Kevin Drum

Chart of the Day: Housing Bubbles

| Mon Jan. 4, 2010 2:48 PM EST

Ben Bernanke is famous as the originator of the theory of the "global savings glut" as a partial explanation for the previous decade's1 housing bubble, and in his speech yesterday at the American Economic Association he put up this chart to demonstrate his point. Basically, it shows that big current account deficits are moderately correlated with housing bubbles in various countries around the world. Spain, Britain, and the United States ran big deficits, which means that lots of overseas money was flowing in and helping to finance a boom. Germany and Switzerland ran big surpluses, which means that money was flowing out and housing prices stayed fairly flat.

That's only part of the story, of course, but it's always struck me as an important part. If huge amounts of cheap money are flowing into an economy, then all the rules in the world aren't going to stop it from inflating something, and housing is always a good candidate. At the same time, it's also incomplete. Ireland ran a mostly balanced current account and suffered one of the biggest housing bubbles anyway. What's more, in a sense it doesn't matter as much as it once did since this kind of contagion spreads so fast now. Germany may have run current account surpluses, but its banks bought up plenty of American mortgage securities and insured them using credit default swaps from American insurance companies, so when the bubble burst they were hurt every bit as badly as we were.

And of course, although rules can't stop hot money from inflating assets completely, they can moderate its effect. As Paul Krugman says: "Bernanke should have been more forthright about the Fed’s undoubted failures: Greenspan’s rejection of advice about the risks of subprime lending, and the failure of top officials, BB included, to recognize the housing bubble in real time." America needs to get its long-term trade deficit under control, but we also need to get a whole lot more serious about regulating leverage throughout the entire economic system in simple and transparent ways. These aren't competing goals, they're complementary ones.

1Isn't it nice to finally be able to refer to this cleanly as the "previous decade"?

Advertise on MotherJones.com

Obama on Terror

| Mon Jan. 4, 2010 1:21 PM EST

Peter Baker reviews Barack Obama's anti-terror strategy in the New York Times magazine:

Perhaps the biggest change Obama has made is what one former adviser calls the “mood music” — choice of language, outreach to Muslims, rhetorical fidelity to the rule of law and a shift in tone from the all-or-nothing days of the Bush administration. He is committed to taking aggressive actions to disrupt terrorist cells, aides said, but he also considers his speech in Cairo to the Islamic world in June central to his efforts to combat terrorism. “If you asked him what are the most important things he’s done to fight terrorism in his first year, he would put Cairo in the top three,” Rahm Emanuel, his chief of staff, told me.

The policies themselves, though, have not changed nearly as much as the political battles over closing the prison at Guantánamo Bay and trying Khalid Shaikh Mohammed in New York would suggest. “The administration came in determined to undo a lot of the policies of the prior administration,” Senator Susan Collins of Maine, the top Republican on the homeland-security committee, told me, “but in fact is finding that many of those policies were better-thought-out than they realized — or that doing away with them is a far more complex task.”

....Michael Hayden, the last C.I.A. director under Bush, was willing to say publicly what others would not. “There is a continuum from the Bush administration, particularly as it changed in the second administration as circumstances changed, and the Obama administration,” Hayden told me. James Jay Carafano, a homeland-security expert at the Heritage Foundation, was blunter. “I don’t think it’s even fair to call it Bush Lite,” he said. “It’s Bush. It’s really, really hard to find a difference that’s meaningful and not atmospheric. You see a lot of straining on things trying to make things look repackaged, but they’re really not that different.”

Most former Bush officials, Baker says, aren't willing to admit this because they're afraid of retaliation from the Cheney wing of the party. But it seems largely true to me. And even though I'd prefer a little more in the way of concrete changes, those "atmospherics" are probably more important than Carafano gives them credit for, since the fight against terrorism is very largely one of moderating the conditions that allow groups like al-Qaeda to recruit and function in the first place. Technically, it might not matter whether we keep terror suspects in Guantanamo or Illinois, but if closing Gitmo deprives Osama bin Laden of a rallying point for his troops then it's worth a thousand drone attacks in the hinterlands of Afghanistan.

