possible when it comes to recognizing losses.  We're should force them to face the music honestly, but then allow a certain amount of capital forbearance during economic downturns.  Mark-to-market isn't appropriate for every asset, but it's appropriate for most.  It should be watered down as little as possible.

Rachel Maddow Live!

| Tue Mar. 31, 2009 3:27 PM EDT
OK, it's not live.  She was live at a MoJo fundraiser on Saturday, though, and we taped her conversation with editors Clara Jeffery and Monika Bauerlein so everyone else could see it too.  The clip on the right is all about Maddow's secrets to ratings success, and there are more clips here.  View them all!

It was a packed event, and when it was over I was almost afraid Maddow was going to get trampled by the throngs of fans who wanted their picture taken with her.  Marian and I didn't stand a chance against the crowd, though, so no pictures of us I'm afraid. Maybe next time.

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Can Obama Get Anything Done?

| Tue Mar. 31, 2009 3:18 PM EDT
John Dickerson says Obama has (justifiably) given up on working with Republicans:

At a recent lunch with reporters, Budget Director Peter Orszag was asked if he could name a useful idea submitted by Republicans. He couldn't — and didn't even pretend he'd considered many. When House Republicans put out a budget last week, Press Secretary Robert Gibbs said, "The party of no has become the party of no ideas."

Gibbs probably wouldn't have said that 40 days ago, when the White House was treating the issue of bipartisanship more carefully. But after party-line votes in the House and Senate and minimum flexibility from GOP leaders, Obama aides say that Republicans are not "acting in good faith." Which leads them to two conclusions: One, their acts of conciliation buy them nothing in negotiations with the GOP; two, and more important, they've decided they'll pay no political price for acting in a more partisan fashion.

Jon Chait says he's not getting much support from his own party either:

The last Democrat who held the White House, Bill Clinton, saw the core of his domestic agenda come to ruin, his political support collapse, and his failure spawn a massive Republican resurgence that made progressive reform impossible for a decade to come. The Democrat who last held the White House before that, Jimmy Carter, saw the exact same thing happen to him.

At this early date, nobody can know whether or not Barack Obama will escape this fate. But the contours of failure are now clearly visible. In Obama's case, as with his predecessors, the prospective culprit is the same: Democrats in Congress, and especially the Senate. At a time when the country desperately needs a coherent response to the array of challenges it faces, the congressional arm of the Democratic Party remains mired in fecklessness, parochialism, and privilege.

A landslide victory isn't what it used to be, I guess.  Opposition has made Republicans near monolithic, while victory has done nothing for Democrats except sharpen their longtime infatuation with the circular firing squad.  It's times like this that make me wish I were a heavy drinker.

Sending a Message

| Tue Mar. 31, 2009 1:55 PM EDT
Jeffrey Goldberg talks to Israel's new prime minister and reports back:

In an interview conducted shortly before he was sworn in today as prime minister of Israel, Benjamin Netanyahu laid down a challenge for Barack Obama. The American president, he said, must stop Iran from acquiring nuclear weapons — and quickly — or an imperiled Israel may be forced to attack Iran’s nuclear facilities itself.

....In unusually blunt language, Netanyahu said of the Iranian leadership, “You don’t want a messianic apocalyptic cult controlling atomic bombs. When the wide-eyed believer gets hold of the reins of power and the weapons of mass death, then the entire world should start worrying, and that is what is happening in Iran.”

....Neither Netanyahu nor his principal military advisers would suggest a deadline for American progress on the Iran nuclear program, though one aide said pointedly that Israeli time lines are now drawn in months, “not years.” These same military advisers told me that they believe Iran’s defenses remain penetrable, and that Israel would not necessarily need American approval to launch an attack. “The problem is not military capability, the problem is whether you have the stomach, the political will, to take action,” one of his advisers, who spoke on condition of anonymity, told me.

I don't believe Israel has the military means to take out Iran's nuclear facilities.  Hell, even the U.S. only barely has the means.  So why is Netanyahu bluffing like this?  To put pressure on Obama, obviously.  But to what end?  Why go out of his way to start off his relationship with Obama with warnings and threats?  This isn't a smart move on his part.

Keeping Banks Small

| Tue Mar. 31, 2009 1:19 PM EDT
Given all the problems caused by banks too big to fail, should we just put a cap on bank size and be done with it?  Rortybomb says big banks don't charge lower interest rates, Steve Waldman says big bank size is a proxy for a lot of other problems, and Felix Salmon agrees with all of the above even if it's true that "there are no good and politically-feasible answers" for putting American banks on a diet.

But let's say this is all true, and that somehow it did become politically feasible to cap bank size.  What would be the result?  What follows is a little scattered, but maybe some other people who understand the industry better than me can pick it up where I leave off and provide some better analysis.

Felix suggests a cap of $300 billion in assets.  Fine.  But a cap on assets necessarily implies a cap on liabilities, and that means deposits are effectively capped too.  Let's call the deposit cap $200 billion in round numbers.  That means the end of nationwide banking since no bank that size can serve the entire country, but maybe you're OK with that.  A small price to pay etc. etc.

So here's what I wonder: what happens when you have a whole bunch of banks all operating at their maximum allowed size?  Do they keep taking in money but just sitting on it?  Of course not.  Do they essentially shut down, not taking any new customers?  What about natural growth among existing depositors?  (For that matter, what about natural asset growth?)

Even more important, what happens when banks can't compete with each other by growing?  What would they compete on?  My guess is that they'd compete on keeping the biggest, most profitable customers and would pretty much lose interest in smaller customers.  So small depositors would find themselves increasingly unwelcome, paying higher fees and penalties, having a harder time securing loans, and so forth.  After all, what incentive would a capped bank have to treat small depositors decently if they don't really want them in the first place?

Now, it might be that none of this would be a problem.  Capped banks would still compete with other capped banks to some extent, and unhappy customers could presumably still leave for smaller banks, who would compete for their business.  This is where I'd be interested in hearing from more knowledgeable people.  If you game this out, what does the industry end up looking like?  A regulated electric company that's effectively limited by the size of its service area?  A monopoly cable company?  A bunch of networks of loosely affiliated midsize banks?  Or what?  Anybody have a good idea?

Our Century's Hoover

| Tue Mar. 31, 2009 12:15 PM EDT
Back when my mother was a girl, the house would be silenced whenever "Mr. Hoover" gave a speech on the radio.  Which he did.  Often.  Sure, he had been repudiated at the polls by historic margins, but he was bitter and angry over FDR's policies and insisted on making sure everyone knew it for years and years after his defeat.

Well, I guess every generation needs its own Hoover.  It looks like John McCain is ours.