Kevin Drum

The Russian Ruble Is Now Entering Free Fall

| Mon Dec. 15, 2014 12:52 PM EST

Speaking of a possible economic crisis in Russia, it looks like the ruble is now entering free fall:

For months, Russia’s ruble has been falling in line with a decline in oil. But now, the selloff has stepped up a gear amid a broad rout in emerging-market currencies. Monday, the dollar shot above 63 against the battered Russian currency....“There’s no relief in sight, the mood on the market is pessimistic. Any recovery in the ruble is used to buy into foreign currencies,” said Igor Akinshin, a trader at Alfa Bank.

....The country’s bond markets are also under strain. Russia’s dollar bond maturing in Sept. 2023 is yielding 7.102%, up from 6.633% on Friday.

It's above my pay grade to speculate on how this ends. But it's worth keeping an eye on.

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No, the Tea Party Is Never Going to Join Up With Anti-Corporate Liberals

| Mon Dec. 15, 2014 12:17 PM EST

This really can't be said often enough:

I'm afraid we need to call B.S. on this idea of Elizabeth Warren (or any other "populist") becoming a pied piper to the Tea Folk, pulling them across the barricades to support The Good Fight against "crony capitalism." Yes, many "constitutional conservatives" opposecorporate bailouts. But they also typically support eliminating not just subsidies but regulation of big banks and other corporations.

That's from Ed Kilgore, and he's responding to the suggestion that the real divide in American politics isn't between left and right, it's between pro-corporate and anti-corporate. Spare me. Sure, the tea partiers opposed TARP and were hazily in favor of just letting all the banks collapse in 2008, but that was little more than a fleeting morsel of emotional outrage. As Kilgore says, tea partiers may say they oppose corporate power, but when it comes time to vote, they can be counted on to support the folks who oppose any and all regulations that might actually rein in the power of corporations generally and Wall Street in particular.

But every once in a while they'll get themselves exercised over some trivial issue of "crony capitalism" like reauthorizing the Export-Import bank, and suddenly pundits will rediscover the supposedly populist right. Give it a rest, folks. The tea partiers will no sooner find common cause with Elizabeth Warren than they will with Mother Jones. In reality, they couldn't care less about ExIm or the swaps pushout or any of the other shiny objects that right-wing fundraisers occasionally find useful for replenishing their coffers. On the economic side of things, what they care about are low taxes and slashing welfare. On the social side of things, they care about abortion, guns, gays, and the moral decay of everyone else. The rest is just fluff.

Here's Why Banks Care About Gutting Dodd-Frank

| Mon Dec. 15, 2014 11:05 AM EST

Elizabeth Warren got a lot of attention last week for rallying liberals against a provision of the cromnibus spending bill that repealed a portion of the Dodd-Frank financial reform bill. This particular bit of the law had required FDIC-insured banks to get out of the custom swaps business. If they wanted to buy and sell risky derivatives, the parent company needed to do it at a separate entity outside the bank, not with government-insured cash.

But why did Wall Street actually care about this? Even if the swaps are "pushed out" to a subsidiary outside the FDIC umbrella, they're still part of the bank holding company. If the swaps are profitable, the holding company makes money either way. Ditto if they lose money. So who cares? Via Matt Yglesias, here is John Carney of the Wall Street Journal to explain why this was so important:

The advantage: [The bank depository units], with implicit government backing, are considered less risky than parent holding companies....Citigroup’s insured depository unit is rated A2 by Moody’s; the parent company is a far lower Baa2. So a bank buying a derivative contract from the parent would receive a higher capital charge than if it bought it from the depository unit. So the price Citi could fetch for it would be lower. The same divergence exists at the other banks, though to a lesser degree.

The result: Each would suffer from having to push derivatives out of their depository units. In effect, they would lose the advantage of the higher rating and perception of government support.

FDIC-insured depository units have higher credit ratings thanks to their government guarantee. Because of this, swaps sold under the depository umbrella also have a higher rating, and can be sold at a higher price. Outside this umbrella, with its lower parent company rating, the price would have to be discounted. That makes the swaps business less profitable.

As Matt points out, this is an indication that Dodd-Frank is actually doing its job: "Investors aren't confident that Citi is 'too big to fail' and likely to get future bailouts. That's why Citi wants to get as much business as possible done under the shield of the FDIC."

I guess, in a way, this is a small bit of solace to take from last week's sordid episode of congressional capitulation to Wall Street: it only mattered because financial reform seems to be working. A little bit, anyway. If it were really working, of course, bank parent companies would be so well capitalized that their credit ratings would be nearly as good as their FDIC-insured subsidiaries. Obviously we're not quite there yet.

