Kevin Drum

Movie vs. Maxi Series

| Sun Mar. 8, 2009 1:41 PM EDT
Matt Yglesias saw Watchmen last night and says:

All-in-all, I’m torn between immense admiration for the film and regret that it was done as a movie at all. In retrospect, I kind of wish we’d instead gotten a 12 part HBO maxi-series that was really uncompromising and didn’t leave anything out.

You could think that about a lot of movies, couldn't you? And I have! Which is a little odd since I don't subscribe to HBO and wouldn't get to see any of these maxi-series ideas if they actually got made.

Watchmen, of course, would present a challenge here. At least I think it would. The problem is that the original chapters are pretty self-contained and it really would make sense to keep them that way. So, one episode per chapter. Unfortunately, that would require a fair amount of padding. Most of the chapters just don't have enough substance to take up an hour of screen time.

So a movie it is. I haven't seen it yet, so I have no comment on how it turned out. But I'm looking forward to it even though the reviews so far have been pretty lukewarm. I don't think I'll be buying a Rorschach doll any time soon, though.

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Journalistic Malpractice

| Sun Mar. 8, 2009 12:35 PM EDT
The Washington Post has a big front-page story today about a sudden spike in fraudulent FHA loan activity.  Here's the nut:

With the surge in new [FHA] loans, however, comes a new threat. Many borrowers are defaulting as quickly as they take out the loans....Many industry experts attribute the jump in these instant defaults to factors that include the weak economy, lax scrutiny of prospective borrowers and most notably, foul play among unscrupulous lenders looking to make a quick buck.

If a loan "is going into default immediately, it clearly suggests impropriety and fraudulent activity," said Kenneth Donohue, the inspector general of the Department of Housing and Urban Development, which includes the FHA.

....More than 9,200 of the loans insured by the FHA in the past two years have gone into default after no or only one payment, according to the Post analysis. The pace of these instant defaults has tripled in one year. By last fall, more than two dozen FHA home loans on average were defaulting this way every day, seven days a week.

So is fraudulent activity up?  That's hard to say because the Post story goes to considerable lengths to leave out the one obvious stat that would tell us: how many loans is the FHA insuring in the first place?  Here's the answer, according to figures compiled by MortgageDataWeb: there were roughly 500,000 FHA loans originated in 2007 compared to 1.4 million in 2008.

In other words, the number of FHA loans has tripled in one year.  And the number of instant defaults has tripled too.  The amount of fraudulent activity appears to have held pretty steady at about 0.5% of all FHA loans.

Now, there's nothing wrong with running this story anyway.  If FHA loans are up, it makes sense that oversight staff should be up too, and apparently it's not.  That's a problem, so good for the Post for bringing this up.

At the same time, the Post also tries very hard to make it sound like the increase in fraudulent activity is fundamentally due to a sudden onslaught of shifty mortgage brokers and lousy supervision from the government.  But that's almost certainly not really the case, something that would be immediately apparent if the Post included the one figure that practically screams its absence.  In fact, this statistic is such an obvious one to include that it's hard not to believe that it was included in early drafts of this piece and then removed in order to juice up their story.

That's journalistic malpractice.  Unless the Post reporters who wrote this piece are incompetent, leaving out this basic information was a deliberate effort to hype their reporting and mislead their readers.  That's no way to run a newspaper.

Counterparty Risk

| Sat Mar. 7, 2009 7:30 PM EST
What's going on with AIG?  Just in the past few days the entire country has suddenly become outraged by the fact that much of the federal bailout money going to AIG is being used to pay off its creditors. Creditors, in this case, being people who bought insurance via credit default swaps and are now owed payment either for mortgage-backed securities that have gone bad or for increased collateral requirements caused by AIG's downgrade from AAA.  And some of these creditors are other banks!  And some of them are even foreign banks!!!

But look.  Last year "counterparty risk" was practically crowned the phrase of the year.  You couldn't swing a dead copy of the Wall Street Journal without coming across it.  It's the reason we're bailing out all these guys in the first place: if a big bank goes bust and stiffs all its creditors, then there's a chance that they'll go bust too, and before long you have a cascading series of failures that's brought down the entire world.  We tried letting Lehman Brothers — a relatively small bank in the grand scheme of things — go under, and all hell broke loose.  That's why the Fed stepped in a few days later to save AIG.

So why is everyone suddenly acting as if we just discovered yesterday that bailout money is being used to pay off AIG's counterparties?  And that this is some kind of scandal?  Help me out here.  I'm genuinely confused about why, after six months, this has suddenly become the populist outrage du jour.

Nonprofit Journalism

| Sat Mar. 7, 2009 2:26 PM EST
Newspapers have been dropping like flies recently, and because of that a lot of chatter in reporting circles these days revolves around the possibility that serious journalism in the future will mostly be done by nonprofits, funded by foundations and grants. Today the New York Times writes about a San Francisco-based magazine that's followed that model for over 30 years:

Mother Jones has become a real-life laboratory for whether nonprofit journalism — a topic of the moment in mainstream news media circles — can withstand a deep recession.

