Kevin Drum

Just a Little Off the Top

| Wed Mar. 11, 2009 6:45 PM EDT
Yesterday Citigroup announced that it had been profitable in January and February and the stock market rejoiced.  Citigroup shares jumped 50%.  But how about their bonds, probably a better measure of what the market really thinks of Citi's chances of surviving?  Answer: not so good.

U.S. bank debt has lost 7.8 percent and yields have jumped to record levels compared with benchmark rates in the past month....The concern among debt holders is reflected in Citigroup’s $789 million outstanding in 7.25 percent subordinated notes due in October 2010, which fell 7 cents today to 70 cents on the dollar and have lost 23.7 cents in the past three weeks.

Italics mine.  70 cents on the dollar, eh?  Basically, this means that Vikram Pandit's cheery memos notwithstanding, the market already figures that either (a) Citi will eventually be forced into some kind of debt-for-equity swap that will slash the value of their claims, or (b) the government will nationalize Citigroup and then decide not to pay off bondholders at par.  This is bad for current bondholders, but Felix Salmon thinks low bond prices will eventually attract the bottom feeders:

Increasingly they're going to start representing significant potential gains for people who are buying at today's levels and hoping to be paid off at par — paid off, that is, essentially by taxpayers. Since those people can be broadly characterized as hedge-fund managers, one can foresee a lot of Congressional pushback if a large number of hedgies start pulling in tens of millions of dollars just by playing the moral hazard trade. Or, to put it another way, it's a lot easier to impose a haircut when a haircut is priced in than when it isn't.

Right.  If hedge funds start buying up Citi's bonds at 70 cents on the dollar, hoping that eventually the bank will be nationalized and its obligations guaranteed by the U.S. government, they've probably got another thing coming.  It's one thing to pay off bondholders who invested years ago in good faith, but quite another to pay off speculators hoping to cash in on a taxpayer bailout.

Still, it's tricky.  After all, how do you tell the speculators apart from the other creditors?  You can't.  So either everyone gets a haircut or no one does.  And if everyone does, nobody quite knows what will happen.  Bottom line: buying Citi bonds at current prices might be a good deal, but only if you have nerves of steel.  Their future is murky indeed.

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Ross Douthat

| Wed Mar. 11, 2009 5:46 PM EDT

Marc Ambinder reports that the New York Times has hired his Atlantic colleague Ross Douthat as an op-ed columnist.  This is basically to take Bill Kristol's place as their #2 conservative columnist (alongside David Brooks) and it seems like a pretty good choice to me for a couple of reasons.  First, Ross has a fluid, intelligent writing style that's well suited to the 800-word op-ed format.  Second, he fits the post-Bush zeitgeist: he is, at core, a conservative Barack Obama.

What I mean is this: like Obama, he's always careful to acknowledge the arguments of his adversaries and to take them seriously.  Like Obama, he does this overtly and deliberately.  And like Obama, this is mostly for rhetorical effect: both of them use this technique to mask the fact that they rarely change their minds.  They might listen respectfully, but after they're done they go on doing whatever they intended to do in the first place.

This isn't a criticism (I don't change my mind very often either, after all).  In fact, it makes him a more than normally worthy dissenter to the Age of Obama.  His column should make for interesting reading.

Yet More Ways to Annoy You

| Wed Mar. 11, 2009 5:06 PM EDT
Some joyous news for web surfers today:

The Online Publishers Assn. on Tuesday released several new in-your-face advertising formats designed to be both more obtrusive and interactive.

Twenty-seven top Internet publishers — including the New York Times, CNN, CBS Interactive, ESPN and the Wall Street Journal — say they'll try the supersize ads in an attempt to get the attention of Web surfers who have learned to ignore banners.

....The three new types of ads are the "fixed panel," which looks like part of the page but scrolls up and down as a user does; the "XXL box," in which users can turn pages within the ad; and the "pushdown," which opens to display a larger ad.

In its press release, the OPA optimistically suggests that these stupendous new ads will "help stimulate a renaissance of creative advertising on the Internet."  Maybe so, but I suspect a renaissance of people throwing things at their computer screens is more likely.

