Kevin Drum

Should Dick Keep His Trap Shut?

| Sun Apr. 5, 2009 12:17 PM EDT
Via ThinkProgress, I see that David Axelrod hit back today against Dick Cheney's recent criticisms of Obama's foreign policy.  George Bush, by contrast, has said that Obama "deserves our silence," which prompted this from Axelrod: "He's behaved like a statesman. And as I’ve said before, here and elsewhere, I just don’t think the memo got passed down to the vice president."

I've been mulling this ever since Cheney started spouting off a few weeks ago, and I still haven't really made up my mind about it.  Does an outgoing administration owe an incoming one silence?  I don't think that's always been the case (historians please correct me here if I'm wrong), and I wonder if it really should be.  Sure, it would be unseemly for ex-presidents and their staffs to engage in partisan feeding frenzies after they leave office, but is there really any reason why they should all take vows of silence?  If Cheney thinks torture and warrantless wiretapping are vital to the nation's security, then maybe he should go ahead and say so.  Why not?

Obviously this isn't the best time to bring this up, since after eight years of wrecking the country most of us really do think the Bushies ought to take a nice, long time out.  But just in general, and assuming it's done in moderation, I'm not sure I see the harm in former administration mucky mucks continuing to express their (sincerely held!) opinions.  Let a thousand flowers bloom and all that.

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Eat the Creditors

| Sun Apr. 5, 2009 11:52 AM EDT
When big financial companies go bust (or are bailed out), shareholders usually lose nearly everything.  Which is as it should be.  But how about creditors and other counterparties?  So far, Uncle Sam has mostly been keeping them whole. It's not 100% clear to me why this is, but it appears to be motivated by a fear of domino effects (creditor banks would take huge losses, so they'd go bust and their creditors get wiped out, and before long the whole world is wiped out) combined with a fear that it will become impossible for banks to raise money if bondholders smell even a whiff of danger.

Maybe.  But Tyler Cowen points out that one of the services creditors provide the economy is keeping companies honest.  Regulators can only do so much, and creditors are the ones with an incentive to keep a gimlet eye on their investments and pull back when companies start looking like bad risks.  But what incentive do they have to do that in the financial sector if the feds are always going to bail them out anyway?

This is the standard moral hazard problem, and the more it becomes institutionalized (after 30 years of bailing out Latin America, S&Ls, Mexico, Asia, LTCM, and AIG) the worse it gets.  Tyler doesn't think bankruptcy will work, so he tosses out a couple of other ideas:

The key to effective regulatory reform is to find a credible means of imposing some pain on creditors.

Here is one possibility. The government has restricted executive pay at A.I.G. and banks receiving government funds, but this move fails to recognize that the richest bailout benefits go to creditors. Restricting compensation at these creditor firms would have more force — if it is done transparently, in advance and in accordance with the rule of law. A simple rule would be that some percentage of bailout funds should be extracted from the bonuses of executives on the credit or counterparty side of transactions.

Such a rule would make lenders more conservative, which would generally be a good thing. To make sure that this measure doesn’t choke off economic recovery, a workable plan would impose compensation restrictions only after the economy improves and banks are recapitalized.

Here is another option: Even in good times, when there is no threat of insolvency on the horizon, credit agreements should provide for the possibility of a future, prepackaged bankruptcy. Those agreements should require that the creditors themselves would suffer some of the damage — even if the government stepped in to bail out the afflicted firm.

There is a risk that these sacrifices will not be extracted when the time comes, but the prospect might still check the worst excesses of leverage.

The central issue here appears to be credibility: these kinds of things only work if creditors believe the government will have the guts to follow through with them when the time comes.  So that means we need something like the equivalent of the guy who tosses his steering wheel out the window in a game of chicken.  But what would it be?  What could we do today that would credibly persuade creditors we're going to hold their feet to the fire tomorrow when systemic risk rears its ugly head again?  Suggestions?

Quote of the Day - 4.5.09

| Sat Apr. 4, 2009 11:11 PM EDT
From the Wall Street Journal, about a guy who just finished building a spectacular $24 million home in Toronto with a private concert hall:

Jim Stewart, who will only say he is in his 60s, is a top-shelf classical violinist who earned his millions writing calculus textbooks.

You can earn millions writing calculus textbooks?  Seriously?