....Back in the fall, when the economic downturn intensified, and the plight of print publications became more dire, Mother Jones suffered, despite its position of not being in it for the money. Advertising plummeted, down 23 percent in 2008, and some of the big donations the magazine depends on didn’t come through.

Actually, things are better than that makes it sound.  Advertising is a pretty small chunk of our revenue, and overall fundraising has stayed pretty strong, all things considered:

[Jay] Harris, the magazine’s publisher, said the company met its fund-raising targets last year, although before the economic turmoil in the fall the magazine thought it would exceed goals.

But small-time donations and subscriptions have held steady at Mother Jones, to the surprise of its editors, who figured that the downturn would have taken more of a toll and that the election of Barack Obama would have a negative effect on raising money for liberal causes.

About half of the magazine’s yearly revenue is from major grants and donations. The magazine often seeks donations for specific projects, as it did in recent years to staff its Washington bureau at a time when many news organizations had been scaling back there. The bureau opened in late 2007 with eight people.

The Times failed to note MoJo's groundbreaking hiring of new blogging staff last year, but aside from that it's a decent piece about one possible future for investigative journalism.  Namely, us.  Check it out.

(And you should subscribe!  Only 15 bucks for the first year.  Just click here.)

Florists of Conscience

| Sat Mar. 7, 2009 1:19 PM EST
Via Andrew Sullivan, a Catholic conference on Friday came up with an anti-gay position that seems like something Saturday Night Live might have made up:

[Connecticut's] law does not require Catholic priests — or any other clergy member — to preside over same-sex weddings.

However, the church is seeking additional exemptions. For instance, it wants to ensure that a florist opposed to gay marriage on religious grounds not be forced to sell flowers to a same-sex couple.

I don't think a Catholic nurse should be required to assist at an abortion.  I don't think a Catholic charity should be required to provide benefits to same-sex couples.  But now they're suggesting, essentially, that anyone, anywhere, in any business, should be allowed to withhold their services from gay couples?  Give me a break.

Friday Cat Blogging - 6 March 2009

| Fri Mar. 6, 2009 3:51 PM EST
Inkblot is back up exploring the new fence today.  Something has caught his eye in our neighbor's yard, but it's not clear what.  A leaf?  A stray molecule?  Something from another dimension?  Domino, meanwhile, is rolling around in the lovely, lovely sunshine and mugging for the camera.  And why not?  What better way is there to spend one's day?

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How to Make Cap-and-Trade Into a Bad Joke

| Fri Mar. 6, 2009 2:38 PM EST
Via Gristmill, I see that Sen. Jeff Bingaman (D–NM), chairman of the Energy and Natural Resources committee, has decided to preemptively surrender on global warming:

Bingaman said any Congressionally developed system capping and trading emissions probably will include carbon allowances given to polluters like cement factories and coal-burning power plants, along with permits that are sold.

Auctioning 100 percent of the permits would essentially make polluters pay quickly for emissions. In the European Union's Emissions Trading Scheme, emissions permits were given away to polluters at first. This led to a glut of permits and windfall profits for some emitters.

...."I think it's unlikely we will pass a cap-and-trade bill with 100 percent auction," Bingaman told reporters at the Platts Energy Podium.  He said such a system has the risk of substantially increasing the burden on some utilities and major emitters.

There are lots of bells and whistles that you can add to a cap-and-trade plan: safety valves, circuit breakers, banking, offsets, and other buzzwords by the truckload.  Some are mostly good (banking), some are mostly bad (offsets), and some are in between (safety valves and circuit breakers).  All of them are things we should care about getting right, but they're also things where, inevitably, we're going to have to compromise.

Auctioning permits is different.  This is the one thing that ought to be a deal-breaker in any cap-and-trade plan.  I talk about this in my cap-and-trade piece in the print magazine this month:

4. There 's no such thing as a free permit. One of the key issues with any cap-and-trade system is how you allocate permits. Power plants would like to get them for free, and at first glance this seems appealing. If you set the overall carbon cap at 90 percent of current levels, and allocate only that number of permits, that should reduce carbon without raising prices for the consumer. After all, the power plants didn't have to pay for the permits, so there are no costs to pass along. Right?

Oddly enough, no. The economic theory involved is a little hairy, but those permits have a value on the open market, and that means that in many cases marginal producers can make more money selling their permits than by producing power. They'll only be willing to produce power if they can raise prices enough to make the power-producing business more profitable than the permit-selling business, and eventually everyone will jack up prices to follow suit.

This may sound abstract—even a bit fantastical—but it's absolutely real. In fact, when permits in phase one of Europe's ETS system were handed out for free, electricity prices rose and power companies pocketed a windfall profit (which Britain's Department of Trade and Industry estimated at about $1.1 billion a year in the UK alone). Dale Bryk, an attorney with the Natural Resources Defense Council (NRDC), puts it bluntly: "If you ask them point-blank if they'll charge customers for free permits, they won't tell you. But they know they will."

A better way is for the government to hold an auction to set the price of permits. This has a couple of extremely salutary effects. First, it puts everyone on a level playing field (since Congress has no ability to allocate permits to favored interests). Second, and even better, the money from selling the permits goes to the federal government, not to the carbon emitters. That's a pretty useful revenue stream, one that would probably start out at about $20 to $30 billion per year and go up steadily as the cap came down and the price of carbon permits increased.