But hell, I guess I can't blame them.  I mean, I work for a magazine that relies on web ads for part of its revenue, but I don't care.  I still do everything in my power to block the ads I can and ignore the ones I can't.  I used to unblock ads at, just so I'd know what was going on on my own site, but when our ad server started delivering GE ads that played a soundtrack every time they loaded, I couldn't take it anymore and finally blocked even that.

So I'm part of the problem.  But here's the real question this provokes: does general purpose advertising even work?  It's pretty clear that targeted ads do well: Google ads that are keyed to search queries, for example, or ads in specialty magazines with an audience that's genuinely eager to see what likeminded merchants have to offer.  But how about non-targeted stuff?

In the web world, we have strong evidence that it works poorly: the clickthrough rate on web banner ads is famously anemic.  So what makes us think that nontargeted TV or newspaper ads work?  There are ways to measure this stuff — the old reader response cards in magazines, post-purchase product surveys ("Where did you hear about Cranberry Pepsi Lite?"), and so forth — but they don't work all that well.  For the most part, marketeers do their best to target and then just pray that the rest of their advertising budget is doing some good too.

But in the web we finally have a medium where we can actually quantify the impact of nontargeted ads, and it turns out to be pretty low.  Everyone takes this to be a sign that the web is unusually hostile territory for general purpose advertising, but what if that's the wrong lesson?  Maybe the web is actually typical, and these ads don't really work very well anywhere else either.  Maybe.

Chart of the Day - 3.11.2009

| Wed Mar. 11, 2009 2:20 PM EDT
According to Gallup, Congress's approval rating went up 12 points last month and another 8 points this month.  At this rate, they might even hit 50% sometime this spring!  Apparently the American public likes the idea of better healthcare for kids, fighting discrimination against women, and stimulus spending to slow the course of the financial meltdown.

It's also worth noting that although most of the increase is due to Democrats being happier with Congress than in the past (no surprise), approval among independents has doubled.  Republicans are still unhappy, of course, but no more so than in the past.  Apparently all that talk radio bloviating about incipient socialism hasn't had much effect even on conservatives.

Stem Cell Polling

| Wed Mar. 11, 2009 1:51 PM EDT
Ramesh Ponnuru complains about yesterday's Rasmussen poll on stem cells:

The other day I commented on the poor quality of polling on stem-cell research. I'm afraid that the Rasmussen poll, cited in today's web briefing, is no exception. Here's the question they use: "President Obama has decided to lift the ban on federal funding of embryonic stem cell research. Do you agree or disagree with President Obama’s decision?"

Rasmussen also reports that 40 percent of those surveyed say they have followed the debate "very closely." No estimate is given for the percentage of those respondents who are lying.

I wonder what the problem with the question is supposed to be?  In the past, conservatives have complained when pundits and pollsters talked about "stem cells" rather than "embryonic stem cells," but the Rasmussen question is clear on that point.  Is the problem that "lift the ban" isn't specific enough, since the Bush ban wasn't absolute?  Beats me.  The Rasmussen question is very, very simple and neutral and avoids all the issues in Ponnuru's previous post on the subject, so I'm not sure what the problem is.

But there always seems to be something.  Conservatives seem to be endlessly convinced that the American public would be opposed to embryonic stem cell research if only it was made graphically clear to them that this means embryos are destroyed in the process.  But there's just not much evidence of that.  Most of us know that embryos get destroyed, and most of us don't think that's a big problem.

On the other hand, I sympathize with his closing paragraph.  40% is actually not too unreasonable a figure, but it's remarkable the number of polls that ask very recondite questions and get something like a 90% response rate.  "Do you think American banks are undercapitalized and should be nationalized" will get, say, 50% in favor and 40% opposed, despite the fact that it's a dead certainty that 80% of Americans have no idea what "undercapitalized" means and only a vague notion of what nationalization is.  But the results are taken seriously anyway.

Political Interference

| Wed Mar. 11, 2009 1:07 PM EDT
The New York Times reports that banks are getting tired of Uncle Sam constantly looking over their shoulders:

Financial institutions that are getting government bailout funds have been told to put off evictions and modify mortgages for distressed homeowners. They must let shareholders vote on executive pay packages. They must slash dividends, cancel employee training and morale-building exercises, and withdraw job offers to foreign citizens....The conditions are necessary to prevent Wall Street executives from paying lavish bonuses and buying corporate jets, some experts say, but others say the conditions go beyond protecting taxpayers and border on social engineering.

