Kevin Drum

Regulation

| Wed Nov. 19, 2008 12:39 PM EST

REGULATION....Apparently there was a panel discussion on the financial crisis last night, and both Matt and Ezra report that the main takeaway was not to worry too much about trying to cure the precise causes of our current catastrophe. See, we've learned our lessons and the next catastrophe will almost certainly be caused by something different. Better instead to focus on broader regulations aimed at things like limiting leverage and taming asset bubbles slightly.

(That "slightly" is an important qualifier. There's plenty of legitimate controversy over whether the Fed can identify asset bubbles at all, and even if they can, whether the cure is worse than the disease. My own take is that I'll bet we can identify the worst asset bubbles if we make it a priority, and can probably do it early enough to provide mild corrections. That might not sound like much, but if the housing bubble had peaked out even 20% lower than it did in real life, I'll bet that would have made a noticeable difference in the severity of the ensuing financial meltdown. We still would have had a bubble, and its bursting still would have caused huge problems, but huge problems are still easier to deal with than catastrophic problems.)

In any case, I think Ezra is properly skeptical of this advice, since bankers will in fact make the exact same mistakes they made this time around if we allow them to. It'll take 20 years, but they'll do it. Here in Southern California, just to provide an example close to home, the fact that we had a disastrous housing bubble in the late 80s didn't put any brakes on the housing bubble in the early 2000s. In fact, the housing bubble was worse here than just about any other place in the country. It took us a grand total of 15 years to go from the peak of one housing bubble to the next.

Still, broad regulation is probably better. Leverage is obviously a common factor in lots of financial meltdowns and pretty clearly needs to be addressed seriously this time around — and that includes hedge funds, which have collectively grown big enough that they really can't be left to their own devices any longer. The CDS market allows risk to be laid off and spread around, which is good, but we probably ought to give a little more thought to whether it's really such a good thing when it happens on a gigantic scale. Perhaps forcing loan originators and bond underwriters, who (supposedly) understand their customers better than anyone, to retain more of their own risk acts as a natural brake on irrational exuberance. Transparency in financial transactions is another obvious target for regulators: more is almost always better. Finally, the obvious conflict of interest in rating agency behavior might or might not have been a major contributor to our current problems, but it was certainly part of the problem, and some modest regulations on that score couldn't hurt. David Zetland suggests that setting standard fees for rating financial instruments and then adjusting those fees over time based on their accuracy would be a good place to start.

What else? I wonder if anyone is seriously suggesting any macro solutions to what happened? If, for example, the global savings glut (or investment drought, depending on your view of the matter) really did produce such a tidal wave of idle cash that it was going to find stupid places to go no matter what regulations we had in place, then what's the answer to that? Is there one? Or should that simply be considered a specialized example of an asset bubble itself?

Too many questions, not enough answers. I'd sure like to hear more about this stuff from the econosphere, though. It would be nice for us laymen to start hearing about the issues and taking part in the debate before the conventional wisdom gets set too far in stone and there's nothing much we can do about it.

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Deflation

| Wed Nov. 19, 2008 11:17 AM EST

DEFLATION....Economists have been warning about the possibility of deflation for the past several months, and it looks like we might finally be getting it:

The Consumer Price Index, a key measure of how much Americans spend on groceries, clothing, entertainment and other goods and services, fell by 1 percent in October....Energy prices led the decline, falling 8.6 percent in October as the price of gasoline continued its steady slide from highs of more than $4 a gallon.

....In Wednesday's report, even excluding volatile food and energy prices, prices dropped 0.1 percent in October. It was the first such decline in more than two decades and raises the specter of deflation as the economy contracts and demand for goods and services across the board plunges.

"This month it's more than slowing, it's outright contraction," [James] O'Sullivan said. "And yes, if you extrapolate that, it's deflation."

It's only 0.1% and it's only for one month — so far. But that's the biggest drop since 1982, and the drop in the primary CPI number is the biggest since 1947, yet another indication that our current recession is on track to be the worst we've suffered since World War II. More stimulus, please.

New Site Update

| Wed Nov. 19, 2008 12:59 AM EST

NEW SITE UPDATE....I think I've mentioned before that we're working on a major redesign of the site (hooray!). We're still a few weeks away from rolling it out, but we're looking for beta testers willing to test drive the new site before the final unveiling. If you'd like to help out, go here and enter your email address. We'll notify you a week or so before the rollout date and provide a URL to poke around on the test site and give us your feedback. All help is much appreciated, since it will help us work out the bugs before we go live. Thanks!

Eric Holder

| Tue Nov. 18, 2008 8:40 PM EST

ERIC HOLDER....I've been scanning a bunch of stuff about Eric Holder, Obama's apparent pick for attorney general, and the conventional wisdom appears to be pretty simple:

  1. He's basically a decent guy: sound views, hard worker, smart, honest, and generally well thought of.

  2. Conservatives are going to try their damnedest to work everyone into a lather over his rather modest involvement in the Marc Rich pardon eight years ago.

