Kevin Drum

Quote of the Day - 02.13.09

| Fri Feb. 13, 2009 2:00 PM EST
QUOTE OF THE DAY....From Obama campaign manager David Plouffe, on Sarah Palin:

"She was our best fundraiser and organizer in the fall."

Indeed.  Which is why I can hardly wait for her to talk herself into running again in 2012.

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Why Gregg?

| Fri Feb. 13, 2009 1:46 PM EST
WHY GREGG?....I don't know what really happened to cause Judd Gregg to withdraw his nomination as Commerce Secretary.  It's absurd for him to say that he hadn't really thought through the consequences of the stimulus package, which was by far the biggest story in Washington at the time he was nominated, and he claims the census kerfuffle was trivial.  So what was it?

Who knows?  But I'm sort of curious about the other side of this nomination too.  What was Obama thinking?  It's one thing to nominate a moderate conservative like Ray LaHood, or pragmatists like Jim Jones and Robert Gates, but Gregg is a full-blown dyed-in-the-wool fiscal conservative.  He's not a crank, but he's not within light years of finding common ground with a liberal Democratic president either.

So why did Obama nominate him?  Does he just not care about the Commerce Department?  Or did he really think that somehow this could work out?  The more I think about it, the stranger it seems.

Nationalization

| Fri Feb. 13, 2009 1:07 PM EST
Matthew Richardson and Nouriel Roubini argue in the Washington Post today that the U.S. banking system is insolvent to the tune of $400 billion, and nationalization is the only answer.  Here's their advice:

First, and this is by far the toughest step, determine which banks are insolvent. Geithner's stress test would be helpful here. The government should start with the big banks that have outside debt, and it must determine which are solvent and which aren't in one fell swoop to avoid panic. Otherwise, bringing down one big bank will start an immediate run on the equity and long-term debt of the others. It will be a rough ride, but the regulators must stay strong. Second, immediately nationalize insolvent institutions....Third, once an institution is taken over, separate its assets into good and bad ones....Fourth, merge all the remaining bad assets into one enterprise. ....Basically, we're all Swedes now. We have used all our bullets, and the boogeyman is still coming. Let's pull out the bazooka and be done with it.

I expect this to become a pretty mainstream opinion over the next few weeks, and once Geithner's stress testing is finished he's going to come under tremendous pressure to make the results public and do exactly what Richardson and Roubini suggest.  Pretty soon, even America's bankers will be capitalists, whether they like it or not.

Thimerosal Update

| Fri Feb. 13, 2009 12:22 PM EST
THIMEROSAL UPDATE....The vaccine/autism community has made great hay out of a single case last year in which the government conceded that a child with a pre-existing mitochondrial disorder may have been "aggravated" by a series of shots.  It was only one of thousands of cases in federal court, though, so how will they react now that the main test cases have been decided?

In a major setback for the fight to link autism to vaccines, a special federal court ruled Thursday that the measles-mumps-rubella vaccine and vaccines that contained a mercury-based preservative were not connected to the autism that developed in three children. The decisions in the cases [] could potentially sink the claims of several hundred other families in an omnibus proceeding that believe the MMR vaccine alone or in combination with vaccines containing the preservative thimerosal caused their children's autism, said Curtis Webb, a lawyer for the Hazlehurst family. ...."I concluded the evidence was overwhelmingly contrary to the petitioners' contentions," George Hastings Jr. wrote in the Cedillo opinion, similar to the others. "The expert witnesses presented by the respondent were far better qualified, far more experienced and far more persuasive than the petitioners' experts."

Needless to say, this won't convince anyone who doesn't want to be convinced.  "There's no denying what happens to your child when you see it firsthand," said Rick Rollens, who has an autistic son and co-founded the UC Davis MIND Institute.  And: "Rollens and others said these verdicts wouldn't make parents stop questioning the safety of vaccines, especially when the parents see changes in their children right after vaccination."

No doubt.  Time for the rest of us to move on, though.

Safe Havens

| Fri Feb. 13, 2009 11:49 AM EST
SAFE HAVENS....Via Felix Salmon, here's some interesting news: Moody's has decided that not all AAA sovereign debt is created equal.    Here's how things shake out:
  • AAA-Worst: Ireland, Spain
  • AAA-Middle: United States, UK
  • AAA-Best: Germany, France, Canada, Scandinavia

I wonder what it would take for the United States to be downgraded into the Ireland/Spain category?

The Tipping Point

| Thu Feb. 12, 2009 8:19 PM EST
THE TIPPING POINT....Should the stimulus bill have been even bigger?  Tyler Cowen lists several reasons to be cautious on this score, including this:
5. Many on the left are boasting that the U.S. government could borrow lots more (look at the current T-Bill rate), forgetting they used to warn us that international capital flows, as amplified through noise traders and speculators, mean that crises can arrive in a single, whiplash moment, bringing countries from riches to rags virtually overnight.  Somehow those old narratives are being forgotten, I wonder why.

We have essentially replaced a risk bubble with a safety bubble.  And there are lots of good reasons to think that this bubble, which manifests itself as an almost bottomless demand for U.S. treasuries, will continue for a long time.  But a long time isn't forever, and we're planning to sell upwards of $3 trillion in treasuries over the next 30 months.  So when will the tipping point come?  After $1 trillion?  $2 trillion?  Never?  I hope the answer is never, but if the past couple of years has taught us anything, it's that we don't know — and that never is probably the least likely answer.  And when the market does turn on us, it's going to turn ferociously and without notice.  I sure hope Geithner and Summers and the rest of the crew are prepared for this, because the odds are that we're going to be paying for the profligacy of the Bush administration for a long time to come.