Krugman: "Russia Keeps Looking More Vulnerable to Crisis"

| Sun Dec. 14, 2014 11:31 AM EST

Paul Krugman just left a conference in Dubai, and decided to write a bit about oil prices because all the geopolitical stuff he heard was pretty grim. But the oil stuff wasn't that interesting. His one paragraph about geopolitics is:

My other thought is that Venezuela-with-nukes (Russia) keeps looking more vulnerable to crisis. Long-term interest rates at almost 13 percent, a plunging currency, and a lot of private-sector institutions with large foreign-currency debts. You might imagine that large foreign exchange reserves would allow the government to bail out those in trouble, but the markets evidently don’t think so. This is starting to look very serious.

Yes it is, and the reference to Venezuela-with-nukes is telling. A Russian economic crash could just be a crash. That would be bad for Russia, bad for Europe, and bad for the world. But it would hardly be the first time a midsize economy crashed. It would be bad but manageable.

Except that Russia has Vladimir Putin, Russia has a pretty sizeable and fairly competent military, and Russia has nukes. Putin has spent his entire career building his domestic popularity partly by blaming the West for every setback suffered by the Russian people, and that anti-Western campaign has reached virulent proportions over the past year or two. If the Russian economy does crash, and Putin decides that the best way to ride it out is to demagogue Europe and the West as a way of deflecting popular anger away from his own ruinous policies, it's hard to say what the consequences would be. When Argentina pursues a game plan like that, you end up with a messy court case and lots of diplomatic grandstanding. When Russia does it, things could go a lot further.

I have precious little sympathy for Putin, whose success—such as it is—is based on a toxic stew of insecurities and quixotic appetites that have expressed themselves in a destructive brand of crude nativism; reactionary bigotry; disdain for the rule of law, both domestic and international; narrow and myopic economic vision; and dependence on an outdated and illiberal oligarchy to retain power. Nonetheless, there are kernels of legitimate grievance buried in many of these impulses, as well as kernels of necessity given both Russia's culture and the post-Cold War collapse of its economy that has left it perilously dependent on extractive industries.

I don't know if it's too late to use the kernels as building blocks to improve, if not actually repair, Western relations with Putin's Russia. But it's still worth trying. A Russian crash may or may not come, but it's hardly out of the realm of possibility. And if it happens, even a modest rapprochement between East and West could help avoid a disastrous outcome.

Ted Cruz Shoots Self in Foot, Declares Victory

| Sat Dec. 13, 2014 8:29 PM EST

File this under "with friends like this, who needs enemies?"

Republican senators fumed as a strategy developed by Sen. Ted Cruz (R-Texas) intended to undercut President Obama’s immigration action seemed to backfire, giving Democrats a chance to move a batch of controversial Obama administration appointments.

....Saturday’s session was required after conservative Sen. Mike Lee (R-Utah) objected to an effort by Senate Majority Leader Harry Reid (D-Nev.) late Friday to adjourn the Senate for the weekend....He and Cruz had sought to force a vote to strip out funding that would be used to implement Obama’s plan to halt deportations for as many as 5 million immigrants.

Without the ability to leave for the weekend, Reid instead began the process of bringing 20 long-stalled nominations to a vote, including Obama’s nominee for surgeon general, Vivek Murthy, who was a target of groups like the powerful National Rifle Assn. over his advocacy for stricter gun laws. Shortly after noon the Senate began the first of what could be 40 procedural votes that could lead to confirming all the nominees by the end of the week.

The Cruz/Lee proposal was entirely symbolic in not just one, but two separate ways:

  • It was merely a "point of order" to express opposition to funding President Obama's executive order on immigration. It would have accomplished nothing.
  • It had little chance of passing anyway.

So now everyone has to spin their wheels on the Senate floor over the weekend instead of seeing their families or watching the Army-Navy game. By itself, that might deserve only the world's tiniest violin. But as long as they're there and have some extra time, Harry Reid decided to start the process of approving a whole bunch of Obama nominations that otherwise might have dropped off the calendar later in the week as senators began pressing to start the holiday recess. That meant Obama's nominees would have had to face a Republican Senate in January, but now, thanks to Cruz and Lee, they'll all be safely in office by then.

I'm sure the NRA is thrilled. Ditto for all the Republicans who were apoplectic over the nomination of Tony Blinken as deputy secretary of state. And megadittoes—with a megadose of irony—for Cruz, Lee, and all their tea party buddies who objected to confirming Sarah Saldaña to head Immigration and Customs Enforcement. Their objection, of course, was meant as a protest against Obama's executive order on immigration. Now, thanks to a dumb little stunt that was pathetic even as an empty protest against Obama's immigration plan, they're going to lose an actual, substantive protest against an Obama immigration nominee. Nice work, guys.

