Kevin Drum

Standard & Poor's Finally Pays Up For Bogus Mortgage Ratings

| Tue Feb. 3, 2015 12:44 PM EST

Standard & Poor's is finally paying up for its role in handing out bogus investment-grade ratings to risky mortgage securities during the housing bubble. Dean Starkman explains what happened:

In May 2004, as the U.S. housing market was heating up, Standard & Poor's Financial Services lost to a rival a huge deal to rate mortgage-backed securities to be issued by a major Japanese bank.

The reason? S&P's credit standards were too high, an employee complained to his boss. The company then went on to "downplay and disregard" its standards to win business, a federal lawsuit alleged, contributing to one of the most devastating financial collapses in history.

....One observer said the settlement would offer at least some accountability for a key player in the financial crisis. "Without the investment-grade ratings bestowed on pools of substandard mortgages, there would have been no mortgage crisis," said Jan Lawrence Handzlik of Los Angeles, a former federal prosecutor who specializes in white-collar criminal defense.

That's taking things too far. S&P and other ratings agencies certainly played a role in supercharging the housing bubble and thus contributing to its subsequent crash. Without the assurance of high ratings for CDOs and other securities that were full of fraudulent mortgages, there would have been less demand for those fraudulent mortgages. And lower demand would have meant fewer crappy mortgages, fewer defaults, and fewer problems with bank balance sheets full of toxic waste—which all came home to roost in 2008.

But there still would have been a housing bubble and a mortgage crisis, and the crash of 2008 still would have happened. The underlying factors that caused it were just too strong. Nonetheless, it's certainly true that if the bubble had been a little smaller, the crash would have been smaller too. We've all paid a big price for S&P's duplicity.

In any case, this morning the settlement with S&P was made official. They'll be paying a total of more than $1 billion:

The $1.37 billion penalty, like the statement of facts, is the product of compromise.

The penalty, half of which is earmarked for the federal government and the rest for the states, is large enough to wipe out S.&P.’s operating profit for a year, and is three times what S.&P. originally offered to settle before the Justice Department filed its lawsuit. But it also falls far short of the $3.2 billion that the government demanded after S.&P. initially refused to settle.

Is $1.37 billion enough? Probably not. But no one has ever paid more than a fraction of the damage they helped cause during the runup to the financial crash. S&P is just the latest to skate by with a ruler to the wrist but not much more.

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Scott Walker Is Still Clearly a Work in Progress

| Mon Feb. 2, 2015 2:40 PM EST

I see that Martha Raddatz's interview with presidential wannabe Scott Walker is making the rounds today. And deservedly so! After listening to Walker blather a bit about America's need for "big, bold ideas," Raddatz asks him, "What is your big, bold, fresh idea in Syria?" Walker hems and haws a bit about being tough and aggressive, and then we get this:

RADDATZ: You don't think 2,000 air strikes is taking it to ISIS in Syria and Iraq?

WALKER: I think we need to have an aggressive strategy anywhere around the world. I think it's a mistake to —

(CROSSTALK)

RADDATZ: But what does that mean? I don't know what aggressive strategy means. If we're bombing and we've done 2,000 air strikes, what does an aggressive strategy mean in foreign policy?

WALKER: I think anywhere and everywhere, we have to be — go beyond just aggressive air strikes. We have to look at other surgical methods. And ultimately, we have to be prepared to put boots on the ground if that's what it takes, because I think, you know —

RADDATZ: Boots on the ground in Syria? U.S. boots on the ground in Syria?

WALKER: I don't think that is an immediate plan, but I think anywhere in the world —

RADDATZ: But you would not rule that out.

WALKER: I wouldn't rule anything out. I think when you have the lives of Americans at stake and our freedom loving allies anywhere in the world, we have to be prepared to do things that don't allow those measures, those attacks, those abuses to come to our shores.

So there you have it. Walker is so unprepared to talk about foreign policy that he gets quickly trapped into suggesting that we put more American troops into Iraq and Syria to fight ISIS. Did he really mean to do that? Or was he just feeling the pressure of a live interview and felt like he had to say something? Hard to say. A more experienced candidate would have tap danced a lot more effectively, probably with some prattle about arming our allies or something—though Raddatz undoubtedly would have pounced on that too.

Michael Tomasky remains pretty unimpressed with Walker, especially after finally listening to his big speech in Iowa from last weekend:

If this was the standout speech, I sure made the right decision in not subjecting myself to the rest of them. It was little more than a series of red-meat appetizers and entrees: Wisconsin defunded Planned Parenthood, said no to Obamacare, passed some kind of law against “frivolous” lawsuits, and moved to crack down on voter “fraud””—all of that besides, of course, his big move, busting the public-employee unions. There wasn’t a single concrete idea about addressing any of the major problems the country faces.

