Kevin Drum

Wall Street Blues

| Thu Jan. 8, 2009 1:09 PM EST

WALL STREET BLUES....Given the increasingly grim economic news, Felix Salmon wonders why the stock market is up 20% over the past couple of months:

My feeling, mainstream as it may be, is that stocks are drifting upwards in blissful ignorance of reality, much as they did for nearly all of 2007, even after the credit crisis first hit. The panic sellers and the people desperately needing liquidity have left, volumes have fallen (as they always do around the holidays, no news there), and volatility has decreased. And so both value and momentum players are feeling increasingly comfortable rotating back in to the market.

But if the recession gets to be as bad as people are increasingly expecting, fundamentals will eventually start asserting themselves — and if we're unlucky, they'll do so in a violent downward manner, much as they did last fall.

Somebody yesterday was asking the same question — when will stocks start heading down again? — and the answer is pretty obvious: when earnings season rolls around and we learn just how bad corporate profits are these days. Time Warner and Intel issued profit warnings yesterday and the market dropped 3%. Today Walmart downgraded its profit projection for the fourth quarter and major retailers all reported that December was as dismal a month as they've ever had. In a few weeks, when earnings start getting reported more widely, there's going to be blood on the streets.

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The Fairness Doctrine

| Thu Jan. 8, 2009 12:24 PM EST

THE FAIRNESS DOCTRINE....Steve Benen passes along the news that a small gaggle of Republican congressmen are continuing to obsess over the possibility that the Fairness Doctrine might make a comeback. I assume Rush Limbaugh is bloviating daily about this too. I'm torn on what to do.

Option A: Let 'em rant. These guys need something to harangue their base about, and this is fairly harmless. It keeps them off the street and away from the matches.

Option B: Let 'em have their way. Stick in a Fairness Doctrine ban as an amendment to some random bill and pass it. I'm opposed to the Fairness Doctrine, so I wouldn't mind, and nearly all Democrats are opposed to it too. It's a freebie that will make David Broder happy, soothe the bipartisan waters, and shut up the conspiracy theorists.

I guess I Iean toward Option B. It was entertaining for a while, but I'm bored hearing about this nonsense. Go ahead and throw the whack jobs a bone.

Invade the Caymans!

| Thu Jan. 8, 2009 1:44 AM EST

INVADE THE CAYMANS!....In our current issue David Cay Johnston has a great piece about all the tax loopholes we ought to close as we tackle the long-term reengineering of our fiscal system. Here's my favorite:

The Obama administration could tell the Caymans — now fifth in the world in bank deposits — to repeal its bank secrecy laws or be invaded; since the island nation's total armed forces consists of about 300 police officers, it shouldn't be hard for technicians and auditors, accompanied by a few Marines, to fly in and seize all the records. Bermuda, which relies on the Royal Navy for its military, could be next, and so on. Long before we get to Switzerland and Luxembourg, their governments should have gotten the message.

Barring gunboat diplomacy (tempting as it is), there is no reason we cannot pass laws to block financial transactions with tax havens or even, Cuba-style, make it a crime for Americans to visit or do business with them without special permission. Congress could declare the hiding of funds a threat to national security and require that anyone with offshore assets disclose them to the IRS within 30 days and pay taxes, interest, and penalties within 180 days. For the holdouts, temporary special teams in the IRS and Justice Department could speedily pursue civil or criminal charges.

Boo yah! Other (slightly less bloodthirsty) suggestions include rules preventing companies from keeping two sets of books; increasing top marginal rates on the super-rich; reining in abuse of tax deferrals; ending utility scams (a new one to me); ditching the home mortgage deduction (good luck with that); bringing back usury laws; ending the burglar alarm subsidy (seriously); and a whole slew of others. A great read.

The Housing Market

| Thu Jan. 8, 2009 12:55 AM EST

THE HOUSING MARKET.....Barack Obama talks to the New York Times:

He said that he intended to propose a broad overhaul of financial regulation by April, and that he was working with Congressional leaders on his promised plan to limit foreclosures in the wake of the mortgage crisis.

"We've got to prevent the continuing deterioration of the housing market," he said.

But that's not true. Housing prices are still well above where they ought to be. Unfortunately, they need to deteriorate some more.

