Kevin Drum

Searching for Cassandras

| Sat Nov. 29, 2008 12:56 PM PST

SEARCHING FOR CASSANDRAS....Brad DeLong says he was keenly aware of the housing bubble and fully expected it to burst. Me too! But he didn't expect any of the following:

(3) the discovery that banks and mortgage companies had made no provision for how the loans they made would be renegotiated or serviced in the event of a housing-price downturn.

(4) the discovery that the rating agencies had failed in their assessment of lower-tail risk to make the standard analytical judgment: that when things get really bad all correlations go to one.

(5) the fact that highly-leveraged banks working on the originate-and-distribute model of mortgage securitization had originated but had not distributed: that they had held on to much too much of the risks that they were supposed to find other people to handle.

(6) the panic flight from all risky assets — not just mortgages — upon the discovery of the problems in the mortgage market.

(7) the engagement in regulatory arbitrage which had left major banks even more highly leveraged than I had thought possible.

(8) the failure of highly-leveraged financial institutions to have backup plans for recapitalization in place in the case of a major financial crisis.

(9) the Bush administration's sticking to a private-sector solution for the crisis for months after it had become clear that such a solution was no longer viable.

So then: who did expect any/all of this stuff? Commenter macheath offers a few heroes:

Some people saw pieces of it, but were largely ignored or marginalized. Dean Baker was hammering on the house price bubble for years, and several people (including Gary Gensler at Treasury) called for stronger capitalization of Fannie and Freddie, saying their business model was not sustainable, and they were beaten up by Congress, Democrats and Republicans alike. Brooksley Born at the CFTC wanted to start investigating derivatives in the mid-1990s, and was slapped down by Greenspan, Rubin, and Summers, leading to legislation (backed by Summers) to prohibit the CFTC from regulating derivatives.

Is that it? Was anyone else warning us about Brad's seven points back in 2004? Or 2005?

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Climate Change in the Himalayas

| Sat Nov. 29, 2008 12:14 PM PST

CLIMATE CHANGE IN THE HIMALAYAS....Joe Romm passes along the news today that Himalayan glaciers are melting faster than anyone has previously predicted. You can add this to Romm's list of other climate change impacts that are happening faster than most climate models predict, including the canonical IPCC models:

This is why climate scientists have been running around with their hair on fire for the past couple of years. It would be nice to think that perhaps our current climate models are too pessimistic; or even that they're right but maybe we'll end up at the low end of the predicted warming ranges; or at worst that the models are right and we'll end up right at the center. But that just doesn't seem to be the case. What it really looks like is that our current models aren't pessimistic enough and that the growth in greenhouse gas emissions is exceeding even the modelers' highest estimates. We are fast approaching a point of no return that will likely kill hundreds of millions of people, destroy much of the world's food supply, and spark resource wars that make Rwanda look like a mild family quarrel. More from Romm here and here on what's happening and what to do about it.

Quote of the Day - 11.29.08

| Sat Nov. 29, 2008 9:53 AM PST

QUOTE OF THE DAY....From Emile Earles, a Cadillac owner in West Point, Georgia, on buying American:

"You can only be patriotic until you can't afford it anymore."

And this riposte from Eddie Striblin, a salesman at the local GM dealership:

"Let me ask you a question: You ever heard of anybody braggin' on a '57 Honda?"

That's the American car industry in a nutshell, isn't it?

*Chart of the Day - 11.27.2008

| Fri Nov. 28, 2008 8:04 PM PST

CHART OF THE DAY....Via Overcoming Bias, three French researchers surveyed 1,540 people and offered them the opportunity to play a game in which a coin is tossed ten times and they'll win ten euros each time it comes up heads. "The participant is then asked for his/her own estimation, according to his/her experience and his/her luck, of the number of times heads will occur, i.e. how many times (out of ten) he/she thinks he/she is going to win (and get 10 euros)." What do you think is the most terrifying aspect of this survey?

  1. The mean answer was 3.9.

  2. About ten people thought they would win every single toss.

  3. The authors managed to produce a 21-page paper out of this.

The full survey is here. The authors also note that women are more pessimistic than men; old people are more pessimistic than young; and that nearly everyone answers "five" if monetary gain is removed from the question. In other words, people seem to know the odds, they just think the universe is stacked against them. (Or that the researchers are going to cheat. Take your pick.)

The exception, of course, is those ten respondents who think they'll win every time. Here in America, we call those people "investment bankers."

Patching Things Up

| Fri Nov. 28, 2008 3:45 PM PST

PATCHING THINGS UP....Samantha Power, last heard from calling Hillary Clinton a "monster" and then apologizing fulsomely for it, is back:

State Department officials said Friday that Samantha Power is among a group of foreign policy experts that the president-elect's office selected to help the incoming administration prepare for Clinton's anticipated nomination as secretary of state.

....Clinton's office declined to comment on Power's inclusion in the State Department transition, but an official close to the Obama transition team said Power had ''made a gesture to bury the hatchet'' with Clinton and that it had been well-received.

If we accept the conventional wisdom that Obama's choice of Clinton as Secretary of State is a generous gesture meant to help unify the party, then there would be few more forthright ways for Clinton to reciprocate than by nominating Power for some kind of meaningful position at Foggy Bottom. It would be a good sign that those hatchets have been well and truly buried.

Super Senior

| Fri Nov. 28, 2008 2:58 PM PST

SUPER SENIOR....Felix Salmon explains the synthetic CDO market:

Let's start with a simple single-credit synthetic bond....

[Explanation follows, ending with a little bit about the size of the synthetic mortgage backed security market.]

....In fact, most of the synthetic MBS issued were issued by banks which kept the underlying mortgages on their own balance sheet. Rather than put the mortgages directly into a CDO and sell that to investors, they kept the mortgages themselves and bought protection from the CDO. Why did they do that? That's the story of the super-senior tranche, and will have to wait for another day.