Well, that will come—though it's unlikely that Walker's ideas will be any different from the usual Republican boilerplate of the past decade or so. Lower taxes and less corporate regulation will supercharge the economy! Hooray!

Walker still has a ways to go before he's ready for prime time. But I'll bet he gets there. He'll learn from his mistakes, and he's just about the only Republican candidate who has potential appeal to both tea partiers and mainstream voters. Six months from now minor early stumbles like this will be ancient history, and he'll have his campaign schtick much more finely honed. He remains a serious contender.

Here's the Birth of the Modern Anti-Vax Movement

| Mon Feb. 2, 2015 11:09 AM EST

A New York Times video takes a look at the birth of the belief that vaccinations can cause autism in young children:

It turns on a seminal moment in anti-vaccination resistance. This was an announcement in 1998 by a British doctor who said he had found a relationship between the M.M.R. vaccine — measles, mumps, rubella — and the onset of autism.

Typically, the M.M.R. shot is given to infants at about 12 months and again at age 5 or 6. This doctor, Andrew Wakefield, wrote that his study of 12 children showed that the three vaccines taken together could alter immune systems, causing intestinal woes that then reach, and damage, the brain. In fairly short order, his findings were widely rejected as — not to put too fine a point on it — bunk. Dozens of epidemiological studies found no merit to his work, which was based on a tiny sample. The British Medical Journal went so far as to call his research “fraudulent.” The British journal Lancet, which originally published Dr. Wakefield’s paper, retracted it. The British medical authorities stripped him of his license.

Nonetheless, despite his being held in disgrace, the vaccine-autism link has continued to be accepted on faith by some. Among the more prominently outspoken is Jenny McCarthy, a former television host and Playboy Playmate, who has linked her son’s autism to his vaccination: He got the shot, and then he was not O.K. Post hoc, etc.

This is, of course, even crazier than it sounds. It's one thing to be skeptical of the scientific community and its debunking of the Wakefield study. But it's now 2015. MMR vaccines that contain thimerosal—the supposed cause of autism—have been off the market for well over a decade. Not one single child has gotten a dose of thimerosal since about 2002. And yet, autism rates haven't gone down. They've gone up. You don't need to trust scientists to see that, very plainly, thimerosal simply never played any role in autism. And there's never been any reason to think that any other vaccine does either.

And yet, there's apparently nothing that will convince certain parents of this. At least, if there is, no one has figured it out yet. Sigh.

Blogging Isn't Dead. But Old-School Blogging Is Definitely Dying.

| Sat Jan. 31, 2015 12:32 PM EST

With Andrew Sullivan giving up his blog, there are fewer and fewer of us old-school bloggers left. In this case, "old school" pretty much means a daily blog with frequent updates written by one person (or possibly two, but not much more). Ezra Klein thinks this is because conventional blogging doesn't scale well:

At this moment in the media, scale means social traffic. Links from other bloggers — the original currency of the blogosphere, and the one that drove its collaborative, conversational nature — just don't deliver the numbers that Facebook does. But blogging is a conversation, and conversations don't go viral. People share things their friends will understand, not things that you need to have read six other posts to understand.

Blogging encourages interjections into conversations, and it thrives off of familiarity. Social media encourages content that can travel all on its own. Alyssa Rosenberg put it well at the Washington Post. "I no longer write with the expectation that you all are going to read every post and pick up on every twist and turn in my thinking. Instead, each piece feels like it has to stand alone, with a thesis, supporting paragraphs and a clear conclusion."

I'd add a couple of comments to this. First, Ezra is right about the conversational nature of blogging. There was lots of that in the early days, and very little now. Partly this is for the reason he identified: traffic is now driven far more by Facebook links than by links from fellow bloggers. Partly it's also because multi-person blogs, which began taking over the blogosphere in the mid-aughts, make conversation harder. Most people simply don't follow all the content in multi-person blogs, and don't always pay attention to who wrote which post, so conversation becomes choppier and harder to follow. And partly it's because conversation has moved on: first to comment sections, then to Twitter and other social media.

Second, speaking personally, I long ago decided that blog posts needed to be standalone pieces, so I'm not sure we can really blame that on new forms of social media. It was probably as early as 2005 or 2006 that I concluded two things. Not only do blog posts need to be standalone, but they can't even ramble very much. You need to make one clear point and avoid lots of distractions and "on the other hands." This is because blog readers are casual readers, and if you start making lots of little side points, that's what they're going to respond to. Your main point often simply falls by the wayside. So keep it short and focused. If you have a second point to make, just wait a bit and write it up separately not as a quick aside open to lots of interpretation, but with the attention it deserves.