But I guess it's a nice big platter of red meat that plays well with the rubes. With Cruz, that's all that counts.

UPDATE: You gotta love this:

Only the Democrats seemed able to wrest a modicum of enjoyment from the day’s proceedings. Senator Benjamin L. Cardin, Democrat of Maryland, said that it was “inconvenient to be here voting around the clock” but that he was “kind of pleased at how it’s working out.” Mr. Cardin said, “We will get these confirmations done, and we may not have gotten them done otherwise.” And as Senator John Cornyn of Texas, the No. 2 Senate Republican, struggled to explain to a group of reporters just what Mr. Cruz was trying to achieve, Senator Cory Booker, Democrat of New Jersey, loped by and clapped him on the shoulder.

“Let me know if you need backup,” Mr. Booker said with a grin.

James Risen Will Not Be Required to Reveal His Sources for "State of War"

| Sat Dec. 13, 2014 2:35 PM EST

From the New York Times:

[Preet Bharara, the United States attorney in Manhattan] wants to force Richard Bonin, a longtime producer for “60 Minutes,” to testify next month at a terrorism trial over bombings by Al Qaeda in 1998. One of the two defendants, Khaled al-Fawwaz, is accused of running Al Qaeda’s media office in London. Prosecutors want Mr. Bonin to discuss his dealings with the group’s media office in an unsuccessful effort to interview Osama bin Laden in 1998, officials and others briefed on the case said.

Wait. What? Al Qaeda had a media office?

In other, better news, Eric Holder has decided not to subpoena New York Times reporter James Risen in an effort to force him to reveal the sources for his book, State of War. "If the government subpoenas Risen to require any of his testimony," a Justice Department official said, "it would be to confirm that he had an agreement with a confidential source, and that he did write the book." I don't know how Risen feels about that, but it's obviously much less pernicious than threatening jail time for refusing to identify a source.

This comes via Doug Mataconis, who argues persuasively that the arbitrary nature of federal prosecutions against reporters for refusing to reveal a source is exactly why we need to pass some kind of federal shield law for reporters. Even if it turned out to be weaker than many of us would like—pretty much a dead certainty, I'd say—at the very least it would provide some consistent guidance for both judges and media members.

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Disneyland Is the Latest Victim of Thin-Skinned 1-Percenters

| Sat Dec. 13, 2014 11:44 AM EST

If you don't live in Southern California—or if you do, but have a life—you might not be aware of Club 33, a "secret" club at Disneyland coveted by the rich and famous as a hideway from the hoi polloi at the park. (And, not coincidentally, the only place at Disneyland that serves alcoholic beverages.) It's so coveted, in fact, that there's no waiting list for membership. Years ago, it got so long that Disneyland just closed it.

Today, the LA Times passes along breaking news that has outraged the 1% who are the primary (only?) denizens of the place:

For access to what is billed as "the most exclusive address in all of Disneyland" — Club 33 — many members pay $11,000 a year....The current uproar has to do with how many extra VIP cards are allotted to platinum members.

The cards allow a lucky few to enjoy many of the benefits of a member, including access to Disney parks and dining at the secretive Club 33 restaurant, tucked away in Disneyland's New Orleans Square....But last week, platinum members received a letter that said in 2015 only the member and a spouse or domestic partner would have Club 33 benefits, while the price for the platinum level would rise to $12,000....A current platinum VIP cardholder was enraged. "It really has just turned to a money game for them."

OMG! "It really has just turned to a money game for them." This is mighty rich coming from someone who is almost certainly wealthy as hell and probably considers himself a rock-jawed supporter of laissez-faire capitalism. But if Disneyland raises the price and changes the terms of a product that obviously has far more demand than supply, why, it's just an example of a bunch of ruthless money-grubbers taking advantage of the downtrodden. How dare they?

Plus he's dead wrong anyway. First of all, last I looked Disney was a public corporation widely admired in the business world for its money-making prowess. Of course it's a money game for them. Second, the waiting list for Club 33 is so long that it's closed. Quite plainly, they could double or triple the price of a platinum card and keep their membership at the same level. In other words, if they really were just ruthless money-grubbers, they could instantly double or triple their revenues for Club 33 with the stroke of a pen. The fact that they haven't done this clearly suggests some combination of loyalty to longtime members along with an understandable desire to avoid a PR headache.