On another note, conservative moderates are a real bunch of cowards, aren't they? Liberal moderates sure don't have any problem pissing off the lefty wing of their party.

Is the NFL a Monopoly?

| Mon Jan. 4, 2010 12:42 PM EST

The Supreme Court is slated to hear an appeal soon from a company that lost an NFL contract:

On Jan. 13, the pro football owners will be asking the high court to rule for the first time that the NFL is shielded from antitrust laws because, while its teams compete on the playing field, they function in business as a "single entity."

....In its appeal, the NFL asked the justices to rule broadly that a pro sports league can be "deemed a single entity" and is thereby immune from the antitrust laws "with respect to core venture functions." This should include matters such as "where to locate its clubs" and "the terms and conditions of player employment," the league's lawyers said.

Obviously I'm confused about something, but if the NFL is a "single entity" — i.e., the only pro football entity in America — shouldn't that mean they're especially subject to antitrust laws, not immune from them? What am I missing here?

Ping Pong Update

| Mon Jan. 4, 2010 1:16 AM EST

Will House and Senate Democrats convene a conference committee to hash out differences between their healthcare bills? Or will the House simply vote on the Senate version and be done with it? Jon Cohn says it's going to be neither — and both:

According to a pair of senior Capitol Hill staffers, one from each chamber, House and Senate Democrats are “almost certain” to negotiate informally rather than convene a formal conference committee....“There will almost certainly be full negotiations but no formal conference,” the House staffer says. “There are too many procedural hurdles to go the formal conference route in the Senate.”

....“I think the Republicans have made our decision for us," the Senate staffer says. "It’s time for a little ping-pong.”

“Ping pong” is a reference to one way the House and Senate could proceed. With ping-ponging, the chambers send legislation back and forth to one another until they finally have an agreed-upon version of the bill. But even ping-ponging can take different forms and some people use the term generically to refer to any informal negotiations.

If this turns out to be true, then presumably one chamber or the other will pass the renegotiated bill and then send it directly to the other chamber. At least, that seems more likely to me than literally ping-ponging the bill back and forth several times.

In any case, this seems like a reasonable plan. Republicans have made it clear that they plan to erect every possible procedural hurdle they can think of, even including objections to routine things like naming conference committee members. So, since they've plainly given up on trying to influence the bill itself and are merely trying to obstruct and delay, there's really no reason why Democrats shouldn't play by the same rules and try to avoid obstruction any way they can. Congress has other things to do, after all, and spending weeks playing procedural games with Republicans keeps them from getting to it. It's time to put healthcare to bed and start spending time on climate change, financial regulation, and the 2011 budget instead. Enough's enough.

New Year's Catblogging

| Fri Jan. 1, 2010 12:45 PM EST

You've seen catblogging in the aughts. Now prepare yourself for the awesome spectacle of catblogging in the teens!

Which, um, turns out to be much the same. But maybe it's because these pictures were taken yesterday and aren't truly new decade material. In any case, Inkblot is on the left, swatting at a stick outside the frame of the picture. Actually, it was an iron rod that I was waving around, and after Inkblot bopped it a few times and realized it didn't bend friskily like a normal stick, he got scared of its adamantine nature and eventually fled the scene. (And by "fled" I mean he jumped over to the other chaise longue and gave me the evil eye.) As for Domino, she's just enjoying the last of the December sun here in Southern California. Good call.