And there's a third reason Klein doesn't mention: professionalism. I was one of the first amateur bloggers to turn pro, and in my case it was mostly an accident. But within a few years, old-school media outlets had started co-opting nearly all of the high-traffic bloggers. (I won't say they co-opted the "best" bloggers, because who knows? In any case, what they wanted was high traffic, so that's what they went for.) Matt Yglesias worked for a series of outlets, Steve Benen took over the Washington Monthly when I moved to MoJo, Ezra Klein went to the Washington Post and then started up Vox, etc. Ditto for Andrew Sullivan, who worked for Time, the Atlantic, and eventually began his own subscription-based site. It was very successful, but Sullivan turned out to be the only blogger who could pull that off. You need huge traffic to be self-sustaining in a really serious way, and he was just about the only one who had an audience that was both large and very loyal. Plus there's another side to professionalism: the rise of the expert blogger. There's not much question in my mind that this permanently changed the tone of the political blogosphere, especially on the liberal side. There's just less scope for layman-style noodling when you know that a whole bunch of experts will quickly weigh in with far more sophisticated responses. Add to that the rise of professional journalists taking up their own blogs, and true amateurs became even more marginalized.

All of this led to blogs—Sullivan excepted—becoming less conversational in tone and sparking less conversation. There are probably lots of reasons for this, but partly I think it's because professional blogs prefer to link to their own content, rather than other people's. Josh Marshall's TPM, for example, links almost exclusively to its own content, because that's the best way to promote their own stuff. There's nothing wrong with that. It makes perfect sense. But it's definitely a conversation killer.

In any case, most conversation now seems to have moved to Twitter. There are advantages to this: it's faster and it's open to more people. Blogs were democratizing, and Twitter is even more democratizing. You don't have to start up your own blog and build up a readership to be heard. All you have to do is have a few followers and get rewteeted a bit. Needless to say, however, there are disadvantages too. Twitter is often too fast, and when you combine that with its 140-character limit, you end up with a lot of shrill and indignant replies. Sometimes this is deliberate: it's what the tweeter really wants to say. But often it's not. There's a premium on responding quickly, since Twitter conversations usually last only hours if not minutes, and this means you're often responding to a blog post in the heat of your very first reaction to something it says—often without even reading the full blog post first. In addition, it's simply very difficult to convey nuance and tone in 140 characters. Even if you don't mean to sound shrill and outraged, you often do. Now multiply that by the sheer size of Twitter, where a few initial irate comments can feed hundreds of others within minutes, and you have less a conversation than you do a mindless pile-on.

I'm not really making any judgments about all this. Personally, I miss old-school blogging and the conversations it started. But I also recognize that what I'm saying about Twitter is very much what traditional print journalists said about blogging back in the day. You have to respond within a day! You have to make your point in 500 words or less! Whatever happened to deeply considered long-form pieces that took weeks to compose and ran several thousand words? Sure, those conversations took months to unfold, but what's the rush?

Well, they were right to an extent. And now conversations have become even more compressed. Some people think that's great, others (like me) are more conflicted about it. When I respond to something, I usually want to make a serious point, and Twitter makes that awfully hard. Writing a coherent multi-part tweet is just way harder than simply writing a 500-word blog post. On the other hand, the tweet will get seen by far more people than the post and be far more timely.

As with everything, it's a tradeoff. I miss old-school blogging. A lot of people say good riddance to it. And the world moves on.

Friday Cat Blogging - 30 January 2015

| Fri Jan. 30, 2015 2:40 PM EST

My fatigue level is off the charts today. I have no idea what's causing this. But there are always plenty of catblogging pictures available, and you can hardly go wrong with Hilbert in a bag, can you? Enjoy.

Housekeeping Note

| Thu Jan. 29, 2015 9:00 AM EST

My chemotherapy, which until now has had fairly predictable side effects, seems to have entered a less predictable phase. This means that my fatigue level changes from day to day, and with it my blogging output. So some days you'll see a bunch of posts, and other days you'll see one or two. It doesn't really mean anything is wrong. It just means I'm having a predictably unpredictable bad day.

In addition, today I have several appointments, and Marian is undergoing major surgery. Nothing life-threatening, so no worries on that score. But a very big deal nonetheless.

In other words, there's not likely to be any blogging today. Tomorrow, who knows? As they say, tomorrow is another day.

4 PM UPDATE: According to the surgeons, Marian's surgery was entirely successful. She's still waking up from the anesthesia and has several weeks of recovery ahead of her, but everything went fine.