Anyway, that's Orange County for you. Home of conservative Republicans who have an abiding faith in the free market when they're the ones setting the rules, but get in a snit when they themselves end up on the business end of the not-so-invisible hand. You can file this under the shockingly thin skins of the rich when they aren't treated with the fawning deference they all think is their birthright.

UPDATE: Here's a note for aficionados of behavioral economics. As near as I can tell, the outrage here is not over the modest 9 percent price increase. It's over the loss of a perk. This is an example of people responding far more strongly to loss than to gain. And in this case it's especially irksome because it's the loss of a perk that allows a member to very publicly show off their status. "Going to Disneyland? Here, why don't you take one of my VIP cards and eat at Club 33. It's great." This is a chance to do a favor for someone and show off your ownership of a normally invisible status symbol that money can't buy. But now it's gone.

Friday Cat Blogging - 12 December 2014

| Fri Dec. 12, 2014 2:55 PM EST

Last week, Hilbert got catblogging all to himself. This week it's Hopper's turn. Marian took this picture of Hopper gazing out the kitchen window with the bird bath in the background—and that's no coincidence. The bird bath and the hummingbird feeders are objects of endless fascination.

In other news, I have a follow-up from last week. Now that he's taken its measure, it turns out that Hilbert can jump onto the fireplace mantle with ease. No furious runup necessary. However, it also turns out that having taken its measure, he's now bored with it. There's no challenge left, I guess. So the mantle is safe once again. Maybe. Until he gets bored. Welcome to kittenland.

Thanks to New Media, We All Have Box Seats at the Sausage Factory

| Fri Dec. 12, 2014 2:25 PM EST

Brian Beutler writes today about the enormous amount of attention we've paid to the cromnibus spending bill this week:

Until the country came to be governed by serial brinksmanship, the writing and passage of annual spending bills weren’t huge stories in American politics, and you had to be unusually attuned to both the content and the process to understand the political currents underlying both. When problems arose, there was always the palliative of earmarks to smooth things over.

But the narrow passage Thursday night of a big spending bill in the House of Representatives brought everything to the surface, even though the risk of a government shutdown was near zero.

I think that's only part of the story. It's true that as recently as a decade ago, spending bills didn't have a big audience. Genuine insiders—aides, lobbyists, single-issue activists—paid attention to the minutiae, but most of us didn't. More to the point, most of us couldn't. Even if you were the kind of person who read TNR and National Review and Roll Call religiously, you just weren't going to be exposed to that much coverage.

This wasn't because budgets were more boring back then. Or because the political shenanigans were less egregious. It's because print publications didn't devote very much space to them. You'd get the basics, but that was it. And given the limitations of print production schedules, the drama of watching deals rise and fall on a daily or hourly basis simply wasn't possible in real time.

But the often maligned rise of blogs and Twitter, along with their new media offshoots, has created a whole new world. Over at Vox, for example, they ran nine pieces about the spending bill just yesterday. If you follow the right people, Twitter will keep you literally up to minute on even the smallest issues. Dozens of blogs will explain the policy implications of obscure provisions. Politico will flood the zone with pieces about conflicts and personalities as the fight unfolds.

By normal standards, the spending bill the House passed yesterday was fairly routine. But digital media turned it into High Noon and we all played along. We pretended that this was something uniquely shameless, when it wasn't. The sausage has always been made this way. The only difference is that now we all have box seats on the factory floor.

Chart of the Day: The World Has More Oil Than It Needs

| Fri Dec. 12, 2014 12:28 PM EST

I don't have a lot to say about this, but I wanted to pass along this chart from Chris Mooney over at Wonkblog. Basically, it shows that although both supply and demand for oil have been roughly in sync for the past five years, demand abruptly dropped earlier this year and is projected to stay low next year. This is why prices have dropped so far: not because supply has skyrocketed thanks to fracking—the supply trendline is actually fairly smooth—but because the world is using less oil.

This is a short-term blip, and I don't want to make too much of it. Still, regular readers will remember that one of the biggest problems with oil isn't high prices per se. The world can actually get along OK with high oil prices. The problem is spikes in oil prices caused by sudden imbalances between supply and demand. Historically this wasn't a big problem because potential supply was much higher than demand. If demand went up, the Saudis and others just opened up the taps a bit and everything was back in balance.

But that hasn't been true for a while. There's very little excess capacity these days, so if oil supply drops due to war or natural disaster, it can result in a very sudden spike in prices. And that can lead to economic chaos. But if demand has fallen significantly below supply, it means we now have excess capacity again. And if we have excess capacity, it means that the price of oil can be managed. It will still go up and down, but it's less likely to unexpectedly spike upward. And this in turn means that, at least in the near future, oil is unlikely to derail the economic recovery. It's a small but meaningful piece of good news.