Some bankers say the conditions have become so onerous that they want to return the bailout money. The list includes small banks like the TCF Financial Corporation of Wayzata, Minn., and Iberia Bank of Lafayette, La., as well as giants like Goldman Sachs and Wells Fargo.

Obviously, everyone's first reaction is here is to break out their tiny violins so we can all play sad songs for the nation's bankers.  Songs like this: If you don't want taxpayer oversight, then don't take taxpayer money after you've run your bank into the ground.  Until then, suck it up.

That's pretty much my second reaction too.  Still, there's a germ of an issue here.  One of the arguments against bank nationalization is that unlike Sweden, where those nice sensible Scandinavians were willing to let their technocrats run things after their housing bust, Americans have no such discipline.  Nationalize a big American bank and Congress will promptly use it as a piggy bank for every half-baked scheme their staffs can cook up.  I mean, it's not as if Congress was exactly a positive influence on Fannie Mae and Freddie Mac, was it?

Which suggests these complaints deserve a hearing.  Some things just make sense: if you're accepting bailout money because your capital has become dangerously low, then it's hardly unreasonable to demand that you stop depleting capital even more by continuing to pay out full dividends.  That's directly related to the problem at hand and it's a reasonable regulatory response to a serious problem.

On the other end of the spectrum, though, you get populist grandstanding like the recent fuss over Northern Trust hosting a bunch of client parties at a golf tournament they were sponsoring in Los Angeles.  Aside from the fact that money for the events all came out of the bank's marketing budget — which no one in their right mind thinks should be shut down during a recession — they almost certainly would have wasted more money by calling off their parties than by holding them.  Those kinds of things are scheduled far in advance, and the contracts they signed probably didn't allow them to recover more than a pittance if they cancelled at the last minute.  So if they had cancelled, they would have ended up paying out 90% of their budget and getting nothing for it, instead of paying out 100% and getting something in return.

Now, you can argue that they should have cancelled anyway purely for the PR value.  And maybe so.  And it's obviously a judgment call about what kinds of rules should apply to bailed out banks that ought to be conserving cash.  Still, those of us who tentatively favor nationalization should also favor a process that keeps Congress at arm's length.  The whole point of nationalization is to restore both solvency and confidence, and let's face it: sober management isn't really Congress's stock in trade.  I'm not quite sure where the balance lies, but it's worth an open discussion.

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Vitter's Meltdown

| Wed Mar. 11, 2009 12:06 PM EDT
Roll Call reports that Sen. David Vitter (R–Hookerville) had an airport meltdown last week:

According to an HOH tipster who witnessed the scene, the Louisiana Republican arrived Thursday evening at his United Airlines gate 20 minutes before the plane was scheduled to depart, only to find the gate had already been closed. Undeterred, Vitter opened the door, setting off a security alarm and prompting an airline worker to warn him that entering the gate was forbidden.

Vitter, our spy said, gave the airline worker an earful, employing the timeworn “do-you-know-who-I-am” tirade that apparently grew quite heated.

That happened to me once.  I didn't barge through the door, and I wasn't important enough to credibly demand if the gate agent knew who I was, but I sure was pissed.  Obviously Vitter needs to learn a little impulse control, but I guess I sympathize a little bit here.  If you show up at your gate 20 minutes before the flight is scheduled, they really ought to let you on.

Advise and Consent

| Wed Mar. 11, 2009 1:32 AM EDT
Bruce Ackerman is unhappy that lots of powerful executive branch appointments can be made without Senate approval:

Modern presidents have increasingly gained the power to make key appointments unilaterally — with President Obama taking this process to new heights. His White House czars such as Lawrence Summers and Carol Browner are likely to overshadow the Cabinet secretaries in their respective domains. Yet, as presidential assistants, they escape the need for Senate scrutiny.

....Consider, for example, the treatment accorded Eric Holder as attorney general and Gregory Craig as counsel to the president. Holder was carefully vetted by the Senate, and his work in previous administrations was the subject of much debate. Yet Craig, who will also be involved in important and public legal matters, largely escaped scrutiny. Why?

Craig, a distinguished lawyer and public servant, is an outstanding choice for his key position. But it is not enough to trust the president to make good appointments. The challenge is to make it difficult for future presidents to appoint less-qualified officials — such as Alberto Gonzales or Harriet Miers — without serious outside review of their credentials. That, after all, is the aim of our system of checks and balances.