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Here's What's at the Heart of the Crisis in Greece

| Thu Jan. 29, 2015 12:40 AM EST

If you're in the market for some interesting commentary on Greece, there have been a couple of good ones recently. The first comes from Paul Krugman, who, among other things, makes a point that often gets missed: Greece is already running a primary surplus. That is, they've cut spending enough over the past few years that their budget would be balanced if it weren't for interest payments on their gigantic debt. What's more, their primary surplus is slated to rise to 4.5 percent in the future:

If Greece were to adhere totally to the previous terms, over the next five years it would make resource transfers of about 20 percent of one year’s GDP. From the point of view of the creditors, that’s a trivial sum. From the point of the Greeks, however, it’s crucial; the difference between a primary surplus of 4.5 percent of GDP and, say, 1.5 percent of GDP for the Greek economy and the welfare of its citizens is huge. The only reason for the creditors to play hardball would be to make Greece an example, to discourage other debtors from trying to negotiate relief.

In other words, the EU is demanding that Greece not just balance its budget, but run a large surplus that it will mostly send to large countries for whom it's a trivial sum. For Greece, though, it's a huge sum, the difference between years of penury and a return to growth. This is at the heart of the conflict between Greece and the EU.

The second commentary comes from Daniel Davies, who makes the point that Greece's gigantic debt doesn't really matter as debt. Everyone knows Greece will never be able to pay it back. But if everyone knows this, why are Germany and the rest of the EU so hellbent on refusing to write it off?

Don’t think of the Greek debt burden, either in cash € terms or as a ratio to GDP, as an economic quantity. It basically isn’t an economically meaningful number any more. The purpose of its existence is as a political quantity; it’s part of the means by which control is exercised over the Greek budget by the Eurosystem. The regular rituals of renegotiation of the bailout package, financing of debt maturity peaks and so on, are the way in which the solvent Euroland nations exercise the kind of political control that they feel they need to have if they are going to be fiscally responsible for the bills.

....It is, therefore, totally inimical to the Eurosystem to hold out any hope of the kind of debt writedown that Syriza wants, as opposed to some smaller, cosmetic face value reduction or maturity extension. The entire reason why Syriza wants to get a major up-front reduction in the debt number is to create political space to execute the rest of their program. The debt issue and the political issue are the same issue. Syriza understands this, and so does the Eurosystem.

In other words, Greece doesn't want to run a large budget surplus. They want to increase government spending in order to dig their way out of their massive economic depression. The rest of the EU wants no such thing. They're afraid that if they let Greece off the hook, then (a) everyone else will want to be let off the hook, and (b) Greece will go right back to its free-spending ways and soon require another bailout. If the price of that is years of pain and unemployment, so be it.

There's more at both links, and both are worth reading.

Why are Scam PACs So Much More Common on the Right Than the Left?

| Wed Jan. 28, 2015 6:01 PM EST

Politico's Ken Vogel reports on a phenomenon that's gotten a fair amount of attention on both the right and the left:

Since the tea party burst onto the political landscape in 2009, the conservative movement has been plagued by an explosion of PACs that critics say exist mostly to pad the pockets of the consultants who run them....A POLITICO analysis of reports filed with the Federal Election Commission covering the 2014 cycle found that 33 PACs that court small donors with tea party-oriented email and direct-mail appeals raised $43 million — 74 percent of which came from small donors. The PACs spent only $3 million on ads and contributions to boost the long-shot candidates often touted in the appeals, compared to $39.5 million on operating expenses.

....[Democrats] have mostly avoided the problem, though they also benefit from the lack of tea party-style insurgency on their side. That could change if the 2016 Democratic presidential primary inflames deep ideological divisions within the party. But on the right, this industry appears only to be growing, according to conservatives who track it closely.

And this problem isn't limited just to consultants who set up PACs to line their own pockets. Media Matters reports that right-wing outlets routinely tout—or rent their email lists to people touting—all manner of conspiracy theories and out-and-out frauds. Here's an excerpt from Media Matters' list:

  • Mike Huckabee sold out his fans to a quack doctor, conspiracy theorists, and financial fraudsters.
  • Subscribers to CNN analyst Newt Gingrich's email list have received supposed insider information about cancer "cures," the Illuminati, "Obama's 'Secret Mistress,'" a "weird" Social Security "trick," and Fort Knox being "empty."
  • Five conservative outlets promoted a quack doc touting dubious Alzheimer's disease cures.
  • Fox analyst Charles Payne was paid to push now worthless stocks.
  • Newsmax super PAC boondoggle.
  • Right-wing media helped "scam PACs" raise money from their readers.

