Kevin Drum

BAC Watch

| Wed May 6, 2009 10:09 AM EDT

I give up.  Apparently Bank of America's need for $34 billion in new capital is somehow being spun as good news, and as of 11 am BAC is actually up a point or so.  WTF?

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King Corn

| Wed May 6, 2009 12:31 AM EDT

Via the LA Times, this is the best news I've heard all day:

The Obama administration on Tuesday proposed renewable fuel standards that could reduce the $3 billion a year in federal tax breaks given to producers of corn-based ethanol. The move sets the stage for a major battle between Midwest grain producers and environmentalists who say the gasoline additive actually worsens global warming.

....While biofuels as a whole — including grasses and even algae — are considered promising alternatives to petroleum, some researchers have begun challenging the use of corn for this purpose.

In particular, they point to the "indirect land-use" effects of pulling corn out of the world food supply, which could force farmers in developing nations to clear rain forests — and release massive amounts of carbon dioxide in the process — in order to plant corn.

Please dump the corn ethanol subsidies.  Please, please, please.  Dollar for dollar, it might well be the stupidest use of taxpayer cash in the entire federal budget.

Stress Test Update

| Tue May 5, 2009 11:16 PM EDT

The New York Times reports that the Treasury's stress test has determined that Bank of America needs $33.9 billion in new capital.  That's nearly half the current value of the entire company, which has a market cap of about $70 billion.

If BofA can't raise this money itself, it means either (a) more TARP money or (b) conversion of the Treasury's current $45 billion in preferred shares into common shares.  I continue to think that (b) is little more than a shell game, but better minds than mine have suggested that it would have some genuine value.  If that's what happens, conversion at Tuesday's closing price would give the government a one-third stake in BofA.  But if their stock plummets and conversion happens at a lower price, Treasury could end up with a majority stake.

On the other hand, BofA's chief administrative officer bravely says they have plenty of options for raising the money themselves before they have to strike a deal with the feds.  For example, BofA could decide to quickly sell a third of its stake in China Construction Bank, which would bring in about $8 billion.  The sale of First Republic and Columbia Management could generate about $4 billion.

Maybe.  It's hard to say at this point.  But $33.9 billion is a lot higher than anyone's been talking about so far.  Any way you slice it, it's bad news for Ken Lewis.

Watching the Banks

| Tue May 5, 2009 8:01 PM EDT

I approve of this:

Banks that want to return Troubled Asset Relief Program funds will have to demonstrate their ability to wean themselves off another major federal program, according to senior government officials, making it less attractive for some banks to return the money.

The other program, a guarantee of debt issuance offered by the Federal Deposit Insurance Corp., allows firms to borrow money relatively inexpensively. Banks have $332.5 billion of debt outstanding under this program, which began last fall.

If a bank is healthy and solvent and able to lend money freely, then it should be allowed to turn down extraordinary government aid and operate without extraordinary government oversight.  But there's more to the federal bailout program than just TARP, and if a bank is really healthy it doesn't need to take advantage of any of the other extraordinary programs either.  Until and unless that happens, however, Treasury should insist that they keep their TARP money and stay under TARP rules.  No stealth bailouts, please.

Taxing Carbon

| Tue May 5, 2009 6:19 PM EDT

Should environmentalists concerned about global warming support a quick, simple carbon tax rather than a complicated, long-term cap-and-trade plan?  James Hansen thinks so, but Joe Romm explains the facts of life to him:

1. A carbon tax, particularly one capable of deep emissions reductions quickly, is a political dead end....

2. A carbon tax that could pass Congress would not be simple. Advocates of a tax argue that simplicity is one of its biggest benefits.  Again, those advocates seem bizarrely unfamiliar with the tax code in spite of the fact that they pay taxes every year....

