Kevin Drum

Congress and the Fed

| Wed May 5, 2010 8:51 PM EDT

Matt Yglesias comments on the prospect of the Fed finding itself on a tighter congressional leash in the future:

I think common sense holds that the Fed is losing some of its independence because the world is mired in a giant recession. When Paul Volcker was seen as having licked inflation, and then Alan Greenspan was seen as having delivered a “Great Moderation” spanning two decades, then politicians hesitated to challenge Fed leaders. With unemployment at 10 percent, people get antsy and start giving the Fed a hard time.

Personally, I welcome the idea of more attention to the importance of the Fed and its activities, but I’m not hearing a ton of constructive ideas from the Hill. The idea of “auditing” the Fed seems largely besides the point, like if your big worry was that John Roberts might be embezzling office supplies rather than issuing bad rulings.

This is pretty much where I am. If we put a Consumer Finance Protection Agency inside the Fed, then the Fed is going to have accept more oversight. After all, consumer protection just isn't the kind of thing that anyone thinks ought to be "independent." Frankly, though, that's a better argument for putting the CFPA elsewhere than it is for subjecting the Fed to more oversight.

More broadly speaking, I guess my problem is this: I don't mind stronger congressional oversight of the Fed's regulatory functions. But Congress does a lousy job of this on a day-to-day basis, and we'd be a lot better off if they didn't pretend otherwise and instead just tied the Fed's hands a little more strongly via statute. That's how you get better regulation.

But what most people seem to have in mind when they talk about increased oversight is even worse. They're upset about the extraordinary actions that the Fed took during the financial crisis, and they don't want the Fed freelancing like that anymore. But that's crazy. The Fed didn't regulate well and it didn't manage the housing bubble well, but the one thing it did do well was react to the crisis once it hit. That's the one place where having a free hand worked. If Congress had been involved in this stuff, it's even odds that unemployment would be at 20% today, not 10%.1

As for monetary policy, that's even worse. Maybe I like Ben Bernanke's monetary sentiments and maybe I don't, but Fed independence in this realm really does strike me, like democracy, as the worst possible system except for all the others. I know that inflation hawkery is out of style right now, but I'm a little more sympathetic to it than most. It's one of those reputational things that takes decades to build up and just a few days to lose if you abandon it during a crisis, so a bias toward hawkery isn't altogether a bad thing. And in any case, even if Bernanke is keeping things tighter than I would, I trust Congress to stick its oar into this about as much as I trust Homer Simpson to keep his hands off the donuts.

So the whole "Fed audit" thing doesn't do much for me. If Congress wants stronger regs, it should write stronger regs. As for the rest, until we genetically engineer better congressmen, Fed independence is probably something we should stick to. I'm open to counterarguments, though.

1No, I'm not joking. The thought of Congress being seriously involved in this just sends shivers up my spine.

UPDATE: Dean Baker disagrees. This is bad news since I'm not generally keen on disagreeing with Dean. However, his view seems to be that the Fed should disclose its actions after a certain period of time, not that it should make everything public as it happens. I could probably live with that.

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The Etymology of Fannie Mae

| Wed May 5, 2010 7:13 PM EDT

Where did Fannie Mae get its name? It is, obviously, a nickname derived from its real name, the Federal National Mortgage Association, but why did this particular part of FDR's New Deal alphabet soup get anthropomorphized and not any of the others? It's not as if the WPA was known as Willie Pad or the TVA was known as Tammie Vat, after all. Ben Zimmer gets us part of the way to an answer:

Fannie Mae started out as a government agency back in 1938, as part of Franklin Delano Roosevelt's New Deal. Though it was officially known as the FNMA, it was almost immediately given its feminine nickname as a playful acronym. The July-Dec. 1938 issue of Architectural Forum explained that the agency had already been "nicknamed 'Fanny May' by Washington's bureau wags."

Fine. But why did Washington's bureau wags nickname it Fanny May? Whatever the answer, it must have happened quickly. The NMA only became the FNMA in May 1938, and the July-Dec issue of Architectural Forum must have gone to press by June at the latest. So that means the wags began their wagging within a few weeks.

It seems like the name must be somehow related to the Fannie May candy company, right? But according to their site, they were still a strictly midwestern company in the 30s. Did the nickname originate with some wag originally from Chicago? Or what? Maybe this is completely lost in the mists of time and oral history. ProQuest provided no clues. If there's any kind of further explanation, I've been unable to find one.

