Kevin Drum

Is Toxic Waste Undervalued?

| Tue Apr. 7, 2009 2:20 PM EDT

Several academic economists published a paper a few days ago suggesting that toxic assets are priced at pennies on the dollar because that's exactly what they're worth.  Anyone who thinks they're undervalued because of illiquid markets and forced fire sales is just kidding themselves.

Maybe!  But Economics of Contempt isn't convinced.  It turns out the authors analyzed investment grade corporate debt, not housing securities:

Are they serious? The Treasury is arguing that the prices for mortgage-related securities are artificially depressed because of illiquidity and fire sales. No one is arguing that investment grade corporates are underpriced due to illiquidity and fire sales. That's why ABS and CDOs backed by investment grade corporates aren't eligible for the TALF or the PPIP. The fact that prices for tranches of CDOs backed by investment grade corporates are accurate is completely irrelevant to whether prices for mortgage-related securities are accurate.

This is above my pay grade as usual, so just consider it useful data for now.  Seems like a pretty reasonable criticism, though.

Via Megan McArdle.

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Animal Spirits

| Tue Apr. 7, 2009 1:31 PM EDT

In a review of George Akerlof and Robert Shiller's Animal Spirits, Richard Posner writes:

The idea that monetary policy — raising interest rates [...] to check inflation, and lowering interest rates to check economic downturns — holds the key to moderating the business cycle, and therefore to preventing depressions as well as inflations, has been falsified. The Federal Reserve has pushed interest rates way down, but the amount of lending has been tepid and economic activity has continued to fall.

There are two problems with this.  The smaller of them is Posner's apparent contention that until now economists have believed that monetary policy alone is sufficient to prevent depressions.  This is a crude exaggeration.  The whole point of Keynesian stimulus, after all, is that it's supposed to kick in when monetary policy has reached a lower bound and has no further traction.  That would hardly even be a topic of conversation if everyone believed that monetary policy alone could solve every economic ill.

But the bigger problem is that we've really only tried half of Posner's prescription: lowering interest rates and pumping liquidity into the market during a downturn.  And he's right that it hasn't been enough.  But there's also the flip side: moderating credit expansion during upturns, something that Alan Greenspan signally declined to do during the housing boom.  If he had, though, the housing bubble wouldn't have gotten anywhere near as big as it did.  It still would have burst eventually, but the downturn would have been more modest: probably a fairly ordinary recession to be fought with fairly ordinary monetary means.

I'm generally a fan of more robust countercyclical economic policy, but our recent experience (not to mention the unbroken experience of the past several centuries) prompts a big question for people like me: How do you ensure that it happens not just during downturns, when everyone is eager for it, but also during upturns?  Part of the problem is technical — when should you intervene to slow things down? what's the best way to do it? — but the much bigger problem is purely human.  After all, no one wants to spoil a party when everyone is having a good time, and there are always a dozen plausible reasons why this time it's different and the economy is truly on a new and sustainable flight path.  And so things inevitably get out of control, sometimes disastrously so.

I'm not sure what the answer is here, though certainly a denser web of both regulatory and cultural attitudes oriented toward moderation can help a lot.  But in any case, that's the question to be answered: how do we credibly bind future regulators to pursue robust countercyclical policies during economic expansions in the face of both legitimate technical problems and the animal spirits of human nature?  Suggestions welcome.

Fighting the Power

| Tue Apr. 7, 2009 12:31 PM EDT

Via Alan Jacobs, here's Henry Porter in the Guardian warning about the vast evil perpetrated on the unwary by Google:

Google presents a far greater threat to the livelihood of individuals and the future of commercial institutions important to the community. One case emerged last week when a letter from Billy Bragg, Robin Gibb and other songwriters was published in the Times explaining that Google was playing very rough with those who appeared on its subsidiary, YouTube. When the Performing Rights Society demanded more money for music videos streamed from the website, Google reacted by refusing to pay the requested 0.22p per play and took down the videos of the artists concerned.

It does this with impunity because it is dominant worldwide and knows the songwriters have nowhere else to go. Google is the portal to a massive audience: you comply with its terms or feel the weight of its boot on your windpipe.

Its boot on your windpipe!  Because of a commercial disagreement with another enormous industry over the acceptable size of royalty payments!

Whatever.  But what I'm really curious about is whether the PRS really thinks it can get 30 cents per play for YouTube music videos.  At a guess, that sounds too high by a factor of ten or a hundred.  What are they thinking?

More Gay Marriage

| Tue Apr. 7, 2009 12:00 PM EDT
More good news on the same-sex marriage front: the Vermont legislature has voted to override Gov. Jim Douglas's veto of a bill allowing gays and lesbians to marry.  Score one more for the good guys.

The Kitchen Sink

| Tue Apr. 7, 2009 2:02 AM EDT
Nick Baumann summarizes all the platforms Robert Gates proposes gutting in next year's Pentagon budget:

In Gates' proposed budget, the F-22, VH-71, the Navy's DDG-1000 Destroyer, Airborne Laser Missile Defense (a laser mounted on a Boeing 747), and the Army's Future Combat Systems program are all targeted for modification or elimination.