Ackerman has a point, but here's a different suggestion: how about doing away with Senate confirmation entirely? It wastes tons of committee time, it promotes endless grandstanding by bloviating pols, it discourages all but the hardiest from working for the government, and — most important of all — it doesn't actually seem to produce a better class of appointees, does it?  Is the country really better off with a system that confirms Alberto Gonzales but deep sixes Tom Daschle?  Has the White House staff, on average, been any less competent or less honest in recent years than the Senate-confirmed cabinet staff?  Does the Senate, as Ackerman would like, really make it difficult for presidents to appoint underqualified officials?

The Senate would never agree to give up its precious consent privilege, of course, but I'm frankly not sure they add much to the process these days.  In the meantime, allowing the president to have a White House staff of his choosing — whether I like his choices or not — seems more important than providing yet more cannon fodder for the greatest deliberative body in the world.  They've got plenty to chew on already.

Blogs and The Man

| Tue Mar. 10, 2009 7:55 PM EDT
Should the president read blogs?  Ezra thinks so:

Many of us bloggers know Jesse Lee, the White House's crack blog outreach guy. It would be nice, however, if the Eisenhower Executive Office Building housed Lee's inverse: An independent-minded new media guy charged by Obama with digging through the blogosphere and picking out a selection of posts and contrary voices that the President might find analytically useful. That's certainly happening on the communications side of things, where the blogs are watched with an eye towards message and influence. It would be nice to know a similar project was underway to trawl the more technical corners of the blogosphere for insights that might be useful but aren't being hunted down by a busy president or his overworked underlings, much less passed on by technocrats whose incentives don't include elevating analyses that undercut their own positions.

Nah.  Obama has all the technical expertise he needs, and the real outliers wouldn't make it past this hypothetical EEOB gatekeeper anyway. Instead, Obama ought to just read some blogs.  Either pick a few he likes and scan them daily, or else commission some kind of random RSS feed based on a larger universe of blogs.  It would be sort of like Ozymandias watching all those TV screens at once to suck in the zeitgeist, except in words.

(Sorry.  I played hooky this afternoon and went to see Watchmen. So I figured I ought to work in a reference somewhere.)

Anyway, one of the keys to this would be to keep his reading list absolutely secret.  Can you imagine what your blog would become like if you knew the president was reading it?  You'd either become a constant shill for every one of your pet hobbyhorses or else catatonic from the pressure of knowing that the leader of the free world was reading your pearls of wisdom.  So that means Obama needs to make the choices himself and not let anybody else in on it.

Besides, assuming that Obama doesn't screw the pooch completely over the next eight years, what would be cooler than discovering in 2016 that your blog was one of the ones he had been reading?  Not much.  So get that man an RSS reader and let him see the outside world in all its raw glory.

Sticking Together

| Tue Mar. 10, 2009 2:08 PM EDT
Without fussing over the details in this particular post (you can go here for that), the Employee Free Choice Act would almost certainly make it easier for unions to organize new workplaces.  That's why unions support it and management doesn't.  Wal-Mart management, for example, especially hates it.  But I sure never expected this, as reported by Ezra Klein:

The more impressive strike came, however, earlier this morning, when Citibank downgraded Wal-Mart's stock from a "buy" to a "hold" on fears that passage of EFCA could force the company to unionize which would in turn decrease shareholder profits as more of the company's worth was distributed to employees.

....It's hard to recall another time when an analyst actually downgraded a stock on fears of legislation that few expect will even pass. Indeed, many on the left are arguing that this is more about creating stock market panic that will convince senators to vote against EFCA than about accurately pricing Wal-Mart's stock. "When I see upgrades to the stocks of Wal-Mart's already-unionized competitors (grocery stores like Safeway who will gain back market share if easier unionization results in higher Wal-Mart labor costs) specifically pegged to the specter of EFCA, then I'll admit that Citi is engaged in good-faith prognosticating here," e-mails Josh Bivens at the Economic Policy Institute. "Otherwise, not so much."

The malefactors of great wealth are really sticking together on this, aren't they?  Considering Citibank's recent record, though, I think we could all be forgiven for taking their view on this with a grain of salt.