Mark Levin vs. Everyone

| Wed May 5, 2010 5:32 PM EDT

Did I ever write a post about the great Manzi-Levin feud? A quick search says I didn't. Nickel summary, then: NRO contributor Jim Manzi, who accepts the fact of global warming but opposes aggressive action to fight it (see here), opened up Levin's Liberty and Tyranny the other day and read his chapter on climate change. Manzi was appalled at the hackish level of Levin's rant and wrote a post saying so. Levin responded in the fourth grade vernacular that he specializes in.

(Seriously. The guy makes up names like "Keith Overbite" and "Susan Dumass" for his enemies. He brags about how great he was at their age and how little they've accomplished compared to him. He tosses out juvenile insults like M&Ms. He really, genuinely, sounds like a fourth grader with a temper problem.)

Anyway, NRO's Kevin Williamson, after reading a Levin tirade today directed at Ross Douthat, has seen the light:

When I first read Manzi's much-remarked-upon remarks re: Mark, I thought them unduly harsh. I am revising that opinion, just a little.

I guess a little is better than nothing. I mean, even Rush Limbaugh usually manages to sound like an adult. A crazy one to be sure, but an adult. Levin, on the other hand, is a petulant child. He needs a few days in detention hall, not a cheering squad.

"Los Suns" Protest AZ Immigration Law

| Wed May 5, 2010 4:53 PM EDT

The Phoenix Suns will be "Los Suns" tonight in protest against Arizona's new immigration law. But James Joyner harshes all over their protest by noting that they've done this before without needing bad laws as an excuse:

Amusingly, while this move is getting a lot of attention because of the present controversy, this isn’t anything new. The NBA has been celebrating Noche Latina the last four seasons, and at least eight teams — including the Suns — have worn Spanish variant jerseys in commemoration of that. And the Suns have apparently worn these jerseys twice previously this season without the fanfare.

So we have Los Suns, Los Mavs, Los Bulls, etc. Needless to say, though, Los Angeles has been way ahead of everyone on this front. Go Lakers!

UPDATE: Hmmm. Maybe I spoke too soon about the Lakers.

A Scene From the War on Drugs

| Wed May 5, 2010 2:06 PM EDT

Radley Balko has posted video of the SWAT raid on a Missouri home that he wrote about last February. This is the one where the Columbia Police Department busted in, fired seven shots at the family's dogs, and ended up recovering a small amount of marijuana:

It's horrifying, but I'd urge you to watch it, and to send it to the drug warriors in your life. This is the blunt-end result of all the war imagery and militaristic rhetoric politicians have been spewing for the last 30 years — cops dressed like soldiers, barreling through the front door middle of the night, slaughtering the family pets, filling the house with bullets in the presence of children, then having the audacity to charge the parents with endangering their own kid. There are 100-150 of these raids every day in America, the vast, vast majority like this one, to serve a warrant for a consensual crime.

But they did prevent Jonathan Whitworth from smoking the pot they found in his possession. So I guess this mission was a success.

CPD Internal Affairs continues to investigate whether this was an appropriate response to the "tip" they received that started all this.

How Derivatives Lost the Game

| Wed May 5, 2010 12:40 PM EDT

Dan Drezner points out that the fight over financial regulation has gone a little oddly. Normally, interest groups manage to water down legislation over time, but in this case it's actually gotten tougher in some ways. This makes sense if the public is united in outrage and can swamp interest group power, but Dan is skeptical about that:

This is pretty surprising, because financial regulation is so friggin' arcane. Quick, what's a credit default swap? A collateralized debt obligation? Are they examples of derivatives or not? Sure, readers of this blog likely know the answers to those questions, but I guarantee you that 99% of registered voters do not know the answer. The fact that public pressure and attention is still mobilized on this issue is unusual.

I think it's tied into the one part of the story that [Noam] Scheiber failed to mention — the SEC indictment of Goldman Sachs. Whether what Goldman did or not was actually illegal is not the issue. There was a lot of reporting about what Goldman actually did — and it seems like they weren't acting like just a couple of bookies. The indictment changed the political optics of financial regulation and dramatically reduced the utility of lobbying from the financial sector.

The Goldman indictment might have something to do with this, but I'd personally give it about as much credit as Anthem's 39% insurance rate hike gets for helping pass healthcare reform: not that much. (Not zero. A little push when things are already going your way is always helpful. But in the great scheme of things, not a lot more than zero.)

I'd make a few points. First, Blanche Lincoln's surprisingly tough derivatives proposal came before the Goldman indictment. Second, 60 Minutes and other popular outlets have been banging the derivatives drum pretty hard for a while — and always with an intensely negative spin. This stuff isn't quite as arcane as it used to be. Third, the fact that it's still mostly arcane is a feature, not a bug.

