Kevin Drum

Happy Birthday to Me!

| Sun Oct. 19, 2008 2:03 AM EDT

HAPPY BIRTHDAY TO ME!....I turn 50 today. Happy birthday also to Jim Henley, who stubbornly remains a couple of years younger than me. And to Grover Norquist, who stubbornly remains a couple of years older than me. And to GOPAC chairman Michael Steele, who stubbornly remains exactly the same age as me. And to everyone else born on October 19th. Buy yourself a cake today!

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I'm Rich Enough Already, Thank You***

| Sun Oct. 19, 2008 1:24 AM EDT

I'M RICH ENOUGH ALREADY, THANK YOU....Andrew Lahde, who made himself famous by starting up a hedge fund that made a ton of money betting on the collapse of the subprime market, is closing up shop. On Friday, he explained why:

The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

Get that man a blog!

Chart of the Day - 10.18.2008***

| Sat Oct. 18, 2008 1:39 PM EDT

CHART OF THE DAY....A couple of weeks ago I quit watching the stock market's gyrations during the day because it was obvious that they didn't really mean anything. Up, down, whatever: the events of the final hour, from 3 pm to 4 pm were all that mattered, wiping out huge gains in an instant or turning small losses into disasters.

Now comes a nice chart via Zubin Jelveh that demonstrates the point graphically. As you can see, normally the stock market moves anywhere from a quarter of a percent to one percent in the final hour of the day. That's roughly the same as the other six hours the market is open. But since mid-September? Final-hour volatility jumped to 2%, and then earlier this month to a high of 6%. That's as much movement as the entire rest of the day. So if you're the nervous sort, give yourself a break and take your eyes off the hourly movements of the Dow. Just check in at 4 pm and be done with it.

Need some more charts? Ezra Klein has a nice one showing that sometimes placebos work just as well as surgery. (With a followup here.) Maybe those Christian Scientists are on to something after all?

Friday Cat Blogging - 17 October 2008

| Fri Oct. 17, 2008 4:19 PM EDT

FRIDAY CATBLOGGING....We're in the middle of a mild Santa Ana condition right now, which means it's been pretty warm this week. Despite this, Domino has taken to burrowing under the bedroom quilt for her afternoon snooze. So that's what she's doing on the left. On the right, Inkblot, having finally cottoned to the fact that something is going on underneath the blankets, heads over to check it out. Needless to say, this had potential for considerable merriment, but after taking a brief swipe at Domino's paw, which was sticking out of the blanket, he got sort of addled and headed downstairs for a snack. That's always been the real center of his universe, after all.

LA Times Endorses Obama

| Fri Oct. 17, 2008 4:07 PM EDT

LA TIMES ENDORSES OBAMA....I won't try to pretend that the LA Times endorsing a liberal candidate is some kind of harbinger of social upheaval, but still: they haven't endorsed a presidential candidate for over 30 years. This year they're endorsing Obama:

We may one day look back on this presidential campaign in wonder. We may marvel that Obama's critics called him an elitist, as if an Ivy League education were a source of embarrassment, and belittled his eloquence, as if a gift with words were suddenly a defect. In fact, Obama is educated and eloquent, sober and exciting, steady and mature. He represents the nation as it is, and as it aspires to be.

They still like McCain because they think he'll cut taxes more on rich people (seriously, that's what they say), but they also aver that "the presidential campaign has rendered McCain nearly unrecognizable." Perhaps. Or maybe stress reveals character more than they think. That aside, though, most of the editorial is sharply on point. You can read the rest here.

The Fix We're In

| Fri Oct. 17, 2008 3:56 PM EDT

THE FIX WE'RE IN....Via Tim Fernholz, Rutgers history professor James Livingston offers his take on the core cause of our current financial meltdown. Naturally I like it, since it confirms many of my existing prejudices about the matter, so maybe you'll like it too:

The Great Depression was the consequence of a massive shift of income shares to profits, away from wages and thus consumption, at the very moment — the 1920s — that expanded production of consumer durables became the crucial condition of economic growth as such. This shift produced a tidal wave of surplus capital that, in the absence of any need for increased investment in productive capacity (net investment declined steadily through the 1920s even as industrial productivity and output increased spectacularly), flowed inevitably into speculative channels, particularly the stock market bubble of the late 20s.

....[Likewise], a shift of income shares away from wages and consumption, toward profits, has characterized the pattern of economic growth and development over the last twenty-five years....The offset to this massive shift of income shares came in the form of increasing transfer payments — government spending on social programs — since the 1960s; these payments were the fastest growing component of labor income (10 percent per annum) from 1959 to 1999. The moment of truth reached in 1929 was accordingly postponed. But then George Bush's tax cuts produced a new tidal wave of surplus capital with no place to go except into real estate, where the boom in lending against assets that kept appreciating allowed the "securitization" of mortgages — that is, the conversion of consumer debt into promising investment vehicles.