Taking on the Iron Triangle

| Sat Apr. 4, 2009 2:25 PM EDT
Apparently the shit is scheduled to hit the proverbial fan in two days:

Defense Secretary Robert M. Gates is expected to announce on Monday the restructuring of several dozen major defense programs as part of the Obama administration's bid to shift military spending from preparations for large-scale war against traditional rivals to the counterinsurgency programs that Gates and others consider likely to dominate U.S. conflicts in coming decades.

....Among the programs expected to be heavily cut is the Army's Future Combat Systems, a network of vehicles linked by high-tech communications that has been plagued by technical troubles and delays; with a price tag exceeding $150 billion, it is now one of the most costly military efforts.

Gates also is considering cutting a new $20 billion communications satellite program and reducing the number of aircraft carriers from 11 to 10, and he plans to eliminate elements of the decades-old missile defense effort that are over budget or considered ineffective, according to industry and administration sources.

But congressmen like military toys, and they especially like military toys manufactured in their districts.  I guess we're about to find out whether they like them even more than they like winning actual wars.

Listening to the Right

| Sat Apr. 4, 2009 2:03 PM EDT
Charles Blow has been listening to talk radio:

Lately I’ve been consuming as much conservative media as possible (interspersed with shots of Pepto-Bismol) to get a better sense of the mind and mood of the right. My read: They’re apocalyptic. They feel isolated, angry, betrayed and besieged.

Well, sure, though this is hardly unusual.  A sense of besiegement has been the right's stock in trade for as long as I've been alive.

But there is something different about their tone these days, and I can't quite put my finger on exactly what it is.  My tentative take is that there's an inchoate quality to their fears that's new.  In the past they were fighting against specific things: communism, hippies, Bill Clinton, Islamists, abortion, etc.  But communism is dead, the hippies are grown up, Clinton is off doing good works in Africa, al-Qaeda is pretty quiet, and it's pretty obvious that the culture wars have been lost. They're doing their best to slot Obama into the old Clinton/Gore role, but he just doesn't fit and the media isn't playing along the way they did in the 90s.  So they're stuck.  Who, exactly, is their enemy these days?

I'm not sure they know themselves.  But maybe that makes it worse.  A nuclear-armed USSR may be scary, but at least it's something you can identify.  These days that's a lot harder.  Like a horror movie where you're surrounded on all sides by something you can never quite make out, I guess it seems to them like there's something horrible going on, but it's something so insidious that they're only allowed to catch occasional foggy glimpses of it.  Budget deficits?  Healthcare reform? Top marginal tax rates going back to 39.6%? Negotiations with Iran?  Those aren't things that normally stir the blood.  But what if they're really just stalking horses for something far more malign?

I dunno.  Maybe that's the reason for the apocalyptic tone.  The actual policies that liberals are pursuing aren't that big a deal even by right-wing standards, but if besiegement is your stock in trade then that only means there must be something else going on that you're not being allowed to see.  Because there has to be something, doesn't there?

"Holy Hell"

| Fri Apr. 3, 2009 10:58 PM EDT
Michael Isikoff reports that the White House is in the middle of an internal brawl over whether to release the last of the Bush-era torture memos:

As reported by Newsweek, the White House last month had accepted a recommendation from Attorney General Eric Holder to declassify and publicly release three 2005 memos that graphically describe harsh interrogation techniques approved for the CIA to use against Al Qaeda suspects. But after the story, 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.

....Brennan succeeded in persuading CIA Director Leon Panetta to become "engaged" in his efforts to block release, according to the senior official. Their joint arguments stalled plans to declassify the memos even though White House counsel Gregory Craig had already signed off on Holder's recommendation that they should be disclosed, according to an official and another government source familiar with the debate. No final decision has been made, and it is likely Obama will have to resolve the matter, according to the sources who spoke to Newsweek.

Brennan's argument is that release of the memos might embarrass allies who helped us torture prisoners.  He might even be right.  But if that makes foreign intelligence services more cautious about helping us commit war crimes in the future, that would be a argument in favor of releasing the memos, not against it.

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Friday Cat Blogging - 3 April 2009

| Fri Apr. 3, 2009 1:41 PM EDT
Are these pictures great, or what?  They make quite a pair.  On the left, Inkblot is focused intently on a deadly laser beam (outside the frame, sadly) that was apparently smuggled into the house by SMERSH.  Needless to say, it met its match.  On the right, Domino isn't focused on anything.  She's just sacked out on the couch, wondering why Kevin keeps waking her up with that stupid big glass eye he carries around.  Humans are so weird.