3. A carbon tax is woefully inadequate and incomplete as a climate strategy.  Why?  Well, for one, it doesn’t have mandatory targets and timetables.  Thus it doesn’t guarantee specific emissions results and thus doesn’t guarantee specific climate benefits.  Perhaps more important, it doesn’t allow us to join the other nations of the world in setting science-based targets and timetables.  Also, a tax lacks all of the key complementary measures — many of which are in Waxman-Markey — that are essential to any rational climate policy, but which inherently complicate any comprehensive energy and climate bill.

It's true that in some pure economic sense a tax is a more efficient way of pricing carbon than a cap-and-trade plan.  But that's only if you get exactly the tax you want (you won't) and only if you accept a very specific sense of the word "efficient" (which you shouldn't).  And even if you magically got the simple, efficient tax you wanted, a tax lacks the one critical thing that cap-and-trade provides: a cap.  End of story.  If you want to reduce greenhouse gases, the best way to do it is to cap them.  This is something the public can easily understand.  The trading scheme that comes along with it is, admittedly, complex, but it's only there to allow us to go after the low hanging fruit first and reduce the cost of complying with the cap.  It's the cap itself that's key.

Like Romm, I don't really understand how it is that smart people don't get this.  Politically, cap-and-trade is the only climate plan that has even a remote chance of getting through Congress, it's the only plan that institutes a firm limit on greenhouse gases, and it's the only plan on the table.  Is it really worth giving all that up for the chimera of a tax that has some esoteric technical advantages on a whiteboard, but in the real world can't pass and wouldn't solve the carbon problem even if it did?  It's hard to see why anyone serious about real-world change would buy into this.

Bloggers on the Bus

| Tue May 5, 2009 3:54 PM EDT

If you're interested in the political blogosphere and the netroots in general, Eric Boehlert's Bloggers on the Bus is a great read.  It's built around potted sketches of some of the best known liberal bloggers (Atrios, Digby, Jane Hamsher, John Amato, Arianna Huffington, Glenn Greenwald, and others) and some of the blogosphere's greatest campaign hits during 2008 (the Obama MySpace debacle, the John Hagee meltdown, the Sarah Palin eruption, the great sexism debate), and Boehlert really does a terrific job of diving in and explaining how everything unfolded.  I followed almost all of this stuff pretty obsessively in real time, but I still learned lots of details I'd never heard of before.

It's a very fast, entertaining read, and since it focuses (almost) exclusively on the liberal blogosphere it mostly avoids the sense of triumphalism you might get in a more partisan book.  Which is a good thing since it ends with this:

The bad news for liberal bloggers was that as the Obama campaign unfolded, as his new commuhity-based coalition was being built and celebrated, it became obvious that bloggers were never really invited to the party.  Liberal bloggers simply never became active partners with Obama in the way they had been with the Dean insurgency four years earlier, and the way they had been with scores of Democratic politicians in skirmishes throughout the Bush years.  Why?  Mostly because Obama didn't seem to want the bloggers around.

That's true, isn't it?  For all the hype, the liberal blogosphere in 2008 had its biggest impact in state and local races, just as it did in 2004.  It's true that it was much more successful in pushing stories into the mainstream media than it was four years ago, but in terms of being active in the Obama campaign itself, it wasn't.  And that was primarily a choice made by Obama himself, who apparently felt that the raw partisanship of the blogosphere was something he wanted to keep at arm's length.

There were a couple of things missing from the book that struck me.  The first is specific: the Jeremiah Wright firestorm, which begged to be included in any book about the 2008 campaign, but which Boehlert inexplicably never mentions.  The second is more general: Boehlert does a good job of showing how the blogosphere managed to gain attention for stories that might otherwise have gone unnoticed, but at times his account feels too blinkered.  The mainstream media played a pretty big role in all this too, and even in a book about the blogosphere this deserves a little more attention.  At the very least, there should have been a chapter devoted to the relationship between blogs and the MSM.

But these are nits.  If you're looking for a blog's eye view of Campaign '08, Bloggers on the Bus is a terrifically readable and carefully reported book.  Highly recommended.