A Systemic Failure?

| Thu Dec. 31, 2009 1:19 PM EST

I've been waiting for someone smarter than me to make this point. So here's Spencer Ackerman on the Christmas bomber:

Abdulmutallab’s father told embassy officials in Abuja that he didn’t know where his son was, but might be in Yemen. The CIA had that information. NSA has information that a Nigerian might be used for an attack sponsored by al-Qaeda in the Arabian Peninsula. If all of this had gone into the [National Counterterrorism Center], would someone have put two and two together — setting off the process for pulling Abdulmutallab’s visa or putting him on the no-fly? Maybe. And the rationale for the all-source, multi-agency NCTC is all about intelligence sharing. But remember: the inputs are that the guy’s dad says he’s dangerous; he’s Nigerian; he might be in Yemen; and al-Qaeda in Yemen may be looking to use a Nigerian in a forthcoming attack. Is that really enough?

The answer to that question most certainly requires a policy decision, not an intelligence decision. The intelligence community is drinking from a fire hose of data, a lot of it much more specific than what was acquired on Abdulmutallab. If policymakers decide that these thin reeds will be the standard for stopping someone from entering the United States, then they need to change the process to enshrine that in the no-fly system. But it will make it much harder for people who aren’t threatening to enter, a move that will ripple out to effect diplomacy, security relationships (good luck entering the U.S. for a military-to-military contact program if, say, you’re a member of the Sunni Awakening in Iraq, since you had contacts with known extremists), international business and trade, and so on. Are we prepared for that?

In retrospect, terrorism dots always look easy to connect, but people rarely think about all the other similar dots. If the information we had on Abdulmutallab should have been enough to keep him off the flight to Detroit, then we're also saying that that's the level of information that should be sufficient to keep anyone off a flight to Detroit. Is that what we want?

Maybe. But it's far from obvious after just a cursory glance. Public pressure is invaluable to keep the federal government honest, but it can also become a myopic feeding frenzy. The intelligence community plainly needs to account for itself here, and upon investigation we might decide that there really was a systemic breakdown. But it's way too early to say that with any confidence.

Advertise on MotherJones.com

Airport Security

| Wed Dec. 30, 2009 9:53 PM EST

Matt Yglesias says he's skeptical about the value of ratcheting up security even further in airports, and then adds this:

The last point I would make, raised by DanVerg on Twitter, is that even if airplanes were completely secure you could always kill people by detonating a bomb in some other crowded place. For example, you could blow something up in a crowded airport security line.

I'd take something different away from this. The fact that al-Qaeda keeps focusing on airplanes is a sign of how weak they are. Sure, they could detonate a bomb in a security line, but it wouldn't kill very many people and it certainly wouldn't have the psychological impact of taking down a jumbo jet. Alternatively, they could try to blow up a chemical plant or something like that, but that's out of their league. They'd have to get a team of operatives into the country and then they'd have to do all the planning and all the execution within the borders of the United States, where surveillance is far greater than it is in Yemen or Nigeria. They plainly don't have the resources to do this, and every in-country plot we've uncovered since 2001 has been bumbling and amateurish.

Obviously this could change, but at the moment I think it's wrong to say al-Qaeda "could always kill people" in a bunch of other ways. In fact, the evidence suggests that they can't, at least not in any wholesale way. In that sense, then, airport security really does seem like one of the better places to focus our security efforts. I just wish we could do it more sensibly.

The Rich Are Different From You and Me

| Wed Dec. 30, 2009 8:59 PM EST

Thanks to a combination of Republican idiocy (in 2001) and Republican obstinacy (in 2009), the estate tax will go away completely in 2010, only to return in 2011. So if you're rich, and you're close to death, you'd do well to hang on for another couple of days before you expire. Or so the story goes:

"I have two clients on life support, and the families are struggling with whether to continue heroic measures for a few more days," says Joshua Rubenstein, a lawyer with Katten Muchin Rosenman LLP in New York. "Do they want to live for the rest of their lives having made serious medical decisions based on estate-tax law?"

....To make it easier on their heirs, some clients are putting provisions into their health-care proxies allowing whoever makes end-of-life medical decisions to consider changes in estate-tax law. "We have done this at least a dozen times, and have gotten more calls recently," says Andrew Katzenstein, a lawyer with Proskauer Rose LLP in Los Angeles.