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Gregg Withdraws

| Thu Feb. 12, 2009 6:13 PM EST
GREGG WITHDRAWS....I sure didn't see this one coming:

President Obama’s choice for Commerce Secretary, Senator Judd Gregg, withdrew his nomination on Thursday. He said there were “irresolvable conflicts” between him and the administration.
“It has become apparent during this process that this will not work for me as I have found that on issues such as the stimulus package and the Census, there are irresolvable conflicts for me,” Mr. Gregg said in a statement. “Prior to accepting this post, we had discussed these and other potential differences, but unfortunately we did not adequately focus on these concerns. We are functioning from a different set of views on many critical items of policy.”
Irresolvable conflicts on the stimulus package?  That's crazy.  There's simply no way Gregg didn't understand Obama's stimulus priorities when he accepted the job offer.

So that leaves the census.  Obama has decided to remove it from the Commerce Department and put it directly under the White House, something that's recently become a right wing  cause célèbre"This isn't a small or innocent change," says Rep. Marsha Blackburn (R–Tenn.), and I suspect we're going to be hearing a lot more about this soon from Limbaugh and Drudge and the rest of the usual suspects.  I hope Obama has a pretty good explanation for doing this.

UPDATE: Marc Ambinder says here that the census director still reports to Commerce and that the whole thing is a "BS issue."  So I'm not quite sure what's going on.  Fox News frames it this way:
White House officials have announced that the census will technically remain part of the Commerce Department, but that Chief of Staff Rahm Emanuel will oversee it at the White House, raising eyebrows among critics who say he can't be expected to be neutral in the task.

More later as I figure out what's really going on here.

RSS Feed

| Thu Feb. 12, 2009 2:30 PM EST
RSS FEED....Just a quick note: we know our RSS feed is having some teething problems.  We're working on it.  Some of you are reporting that you're only getting headlines, others (like me) aren't getting any feed at all.  Once we've figured what's going on, full feeds will be restored.

There are other problems we're working on too.  Hopefully they'll all be taken care of in the next day or two.  In the meantime, feel free to leave comments to describe any bugs you're seeing.  Please let us know what OS and browser you're using since that will help us track things down.  Your help and patience is greatly appreciated.

Stress Test

| Thu Feb. 12, 2009 1:25 PM EST
STRESS TEST....Matt Yglesias comments on today's Nick Kristof column on the economic meltdown:

As he says “the larger conundrum is that a bailout is both: A) urgent and essential; and B) unfair and unpopular.” Thus far, officials have attempted to resolve that conundrum with timidity, but ultimately that results in measures that fail on both counts. What’s needed is more boldness — really decisive action to clean up the financial sector combined with measures that are tough enough on CEOs and shareholders to give the effort political legitimacy.
OK, but here's the problem: you also have to do this in a way that's at least nominally fair.  And the process has to be fairly transparent.  If you ask Vikram Pandit right now if Citigroup is solvent, he'll tell you it is — and he'll then haul out a detailed PowerPoint presentation to prove it.  Citigroup's internal numbers suggest that they're well capitalized and in no need of being taken over.

Now, those numbers are almost certainly hooey.  Certainly investors don't believe them, and to register their disbelief they've driven Citigroup stock down to almost nothing.  Nonetheless, the numbers are there, and the government can't be in the business of taking over banks that swear on a stack of Bibles that they're perfectly healthy.  This, I assume, is the point of Tim Geithner's stress test.  In the same way that the Swedes set up a transparent process to evaluate their banking sector in the early 90s and ended up nationalizing two banks but not the others, Geithner needs to set up a process that does the same here.  If the process is seen as fair, there will be way less political blowback when some of the big banks are taken over and others aren't.

This, anyway, is the optimistic point of view: that Geithner and Obama, far from being unwilling to nationalize insolvent banks, are merely setting up the political and financial process to make it tolerable in the near future.  The pessimistic view is that they're just screwing around and don't really have any plan at all.  For the moment, then, I plan to take the optimistic point of view just for the sake of my own mental health.  Your mileage may vary, of course.

The Economy Up North

| Thu Feb. 12, 2009 12:45 PM EST
THE ECONOMY UP NORTH....The economy in Canada is doing pretty well.  Fareed Zakaria explains why:

So what accounts for the genius of the Canadians? Common sense. Over the past 15 years, as the United States and Europe loosened regulations on their financial industries, the Canadians refused to follow suit, seeing the old rules as useful shock absorbers. Canadian banks are typically leveraged at 18 to 1—compared with U.S. banks at 26 to 1 and European banks at a frightening 61 to 1. Partly this reflects Canada's more risk-averse business culture, but it is also a product of old-fashioned rules on banking.
Canada has also been shielded from the worst aspects of this crisis because its housing prices have not fluctuated as wildly as those in the United States. Home prices are down 25 percent in the United States, but only half as much in Canada. Why? Well, the Canadian tax code does not provide the massive incentive for overconsumption that the U.S. code does: interest on your mortgage isn't deductible up north.
So there you have it.  Keep your housing bubble to merely huge but not gargantuan size, and keep the gearing in your banking sector to merely huge but not gargantuan levels, and you'll do OK.  Boring, isn't it?