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Defending the Defenders

| Tue May 5, 2009 1:00 PM EDT

From the Washington Post:

Ex-Bush Officials Launch Bid to Soften Interrogation Report

Former Bush administration officials are lobbying behind the scenes to push Justice Department leaders to water down an ethics report criticizing lawyers who blessed harsh detainee interrogation tactics, according to two sources familiar with the efforts.

In recent days, attorneys for the subjects of the ethics probe have encouraged senior Bush administration appointees to write and phone Justice Department officials, said the sources, who spoke on condition of anonymity because the process is not complete.

Can't say as I blame them, I guess.  But surely they realized that someone at DOJ would rat them out, didn't they?

Civic Order

| Tue May 5, 2009 12:11 PM EDT

David Brooks says that if Republicans had learned the right lessons from watching Westerns, they'd be a little less interested in rugged individualism and a little more interested in community and civic order:

They would begin every day by reminding themselves of the concrete ways people build orderly neighborhoods, and how those neighborhoods bind a nation. They would ask: What threatens Americans’ efforts to build orderly places to raise their kids? The answers would produce an agenda: the disruption caused by a boom and bust economy; the fragility of the American family; the explosion of public and private debt; the wild swings in energy costs; the fraying of the health care system; the segmentation of society and the way the ladders of social mobility seem to be dissolving.

But the Republican Party has mis-learned that history. The party sometimes seems cut off from the concrete relationships of neighborhood life. Republicans are so much the party of individualism and freedom these days that they are no longer the party of community and order. This puts them out of touch with the young, who are exceptionally community-oriented. It gives them nothing to say to the lower middle class, who fear that capitalism has gone haywire. It gives them little to say to the upper middle class, who are interested in the environment and other common concerns.

I think this column suffers from Brooks' usual weakness for extending metaphors beyond their useful life, but his central point is a pretty good one.  The American public is obviously in the mood for a little less cowboy capitalism and a little more stability, and there are both liberal and conservative ways of getting there.  Democrats obviously support the liberal path, and to compete the GOP needs to stop offering up its usual menu of non-answers and instead figure out a conservative way to tell the business community to behave itself, a conservative way to produce more clean energy, and a conservative way to genuinely address everyday healthcare concerns.  It's not impossible, but the true-believer rump of the party wants nothing to do with it — and they're suffering the consequences.  They could do a lot worse than to spend a little less time listening to Rush Limbaugh and a little more time listening to Brooks.

Obama and the Business Community

| Tue May 5, 2009 10:26 AM EDT

I nominate this for the least surprising news of the year:

President Obama's plan to crack down on what he called abuse of overseas tax loopholes was met Monday with quick and unusually sharp opposition from big business, threatening to produce the administration's first major confrontation with a broad segment of corporate America.

The fiercely negative reaction to the plan, much of which requires congressional approval, contrasted strongly with the business community's muted criticism, at most, of the president's sweeping government intervention in the banking and automobile industries.

Imagine!  The business community was OK with the government shoveling hundreds of billions of dollars into the business community, but is unhappy when the government wants to take away their PO boxes in the Cayman Islands.  Who could have guessed?

Credit Report

| Tue May 5, 2009 12:52 AM EDT

The latest on credit conditions:

Although credit conditions remain strained, an April survey of loan officers by the Federal Reserve found a smaller number of banks were tightening loan standards compared with a few months ago.

Glimmers of improvement were most notable in commercial lending. The Fed said 40% of the 53 domestic banks it surveyed between March 31 and April 14 said they tightened standards on commercial and industrial loans, a smaller percentage than the 65% that said in January that they tightened standards.

Other metrics apparently show the same thing: banks are still cutting back on lending, but they aren't cutting back quite as much as before.  In other words, the economy is still getting worse, but not quite as fast as it was earlier this year.  These days, that counts as good news.