Of course, plenty of taxpayers themselves are eager to live to see the new year. One wealthy, terminally ill real-estate entrepreneur has told his doctors he is determined to live until the law changes.

"Whenever he wakes up," says his lawyer, "He says: 'What day is it? Is it Jan. 1 yet?'"

This seems crazy to me. Congress has long had the power to retroactively change tax rates, and they'll almost certainly reinstate the estate tax sometime in 2010. The Journal says that the odds of a successful court challenge to a retroactive increase "is a subject of debate in the estate-planning world," but it's hard to believe that anyone really takes that seriously.

But who knows? Maybe this is all a clever plan on the part of Democrats. Maybe they're just waiting for some rich and unsympathetic person to die (think Leona Helmsley or someone like that) and then they plan to use this person as a poster child for Republican greed and pandering to the rich. The ads write themselves: "You pay taxes on everything you earn. But conservative mogul Richard Mellon Scaife just left $1.2 billion to his kids and they don't have to pay a single cent on it. Today's Republican Party: protecting billionaire contributors while you keep the country running."

Eh. Probably not. But you never know. Someone might be able to make hay out of this.

Full Body Scanning

| Wed Dec. 30, 2009 4:50 PM EST

As much as I hate both the partisan screeching and the inane rush to pin blame in the underwear bombing case before we really have any idea what happened, I also confess that I don't understand the (bipartisan! international!) hysteria that's prevented full body screening machines from being put in use on a wider basis. They perform "virtual strip searches that see through your clothing and reveal the size and shape of your body," says the ACLU, and earlier this year the House voted to prohibit their use for primary screening. Both Democrats and Republicans voted for the ban by wide margins.

I'll defer to the experts on how and where these devices are best used, but privacy concerns strike me as daft. Yes, the machines show the shape of your body under your clothes. Big deal. That strikes me as way less intrusive than pat-downs, wands, bomb-sniffing dogs, hand inspections, and no-fly lists. If we put up with that stuff, why on earth would we suddenly draw the line at a full body scanner?

We go nuts whenever a terrorist tries to set off a bomb, but we also go nuts over an effective, noninvasive technology just because it gives TSA screeners a brief glimpse of our body fat level? That's crazy.

The End of Health Insurance

| Wed Dec. 30, 2009 1:39 PM EST

"Community rating" is wonkspeak for a requirement that health insurers cover everyone at the same price, regardless of preexisting conditions or health status. James Surowiecki says it makes private health insurance unnecessary:

Congress’s support for community rating and universal access doesn’t fit well with its insistence that health-care reform must rely on private insurance companies. After all, measuring risk, and setting prices accordingly, is the raison d’être of a health-insurance company....Congress is effectively making private insurers unnecessary, yet continuing to insist that we can’t do without them.

The truth is that we could do just fine without them: an insurance system with community rating and universal access has no need of private insurers.

I agree, and it's one of the reasons that, warts and all, I support the current healthcare reform legislation so strongly. My take is that community rating at the national level can eventually lead to only two outcomes: (a) the end of private health insurance completely1 or (b) the transformation of private insurers into regulated public utilities. Roughly speaking, Option A is what you see in Canada or Sweden, Option B is what you see in Germany and the Netherlands. I'd prefer the former, but the regulated utility model works OK too, and it's hard to see how you avoid one or the other in the long run.

It would be nice to have a public option in the current legislation since it would probably speed up the process I'm talking about. But Surowiecki is right: community rating plus universal access makes private insurers obsolete. Soon they'll be doing nothing but basic administrative work, and within a few years this will become too obvious to ignore. At that point, Congress will either enact a public option that eventually grows large enough to put private insurance out of business, or else regulation of the private industry will grow to the point where it becomes a nonissue. It's too bad we'll have to wait so long for this to happen, but today's healthcare legislation puts it on the road to inevitability.

1That is, its end as a primary health insurer. Private insurers will likely stay around to provide supplementary or specialized coverage.