This is the big problem with efforts to rescue homeowners rather than banks. It makes sense that if banks have lots of assets that are toxic because they're based on uncertain house values, then rather than bailing out the banks directly we should just do something to make house prices more certain. Mortgage-backed assets would become easier to value, bank balance sheets would firm up, credit markets would start to ease, and distressed homeowners would get relief in the process. It's a win-win.

Except for one thing: we don't want to prop up housing prices at their current unsustainable levels, and we probably couldn't do it even if we wanted to. Rather, we need to find ways to help out homeowners even though prices are going to continue to deteriorate for a while. That's pretty tricky, though, since anything you do to rescue homeowners also has a tendency to keep house prices propped up.

Still, some things are better than others. Programs that motivate lenders to reach workout agreements with owners who are underwater probably have the biggest bang for the buck, and hopefully that's the kind of thing Obama has in mind. But whatever it is, it better not be something that tries to hold back the tide of falling house prices. It didn't work for King Canute and it won't work for President Obama either.

Attention Spans

| Wed Jan. 7, 2009 6:50 PM EST

ATTENTION SPANS....Mike O'Hare is unhappy about decreasing attention spans and what that means for the news business. I couldn't quite make it through his entire post1, but here's his conclusion:

Maybe a workable business/technology model can be created for digital newspapers, but the newspaper itself cannot be the same as the once-a-day package of lots of long stories and a 'readership' of googlers and texters may just not support the journalism on which a democracy depends.

....I am quite down about all this. It drives me nuts that my students have almost never engaged with a work of art or explication for more than the length of a music video; I assign them one of Wagner's longer operas and their mental state becomes a little labile, understandably, but even a ninety-minute class discussion often pushes the new limits of attention. I don't know how to get our arms around the facts of declining-marginal-cost goods in three-minute blips.

My mother was a fourth-grade teacher, and she told me once that when she started teaching (circa 1970) she could schedule activities for a maximum of 30 minutes before the kids got too antsy to control. By the time she retired (circa 2000), that was down to 15 minutes. I've long been of the opinion that there's an upside to this (primarily a better ability to multitask), but I confess that I'm less and less sure of that these days.

1Just a wee joke.

Pipeline Politics

| Wed Jan. 7, 2009 5:27 PM EST

PIPELINE POLITICS....Russia wants to hike the price that Ukraine pays for its natural gas. Ukraine doesn't want to pay. Russia says Ukraine is siphoning off gas destined for Europe. Ukraine says that's a lie. So Russia has closed the taps on its pipeline and no gas is flowing to anyone. Robert Farley takes a stab a figuring out who's really at fault in this spat:

On balance (and at risk of being once again denounced as a Kremlin stooge) I'm rather less sympathetic to the Ukrainian case; of course accepting a discount from a Russian national gas concern was going to give Russia influence over Ukraine. That's the price of doing business. I'm singularly uncompelled by the notion that Russia supplying energy to Europe gives the Russians some kind of undue, ominous influence over European affairs, any more than the folks down at Chipotle have ominous influence over me through their control of burrito supplies. Market transactions inevitably create short term dependence, but of course that goes both ways; Russia can interfere with supply only at significant cost to Russia.

Even at the higher prices Russia wants to charge Ukraine, the Ukranians would still be getting gas at a discount. And Ukraine's previous contract only ran through the end of the year. So I think I agree with Farley: although regional power politics are obviously behind Russia's actions, this is still primarily a commercial issue. Both Gazprom and Ukraine are in pretty serious economic straits right now, and neither one wants to back down. It's more a routine dispute over money than anything else.

UPDATE: In the Financial Times, Jérôme Guillet and John Evans provide more background. Nickel version: Russia and Ukraine have been fighting this exact same fight for a long time and they both know that neither side can do without the other. So a few years ago Gazprom "solved" its Ukraine problem by privatizing much of its gas trade: customers would pay less for their gas, but they'd pay a third-party supplier who was supposedly unrelated to either Ukrainian gas authorities or Gazprom:

Political infighting in Ukraine can largely be understood by the struggle to be the Ukrainian counterparty to the trade. (It is no coincidence that Yulia Tymoshenko, the prime minister, made her fortune in gas trading in the 1990s and that Viktor Yanukovich, the pro-Russia opposition leader, represents some of the largest heavy industrial gas buyers in eastern Ukraine.) In Russia, similarly, both the Kremlin and Gazprom are rife with infighting between shifting coalitions.