More here. So here's my question: why is this so much more common on the right than on the left? It would be nice to chalk it up to the superior intelligence of liberal audiences and call it a day, but that won't wash. There's just no evidence that liberals, in general, are either smarter or less susceptible to scams than conservatives.

One possibility is that a lot of this stuff is aimed at the elderly, and conservatives tend to skew older than liberals. And while that's probably part of the answer, it's hardly satisfying. There are plenty of elderly liberals, after all—certainly enough to make them worth targeting with the same kind of fraudulent appeals that infest the right.

Another possibility is that it's basically a supply-side phenomenon. Maybe liberal outlets simply tend to be less ruthless, less willing to set up scam fundraising organizations than conservative outlets. In fact, that actually does seem to be the case. But again: why? Contrary to Vogel's lead, this kind of thing has been a problem on the right for a long time. It definitely got worse when the tea party movement created a whole new pool of potential patsies, but it didn't start in 2009. It's been around for a while.

So then: why is this problem so much bigger on the right than on the left? I won't be happy with answers that simply assume liberals are innately better people. Even if they are, they aren't that much better. It's got to be something institutional, or something inherent in the nature of American conservatism. But what?

Murder In Los Angeles Is Way Down Among Teenagers

| Wed Jan. 28, 2015 12:52 PM EST

The LA Times reports that murder is becoming less common among teenagers:

“You're not seeing youngsters like you have in the past,” said Det. Todd Anderson of the Los Angeles County Sheriff's Department. “You used to see a lot more kids who were 16, 17, 18, 19. While it does still happen, it seems like they are getting a little bit older.”

In 2000, the average homicide victim was 30 years old and in 2014, the average victim was 34 years old, according to a Los Angeles Times data analysis. The shift comes as the total number of homicides falls.

Why?

George Tita, a criminologist at UC Irvine who studies homicide, said the increase in age is consistent with the changing nature of gang violence and the sharp decrease in killings throughout the county.

Others say that the trauma of losing brothers, cousins and fathers to street violence may make gang life less appealing to younger people. “It's the little brother looking at what happened to the big brother and saying, ‘I don't want to go that way,'” said Elliott Currie, another UC Irvine criminologist. “It's something I think we criminologists don't talk about enough.”

That may be part of the answer. But you'll be unsurprised that there might be another, more plausible, reason: lead. Back in the 90s, the teenage and 20-something generations had grown up in the 70s and early 80s. This was an era of high lead emissions, and this lead poisoning affected their brains, causing them to become more violence-prone when they grew up.

Today's teenagers, however, were born in the late 90s and early aughts. This was the era when leaded gasoline had finally been completely banned, so they grew up in a low-lead environment. As a result, they're less violence prone than their older siblings and less likely to find refuge in gangs.

As always, lead is not the whole story. There have been other changes over the past couple of decades, and those changes may well have had an impact on both gangs and on crime more generally. But lead clearly has a generational impact. Younger kids are now less violent than in the past, while older folks haven't changed much. They've gotten older, which has always been associated with a drop in violent crime, but their basic temperament is still scarred by a childhood filled with lead emissions from automobiles.

In any case, the age of a homicide victim is highly correlated with the age of the killer, and the chart above, excerpted from the Times story, shows homicide victimization age in 2000 and 2014. The huge bulge between age 15-30 is nearly gone, which is just what you'd expect if lead played an important role in violent crime. There may be less mystery here than the experts think.

Greek Investors Apparently Surprised By Stuff No One Should Be Surprised About

| Wed Jan. 28, 2015 10:50 AM EST

The latest news from Greece is a bit peculiar:

Prime Minister Alexis Tsipras told his new cabinet on Wednesday that he would move swiftly to negotiate debt relief, but would not engage in a confrontation with creditors that would jeopardize a more just solution for the country....Later, the new finance minister, Yanis Varoufakis, appeared to harden the tone, saying that Greece’s bailout deals were “a toxic mistake” and that the new government was determined to change the logic of how the crisis had been tackled.

While many Greeks were hopeful that Mr. Tsipras would follow through with even a fraction of his populist promises, investors were more rattled. The Athens Stock Exchange, which already had billions of euros in value wiped out during Greece’s election campaign, fell around 7.5 percent in midday trading on Wednesday after slumping around 11 percent on Tuesday. Shares in financial companies in Greece plummeted more than 17 percent on Wednesday.

I wonder what has the stock market so spooked? After all, Tsipras is just doing what he's said he was going to do all along. Everyone expected him to take at least this hard a line on Greek debt, if not harder. So why the sudden panic? Shouldn't this have been priced in long ago? What's new here?