And don't forget the C-17!  That's a lot of platforms.  Question: is going after so many programs at once (a) brilliant or (b) insane?  I can make a case for either, but I can't quite convince myself which one it is.

Revenge of the Kids

| Mon Apr. 6, 2009 9:43 PM EDT
The Census Bureau's Current Population Survey Voting and Registration Supplement is out!  Are you excited yet?

The graph on the right comes from Charles Franklin and shows the turnout rate by age for the past three elections.  2008 is in red, and turnout among 18-29 year-olds is up by about two percentage points from 2004, which in turn was up by about eight points from 2000.  Turnout rates for all other age groups were down slightly compared to 2004.

More data is here, compiled by Michael McDonald.  Highlights: youth turnout might have been up in 2008, but it was still more than ten points below the turnout rate of every other age group.  The turnout rate was down for whites and up for every other ethnic group.  And early voting increased from 20% of voters to 30% of voters.  In fact, early voting has more than quadrupled since the early 90s.

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Torture Memo Followup

| Mon Apr. 6, 2009 2:08 PM EDT
A few days ago Michael Isikoff reported that the White House had backed off on plans to release some Bush-era torture memos thanks to mounting internal pushback: "U.S. intelligence officials, led by senior national-security aide John Brennan, mounted an intense campaign to get the decision reversed, according to a senior administration official familiar with the debate. 'Holy hell has broken loose over this,' said the official, who asked not to be identified because of political sensitivities."

Today, Scott Horton suggests that there's more than just pushback involved:

Senate Republicans are now privately threatening to derail the confirmation of key Obama administration nominees for top legal positions by linking the votes to suppressing critical torture memos from the Bush era. A reliable Justice Department source advises me that Senate Republicans are planning to “go nuclear” over the nominations of Dawn Johnsen as chief of the Office of Legal Counsel in the Department of Justice and Yale Law School Dean Harold Koh as State Department legal counsel if the torture documents are made public....A Republican Senate source confirms the strategy. It now appears that Republicans are seeking an Obama commitment to safeguard the Bush administration’s darkest secrets in exchange for letting these nominations go forward.

These memos must be real time bombs.  So much material has been released already, both officially and otherwise, that I've long assumed we already knew everything the Bush administraton had done — in broad terms, anyway.  But apparently not.  If these memos just confirmed our use of things like stress positions and black sites, it's hard to imagine they'd prompt such ferocious opposition.  There must be some truly new — and truly gruesome — disclosures in them.

How to Read Poll Results

| Mon Apr. 6, 2009 1:01 PM EDT
Consider the poll question below, from a CNN survey emailed to me this morning.  If it is to be believed, 95% of all Americans have an opinion about Turkey.  Question: Is it to be believed?  Do you think 95% of Americans could even find Turkey on a map?

Larry's Problems

| Mon Apr. 6, 2009 12:48 PM EDT
Ezra Klein comments on the recent disclosures of Larry Summers' Croesus-like wealth, garnered in the years before he went to work for the White House:

We now know that in 2008, Summers received more than $5 million from the hedge fund D.E Shaw and more than $2.7 million in speaking fees from other Wall Street firms — including $135,000 for a single appearance before Goldman Sachs. These are sums that would make Tom Daschle positively blush, and they likely would have posed a serious threat had Summers been named Secretary of the Treasury.

Really?  Robert Rubin ran Goldman Sachs.  Paul O'Neill was CEO of Alcoa.  John Snow was CEO and chairman of CSX.  Henry Paulson was another Goldman CEO.

Every one of these gentlemen make Larry Summers look like a pauper.  So why would petty cash levels of consulting and speaking fees have caused him any headaches?  I thought his problem wasn't money, but his deeply held belief that girls can't do long division and we should ship all our toxic waste to Chad.  In the face of that, who cares about a lousy few million bucks?

Voice Mail

| Mon Apr. 6, 2009 12:15 PM EDT
Responding to a recent New York Times piece about the demise of voice mail, Matt Yglesias says, "If you leave a message on my office voicemail, forget about it. I’m not even entirely sure I know how to check it." James Joyner agrees: "I often forget to check my voice mail for days on end and my wife simply won’t check a message, preferring to return any missed calls that show up on her mobile."  And Andrew Sullivan warns us: "I check my voice mail once a week. Just so you know."

I've never had quite the aversion to voice mail that these folks do1, but still, I understand.  Death to voice mail.  One thing, though: I hope everyone who hates voice mail at least records an outgoing message warning callers that a callback is unlikely and providing some other way of getting in touch.  It's one thing not to like voice mail, but it's quite another to have it on your phone and then just leave people hanging wondering why they never heard back from you.

1True story: I once wrote a remarkably full-featured piece of Windows software solely to keep track of voice mail at work.  It started out as a project to teach myself SQL programming and sort of mushroomed from there.  What a waste.  But it was fun at the time.