....And while consumers were going deeper into debt to service the current account deficit and finance economic growth, corporations were abstaining from investment: "The recent household deficit more than offset the persistent financial surplus in the business sector. For a period of six years — the longest since the second world war — US business invested less than its retained earnings." (FT 8/22/07, p. 13)

....So the Bush tax cuts merely fueled the housing bubble — they did not, and could not, lead to increased productive investment. And that is the consistent lesson to be drawn from fiscal policy that corroborates the larger shift to profits, away from wages and consumption.

I'll leave it to economists to argue over whether Livingston is right in detail. But the confluence of stagnant middle class wages; the resultingly vast pools of idle money looking for places to go; a rising federal deficit and a skyrocketing current account deficit; and then a series of tax cuts to make it all even worse — that's the big-picture core of what's wrong with our economy. It won't get fixed overnight, but the sooner we start the better.

POSTSCRIPT: And on a similar note, how about that capital gains tax cut in 1997, passed just in time to direct even vaster streams of cash into the dotcom bubble? Not such a good idea in retrospect, was it?

UPDATE: See Tyler Cowen here and Daniel Davies here for related thoughts. Though, really, I'm not sure "related" is quite the right word. But beneath the surface there's a sort of family resemblance.

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Bailout Watch

| Fri Oct. 17, 2008 2:53 PM EDT

BAILOUT WATCH....So how's that bank recapitalization going? Are big banks going to use their $125 billion in federal cash to expand lending and unfreeze the credit markets? The New York Times reports:

"There is no express statutory requirement that says you must make this amount of loans," said John C. Dugan, the comptroller of the currency. "But the economics work so that it is in their interest to do so."

Mr. Dugan added that he would not examine how the banks used the money, but he said their actions would "be open to the court of public opinion."

Ah, yes, the court of public opinion. The titans of Wall Street are famous for their humble submission to public opinion. That should work out very well indeed.

Or not. Especially if it doesn't matter because they still don't have any money:

Lenders have been pulling back on credit lines for businesses, mortgages, home equity loans and credit card offers, and analysts said that trend was unlikely to be reversed by the government's money.

"I don't think that the market wants to see that capital being put to work to leverage the business up again," Roger Freeman, an analyst at Barclays Capital, which acquired parts of the now-bankrupt Lehman Brothers last month, told The Times. "My expectation is it's quarters off, not months off, before you see that capital being put to work."

....In the case of the nine-largest commercial banks — Citigroup, Merrill Lynch, Bank of America, Morgan Stanley, JPMorgan Chase, Goldman Sachs, Wells Fargo, Washington Mutual and Wachovia — profits from early 2004 until the middle of 2007 were a combined $305 billion. But since July 2007, those banks have marked down their valuations on loans and other assets by just over that amount.

In other words, their net profit for the past four years is already negative, and by the time this is all over their net profit for the entire past decade or three will be negative. So keep that government cash coming. $125 billion is only the beginning.

Purging Ohio

| Fri Oct. 17, 2008 1:43 PM EDT

PURGING OHIO....A couple of weeks ago the Ohio Republican Party sued the Ohio Secretary of State. Their aim: forcing her to turn over to county officials the raw results of database matching operations for new voter registrations. She had refused because these matching efforts are notoriously unreliable, effectively purging tens of thousands of new registrations because of inaccuracies in the DMV and Social Security databases.

But of course the bulk of new registrations this year are Democratic voters, so the Ohio GOP went to court anyway. Today, in an impressively quick ruling, the Supreme Court unanimously ruled against them. I guess Scalia and Thomas must still be feeling guilty over 2000.

UPDATE: Elsewhere, Matt Yglesias makes the case for a national ID card as a way of cutting voter fraud. He doesn't actually say that, mind you, but that's how I choose to intepret his tale of voting woe anyway. And I agree.

Defending the Squiggle

| Fri Oct. 17, 2008 1:08 PM EDT

DEFENDING THE SQUIGGLE....Daniel Davies defends the "squiggle," CNN's real-time plot of reactions from their focus group of undecided voters during presidential debates:

My only complaint about the crawler is that CNN removes it from the screen when the debate finishes. I absolutely wish that they continued to show the favourable/unfavourable reactions of the dial-testing focus group to the talking heads on the news afterwards; you'd be able to see the worm plunging every time Wolf Blitzer opened his gob. I suspect a few uncomfortable home truths would arise out of that one.

He's got a few other ideas for on-screen dial testing too. Oddly enough, though, I'm tired of the squiggle. For the first three debates I was fascinated by it even though I knew it was mostly just BS, but in the fourth debate I hardly watched it at all. It wasn't anything deliberate, I just didn't care. Short attention span, I guess.

The Widening Gyre

| Fri Oct. 17, 2008 12:59 PM EDT

THE WIDENING GYRE....Over at MojoBlog, David Corn reports on the latest crop of last ditch attacks being waged by loony right groups against Barack Obama. The nickel version:

Mohamed Atta's Driver License....Obama is a Socialist....Obama Is a Secret Muslim Plotting With an Evil Billionaire....Obama Is Fronting for Islamic Jihadists....

I guess things really are different this year. This stuff just sounds pathetic, not scary. Details here if you want to read up on the latest.