There are loads of special interests who hate the idea of a 100% auction, of course.  But once you start giving away permits, you'll never stop.  It is, plain and simple, a massive giveaway to existing power plants, and as the Europeans learned it makes a mockery of any serious cap-and-trade plan.

This all sounds very wonky, but it's a hill to die for if you care about reducing greenhouse gases.  Without a 100% auction, cap-and-trade is a bad joke.  Somebody needs to tell Bingaman to start listening to the coal lobby a little less and start caring about effective public policy a little more.

UPDATE: I was going to add something about the politics of this, but the post was already long so I decided to skip it.  Luckily, Matt Yglesias does it for me:

When you’re a Democratic Senator, you often face a conflict of interests. On the one hand, you would really like to sell out to anti-reform special interests. On the other hand, you can’t openly portray yourself as someone who wants to sell out. One appealing option is to do what Bingaman does here and just cite unspecified political obstacles. Not that the obstacles aren’t real. But in the U.S. Senate they’re also people, with names. But instead of naming names, Bingaman’s just offering the vagueness play. He’d love to do the right thing, but it’s “unlikely” to happen. And everyone can do this. Nobody needs to be the Senator who’s against a public plan in health care, or who’s against a 100 percent auction. Instead, everyone’s just being practical for the sake of someone else.

Quite so.

Dealing With Iran

| Fri Mar. 6, 2009 1:12 PM EST
Over at Marc Lynch's place, Gary Sick argues that the change in U.S. policy toward Iran since Obama took office is much greater than most people think:

There is a flurry of signaling by the US — both positive and negative: keeping pressure on Iran (Stuart Levey and restrictions on banks), reassuring Israel (appointment of Ross) & Arabs (Hillary's downplaying of expectations at Sharm el-Sheikh), providing some funding for the Palestinians while pressing Israel to relax entry into Gaza, renewing an opening to Syria, talking about cutting US nuke stockpiles (US Ambassador Schulte in Vienna), talk of including Iran in Afghan security discussions (Holbrook), willingness to remove (anti-Iran) missile defense in E Eur while cajoling Russia on Iranian missile development, nice words from Obama (sometimes), harsh words from Susan Rice (always?), tough words from Adm Mullen, more soothing words from SecDef Gates, unified declaration about Iran by all five UN veto powers at the IAEA (without threatening new sanctions or return to the UNSC), etc etc.

Sick may be overstating things a bit here, but that's still a pretty impressive list — especially, as he says, for a guy who's only been in office for six weeks. But will it work?  Iran has run hot and cold in the past, and either by coincidence or design they seem to run hottest when we're running coldest, and vice versa.  Because of this, there's rarely been any sustained period during the past couple of decades when both sides have been genuinely interested in rapprochement, and that seems like it might be the case right now too.  For that reason, my own guess is that this dance is going to take quite a while to produce any results.  Obama and Hillary Clinton are probably going to have to keep up the pressure, keep up the overtures, stay calm in the face of provocations, and display almost inhuman patience for several straight years if they want to see any progress.  We'll see if they can do it.

Quote of the Day - 03.06.09

| Fri Mar. 6, 2009 12:21 PM EST
From Fox News chief Roger Ailes, talking about Barack Obama's efforts to turn America into a socialist hellhole:

"I see this as the Alamo.  If I just had somebody who was willing to sit on the other side of the camera until the last shot is fired, we'd be fine."

Last night I was channel surfing and happened to land on Sean Hannity's show for a few minutes.  Marian walked in and wondered why I was watching it.  "Doesn't he just increase your blood pressure?" she asked.

I'd never really thought about it, but I realized right then that he doesn't.  Lou Dobbs increases my blood pressure.  Chris Matthews increases my blood pressure.  Maureen Dowd increases my blood pressure.  But Hannity?  Rush Limbaugh?  Glenn Beck?  Nah.  They seem so frankly clownish, and so completely insulated in their little cocoon of viewers who already agree with them anyway, that they just don't bother me much.  That's probably a little too lackadaisical on my part — they can still drive cards and letters into congressional offices, after all — but the fact is that they've lost their ability to push my buttons.  Their particular brand of freak-showism just doesn't seem so scary these days.

Nobody Left

| Fri Mar. 6, 2009 11:43 AM EST
Atrios responds to the latest government plan to restart the credit markets via partnerships with hedge funds and private-equity firms:

They made bad bets when they at least theoretically thought they could incur losses. Now the cunning plan is to hope they make good bets even though...no chance of losses!

This is all going to end really badly.

I have some longer thoughts on this subject that I haven't quite had the nerve to write and post yet, but the short version is this: everyone in the financial industry made bad bets over the past seven years.  So if you think the government shouldn't work with any of these guys, it means you think the government should refuse to work with the financial industry, full stop.  That's just not practical, though.  Even if you think they're all idiots, we have to work with someone, and the idiots are all we have.

Now, as it happens, I don't think they are all idiots.  But that's the post I haven't written yet.  Maybe later.