So while the world focuses on the predictable brinkmanship between Ukraine and Russia, the real fight over the share-out is taking place more discreetly between a few oligarchs in Moscow and Kiev. This is perhaps the whole purpose of the noisy puppet show. Worries about Russia or Gaz­prom using the "gas weapon" against Europe are misplaced. In their official capacity, both are keenly aware of their absolute dependency on exports to Europe for a huge share of the country's income, and on the need for stable, reliable, long-term relationships to finance the in­vestments needed in gas infrastructure.

So it really is a routine dispute over money, it's just that the dispute isn't really between Russia and Ukraine. It's between a small group of rich Russians and a small group of rich Ukrainians. You can read about this in even more gruesome detail here.

Via WhirledView.

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Entitlements

| Wed Jan. 7, 2009 4:08 PM EST

ENTITLEMENTS....From the New York Times account of Barack Obama's press conference this morning:

Changes in Social Security and Medicare will be central to efforts to bring federal spending in line, President-elect Barack Obama said on Wednesday, as the Congressional Budget Office projected a $1.2 trillion budget deficit for the fiscal year.

"We expect that discussion around entitlements will be a part, a central part" of efforts to curb federal spending, Mr. Obama said at a news conference. By February, he said, "we will have more to say about how we're going to approach entitlement spending."

This comes at about the 6:20 mark of the linked video. "We will have some very specific outlines in terms of how it's going to be done," he said. Now, maybe this is just me zoning out, but I don't recall Obama saying anything quite this unambiguous about Medicare and Social Security reform before. And I haven't read any leaks along these lines either.

On the Medicare front he may just be talking about the impact of his overall healthcare plan, but I don't have a clue what he might have in mind for Social Security. At a guess, though, he's got something typically Obamian in mind, a mixed bag of moderate tax hikes (maybe increasing the payroll tax cap, which I think he's talked about before) and moderate benefit cuts (maybe increasing retirement age a year or two) that will get bipartisan support. Wait and see.

Joe!

| Wed Jan. 7, 2009 2:50 PM EST

JOE!....Via Atrios, our friends at Pajamas Media have landed an exclusive:

Joe The Plumber is putting down his wrenches and picking up a reporter's notebook. The Ohio man who became a household name during the presidential campaign says he is heading to Israel as a war correspondent for the conservative Web site pjtv.com.

Another triumph for citizen journalism. Maybe Sarah Palin will join him for a surprise appearance at a bomb crater somewhere.

The Curious Case of the Curious Case of Benjamin Button

| Wed Jan. 7, 2009 2:39 PM EST

THE CURIOUS CASE OF THE CURIOUS CASE OF BENJAMIN BUTTON....Apropos of nothing in particular, I decided to read Fitzgerald's short story "The Curious Case of Benjamin Button" after seeing the movie, and it's curious indeed. Aside from not being a very good story (working in the dark ages before the rise of sf, Fitzgerald pretty clearly had no idea what to do with the concept), it's notable that the film doesn't contain even one single element from the story. Not one. Aside from the title, the only thing they have in common is the basic idea of a man aging backward, and even that's treated entirely differently in the film than in the story.

Now, I don't have any problem with this. Screenwriters should write whatever screenplay they want. But what I'm curious about is why the filmmakers even bothered to pretend their movie was based on the Fitzgerald story. If it were, say, I, Robot, I'd get it: the association with Isaac Asimov would be considered good for the box office. Ditto for all the bestsellers made into movies. But the association with Fitzgerald wasn't really played up much in the publicity for the movie, and Fitzgerald is hardly a huge draw for modern audiences anyway. So why bother? Oscar bait of some kind? Or what?

Snubbing Obama?

| Wed Jan. 7, 2009 2:00 PM EST

SNUBBING OBAMA?....Last month, Barack Obama asked the White House if he could move into Blair House a couple of weeks early so that his daughters Malia and Sasha could start school. They turned him down, saying there were guests already booked to stay there, and at the time I assumed this was legitimate. George Bush is many things, but turning down the request just out of personal pettiness didn't seem like his style.

But as so often happens, whenever I give Bush the benefit of the doubt, I turn out to be wrong. ThinkProgress has the dope. It's still possible that bureaucratic bungling or miscommunication might be the culprit here, but it doesn't really look like it.