Still, not a bad week for the human-in-chief, was it?  He did some good work on nuclear arms reduction, kept the peace between France and China, met the queen of England, helped broker a surprisingly good G-20 agreement, and (though this wasn't widely reported) won international support for the free flow of cat food.  Not bad for a human.

 

Quote of the Day - 4.3.09

| Fri Apr. 3, 2009 1:01 PM EDT
From Barack Obama, at a meeting with bank CEOs last week:

“My administration is the only thing between you and the pitchforks.”

That's what FDR said too, and the captains of industry didn't believe him either.  But he was right, and for better or worse, Obama probably is too.

Gaming Geithner

| Fri Apr. 3, 2009 12:23 PM EDT
Via the Wonk Room, the Financial Times reports on plans for banks to game Tim Geithner's toxic waste plan by bidding on each other's assets:

US banks that have received government aid, including Citigroup, Goldman Sachs, Morgan Stanley and JPMorgan Chase, are considering buying toxic assets to be sold by rivals under the Treasury’s $1,000bn (£680bn) plan to revive the financial system.

....Wall Street executives argue that banks’ asset purchases would help achieve the second main goal of the plan: to establish prices and kick-start the market for illiquid assets.  But public opinion may not tolerate the idea of banks selling each other their bad assets. Critics say that would leave the same amount of toxic assets in the system as before, but with the government now liable for most of the losses through its provision of non-recourse loans.

Administration officials reject the criticism because banking is part of a financial system, in which the owners of bank equity — such as pension funds — are the same entities that will be investing in toxic assets anyway. Seen this way, the plan simply helps to rearrange the location of these assets in the system in a way that is more transparent and acceptable to markets.

Italics mine.  Look: I'm no financial rocket scientist, but I'm at least a halfway reasonable judge of bullshit.  Are the Treasury boffins seriously suggesting that the aim of their plan is merely to "rearrange" the assets from one distressed bank to another?  Someone might want to take a wee look at public opinion on this before they put their feet any further in their mouths trying to explain why this is such a great idea.  It's not gonna fly, folks.

Gay Marriage in the Heartland

| Fri Apr. 3, 2009 11:58 AM EDT
The Iowa Supreme Court has decided unanimously that a law banning same-sex marriage violates the state constitution.  Basically, the court made a common sense ruling that the Iowa ban did indeed discriminate on the basis of sexual orientation:

Our responsibility [] is to protect constitutional rights of individuals from legislative enactments that have denied those rights, even when the rights have not yet been broadly accepted, were at one time unimagined, or challenge a deeply ingrained practice or law viewed to be impervious to the passage of time....As Justice Oliver Wendell Holmes poignantly said, “It is revolting to have no better reason for a rule of law than that so it was laid down in the time of Henry IV. It is still more revolting if the grounds upon which it was laid down have vanished long since, and the rule simply persists from blind imitation of the past.”

....[E]qual protection before the law demands more than the equal application of the classifications made by the law. The law itself must be equal. [...] In other words, to truly ensure equality before the law, the equal protection guarantee requires that laws treat all those who are similarly situated with respect to the purposes of the law alike.

....It is true the marriage statute does not expressly prohibit gay and lesbian persons from marrying; it does, however, require that if they marry, it must be to someone of the opposite sex. Viewed in the complete context of marriage, including intimacy, civil marriage with a person of the opposite sex is as unappealing to a gay or lesbian person as civil marriage with a person of the same sex is to a heterosexual. Thus, the right of a gay or lesbian person under the marriage statute to enter into a civil marriage only with a person of the opposite sex is no right at all....By purposefully placing civil marriage outside the realistic reach of gay and lesbian individuals, the ban on same-sex civil marriages differentiates implicitly on the basis of sexual orientation.

That's nicely and plainly said.  Very midwestern.  The court then went through the usual list of reasons for banning gay marriage (maintaining traditional marriage, promotion of optimal environment to raise children, promotion of procreation, promoting stability in opposite-sex relationships) and concluded that none of them had enough substance to overcome obvious discrimination against a relatively powerless class.  And that was that.

So for now, anyway, Iowa has gay marriage and California doesn't.  Who would have guessed?