What!?! For pity's sake, man, don't keep us in suspense. I want to hear about the super-senior tranche. It's one of those things that I think I understand in a technical sense — sort of the way a blind man understands a sunset — but not in the real-world sense of what people were doing with them and how they got abused so badly. So let's hear it!

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Comments!

| Fri Nov. 28, 2008 11:38 AM PST

COMMENTS!....Jacob Levy talks about evolution of the blogosphere:

I'm one of the last of the oldline blogluddists who thinks that the decline of civility and decency the blogosphere can be traced to two events, one of which I won't tell you but one of which was the creation of comments sections. In particular, I remember thinking that the opening of comments at Kevin Drum's then-site, CalPundit, changed things rather a lot.

This deserves explication. Does Jacob think that opening a comment section changed my actual blogging? Or did the blogging remain the same but the mere existence of raucous commenters changed things? If the latter, why not just ignore the comments? If the former, how?

I've heard this general complaint many times, and I've never really understood it. My own view of comments is that they don't exist mainly for my benefit, or even for my readers' benefit, but for my commenters' benefit. In the same way that blogging gave me a platform to mouth off in public that I otherwise wouldn't have gotten, I figure that comment sections give an entirely different group of people the same opportunity. So I'm happy to provide it, even if it often gets out of hand. It's not like anyone's holding a gun to our heads and forcing us to read them, after all. (And anyway, the comment section here has improved considerably over the past couple of years thanks to my steely and implacable moderators. Thanks guys!)

On a more general note, Jacob's post reminds me that I've always been a little puzzled by the number of times readers have told me that I've "changed" thanks to something or other. When I opened comments. When I started accepting ads. When I moved to the Washington Monthly. When I moved to MoJo. Etc. For a variety of reasons, it's unlikely in the extreme that any of these events changed anything about my writing at all, but people sure think they do with fair regularity. I don't doubt that my writing has evolved since I started doing this six years ago, but I very much doubt that there was any particular event that's been responsible for it. More likely it was just six years of writing and learning and getting progressively more annoyed with the modern Republican Party.

But let's combine both these topics into one. Old timers: what do you say? Has my blogging changed substantially since the early days? How? Naturally, I urge you to leave your observations in comments.

UPDATE: Jacob responds.

Bagels!

| Fri Nov. 28, 2008 11:07 AM PST

BAGELS!....One of these days I guess I'm going to have to try a bagel when I'm in New York City. My crappy taste buds being what they are, I suppose my reaction is going to be the usual (i.e., "they just taste like bagels to me"), but I'm still curious. It hardly seems plausible that transplanted New Yorkers can't make good bagels elsewhere in the country, and insufficiently developed consumer taste doesn't seem like a good explanation for this lack, as it often is for ethnic food of other varieties.

(Can you order a New York City bagel over the internet? I mean, I'm sure you can, but do they survive the shipping process tasting as good as if they were bought locally? Or do I really have to get on a plane and head east to perform this experiment?)

Anyway, this spate of bagel blogging was inspired by a David Bernstein post about bagels over at the Volokh Conspiracy, and what really amused me wasn't the bagel stuff itself, but Bernstein's being annoyed that the book he was reading, The Bagel: The Surprising History of a Modest Bread, "relies on union sources, the story is completely one-sided; the reader doesn't get the perspective of any of the bagel bakery owners, just the workers." We all have our pet peeves, so I guess I shouldn't laugh, but Bernstein seems constitutionally incapable of ever letting a positive mention of unions pass unnoticed, insisting that every advance in worker rights would have happened anyway due solely to rising union standards. I say: tell it to the janitors, pal. Rising living standards don't really seem to have helped their cause a helluva lot. In fact, tell it to the median worker in general, who's made virtually no gains at all over the past three decades despite a near doubling in per capita GDP during the period.

Eh. I guess that just shows that I have some pet peeves too. I still need to try a real NYC bagel one of these days, though. If and when I do, which shop should I try, O commenters?

Wingers and the Economy

| Fri Nov. 28, 2008 10:47 AM PST

WINGERS AND THE ECONOMY....I read Charles Krauthammer's column this morning — yet more proof, if more were needed, that people with very high IQs can also be very, very stupid — and I got to wondering. A developing meme on the right suggests that our recent economic meltdown isn't really the fault of the free market having a heart attack at all, but rather the fault of the government performing triple bypass surgery in response to what was really no more than some free market heartburn. And so I wonder: Is this really going to be the National Review/WSJ editorial page/Grover Norquist line going forward? And if it is, what's the right response? Sober op-eds explaining why they're wrong? Or dismissive laughter? I'm thinking the latter.

Thanksgiving Catblogging

| Thu Nov. 27, 2008 10:49 AM PST

THANKSGIVING CATBLOGGING....The stars of this year's traditional Thanksgiving clipart extravaganza are Ditto and Tillamook, my mother's two new kittens. I was over the other day visiting, and let me tell you: these are definitely not a shy pair of kittens. Ditto practically knocks down the furniture running over to greet visitors, and starts purring like a motorboat if you so much as look at him crosseyed. Tillie was in nap mode most of the time I was there, but is also friendly and adorable, as all kittens should be.

The pod they're sleeping in was a housewarming gift from me. Ten bucks at Walgreens. Isn't it cute? When I got it home, though, it turned out that Domino and Inkblot both thought it was for them, with Domino eventually claiming it as her permanent nighttime bed. What could I do? Back to Walgreens for another one, that's what. As you can see, the dynamic duo love it too when they've decided they've had enough dynamism for the time being.

Like them, I'm dreaming of turkey right now. In fact, I can almost taste it already. Happy Thanksgiving, everyone!