From what I can tell, though, conservatives would be smarter to lay off. Holder really does appear to be honest, well briefed, straight shooting, and temperamentally moderate. They're going to get a liberal AG whether they like it or not, and they could do a lot worse than Holder if they somehow manage to torpedo his nomination.

Pizza on Demand

| Tue Nov. 18, 2008 5:44 PM EST

PIZZA ON DEMAND....Via Hit & Run, my cat's pizza company, in partnership with TiVo, engages in some hyperbole:

"This is the first time in history that the 'on-demand' generation will be able to fully experience couch commerce by ordering pizza directly through their television set. You'll see a television ad for Domino's and you'll click 'I want it' through your remote. In about 30 minutes, your pizza will show up at your door."

Oh please. I worked for a video-on-demand company back in 2002, and even then "pizza on demand" was a cliche. It turns out that just about the first thing every shiny new broadband offering offers is....pizza delivery via your TV. I think the first time was 1994. It never went anywhere, though, because it turned out that ordering pizza by phone isn't really much of a hassle.

But hey — everything old is new again. Maybe this is finally PoD's time. After dozens of tries, it's bound to catch on sometime.

Housing Bust Update

| Tue Nov. 18, 2008 3:23 PM EST

HOUSING BUST UPDATE....The latest from ground zero of the housing bubble:

For the first time in the current housing downturn, the majority of Southern California homes sold in October — 51% — had been foreclosed, a real estate information service reported today. The median sales price for homes fell to $300,000, a level not seen since 2003 and a 41% drop from the peak price set in the spring and summer of 2007.

A 41% drop in 18 months. Jeebus.

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Advice for Pinch

| Tue Nov. 18, 2008 1:02 PM EST

ADVICE FOR PINCH....George Packer says the New York Times should fire Bill Kristol when his one-year probationary period is up in December:

In his year on the Op-Ed page, not one memorable sentence, not one provocative thought, not one valuable piece of information appeared under his name.....Kristol's performance on the Op-Ed page during the most interesting election in a generation is a historical symptom, not merely a personal failure. He wrote badly because his world view had become problematic at best, untenable at worst, and he had spent too many years turning out Party propaganda to summon the intellectual resources that a difficult situation required. Now the Times owes it to its readers to find someone better.

After a couple of months I stopped reading Kristol's columns. It wasn't because I disagreed with him, it was because he was boring. Whatever the meme of the week was in the few days prior to his Monday appearance, you could be almost sure that's what he'd write about. Not only were his subjects often stale by then, but he almost never offered anything more than the tritest conservative conventional wisdom on the subject at hand. Snooze city.

So: who should take his place? Since this is a liberal site, and the Times is looking for a conservative columnist, the answer is probably going to be whoever infuriates you the most reliably. (Kristol didn't. He just put me to sleep.) Consider this an open thread.

Holy Joe Update

| Tue Nov. 18, 2008 12:05 PM EST

HOLY JOE UPDATE....I see that Senate Democrats have voted to allow Joe Lieberman to keep his committee chairmanship. I guess they really showed him, didn't they? No Democrat will ever dare to support a Republican candidate for president, speak at the Republican national convention in prime time, and bad mouth the Democratic Party's candidate ever again.

Clintonites

| Tue Nov. 18, 2008 12:03 PM EST

CLINTONITES....Just a quick comment on a common meme: Why is Barack Obama surrounding himself with so many Clinton retreads? That's not change we can believe in!

Sure, sure, but look: anybody who's been active in liberal governance for more than eight years is likely to be a Clintonite. It was the only game in town during the 90s. And anybody who's been active less than eight years probably doesn't have the experience to get a top level position. So there's really no way around this. There are some fresh faces around for Obama to tap, but for the most part, when you're staffing highly visible and responsible positions, you want someone who has at least some experience to fall back on. And since Bill Clinton is the only Democrat to hold the presidency in the past 28 years, that means someone who served in the Clinton administration.

I suppose this doesn't bother me as much as it does some people since I never expected Obama to be a huge left-wing break from Democratic tradition in the first place. He's a little farther to the left than Clinton, but not a lot, and it's only natural that he'd find a fair number of Clintonites who hold views similar to his own. What's more, as his campaign showed, he's obviously a guy who values experience and deep knowledge. He'll do fine, Clintonites or not.

Quote of the Day - 11.18.08

| Tue Nov. 18, 2008 11:17 AM EST

QUOTE OF THE DAY....From maritime energy security specialist Candyce Kelshall, responding to the unprecedented seizure of an oil tanker 450 miles off the coast of Somalia:

"If it was an LNG tanker seized, we're looking at something potentially catastrophic. An LNG tanker going up is like 50 Hiroshimas."

I just thought I'd start off the morning with a cheery thought. You may now go about your business.