That last requires a little explanation. If you propose an agency that's going to regulate consumer credit, it's entirely possible to get the citizenry riled up about it. You make some arguments about how it will make it harder to get a home loan or qualify for a credit card or something like that. People get that. If you pitch your argument right, they'll respond. Ditto for resolution authority. It's a little harder, but still, people sort of understand bankruptcy and they sort of understand the proposition that a $50 billion pool is a "bailout fund." It doesn't matter if the argument is bogus, just that it makes some kind of sense at a visceral level.

But derivatives? It's the fact that they're arcane that makes them such a great target. Think about it. It's almost impossible to explain them at all, and completely impossible to explain them in a way that makes them sound like a good thing to the average joe. The best you can do is make an argument about, say, airline companies hedging fuel prices, but even that's pretty arcane and only applies to huge corporations. The average guy just can't be convinced that there's any upside to allowing Wall Street free rein with these things. Conversely, they're really easy to demonize. If you were looking for a poster child for Wall Street tycoons ripping off ordinary folks with pure paper shuffling, derivatives would be it.

I'm not talking about substance here. Derivatives reform is important, but there are two or three things I'd rank above it. (1. Leverage. 2. Leverage. 3. Leverage) But from a pure PR perspective, the very fact that derivatives are (a) arcane and (b) solely the preserve of gigantic Wall Street firms make them a perfect target. The fact that the White House has figured this out — and that the business lobby can't figure out how to fight back against it — doesn't surprise me a bit.

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Can Congress Be Trusted With Financial Regs?

| Wed May 5, 2010 11:56 AM EDT

James Pethokoukis writes today that Congress shares some of the blame for the financial crisis. His bill of particulars, taken from a paper by Ross Levine of Brown University, includes poor regulation of (a) ratings agencies, (b) credit default swaps, (c) investment banks, and (d) Fannie Mae and Freddie Mac. This has become a steady drumbeat over the past few weeks: sure, Wall Street screwed up, but federal regulation of the industry sucked too. So how can we trust these clowns to do the job right this time?

If conservatives hadn't waited until now to make this argument, I might think it was one of those brilliant Rovian strategies, going straight after your opponents' strong point and then turning it around on them. You liberals say that Congress was a slave to Wall Street interests? You're right! So there's no point in letting them pretend to regulate Wall Street yet again.

But now? This long after the regulation train has left the station, this argument sounds so dumb it barely even needs rebutting. Is the point truly to pretend that no regulation will work? Or that the current proposed regs are actually favors to Wall Street? (A few people have tried to suggest exactly that.) Or to goad Democrats into beefing up their bill so much that it has no chance of passing? Or what? The fact that Republicans and Democrats both bought into the deregulatory fervor of the past three decades doesn't mean they can't both unbuy into it if they work up the gumption. And while nothing lasts forever, a decent set of finance regs will improve things for a few decades anyway. If the point of this particular critique were truly to lobby for tighter regs, it would be great. As it is, it's just juvenile.

UPDATE: Mike Konczal has a more sophisticated take on this game of three card monte here.

Some Times Square Perspective

| Wed May 5, 2010 11:21 AM EDT

You know, I get that questioning authority is a good thing and skepticism of the system can be a virtue. But Jeez. The Times Square bomber was caught within 48 hours, placed into custody, and is providing us with tons of information. Not bad! What's more, if I remember right, pretty much everything we thought we knew about the Christmas bomber in the week after his terror attempt turned out to be wrong. I know there are elections to win and all that, but maybe this time we should all calm down just a hair and wait to piece together the entire story before deciding that everything was a complete clusterfuck?

Chart of the Day: The Party of the Rich

| Wed May 5, 2010 1:29 AM EDT

In the Weekly Standard, Christopher Caldwell adopts the populist lefty position on financial reform (break up the banks, sow their smoking ruins with salt, and if they fail again just let them die) and then wonders why Republicans are fighting this. Is it because they're the party of the rich? That's surprisingly unclear. Exit polls show that, with the exeption of the most recent election, the moderately well-off (those with $200,000+ incomes) have voted pretty reliably for Republicans for decades, and Andrew Gelman has shown that this pattern is especially pronounced in poor states. But the really rich seem to support Democrats in pretty sizeable numbers. This chart shows the pattern of political contributions in the richest zip codes in America:

Now, this isn't bulletproof evidence of who the really rich support. Apparently there isn't any. But it's pretty suggestive. And Caldwell is disgusted with the conclusion he draws:

Republicans have been paying a high price in both public opinion and political coherence to defend the prerogatives of a class that despises them. It was to cosset just these people with tax cuts that George W. Bush destroyed the balanced budget. It would seem that Republicans are either an exceptionally idealistic political party (pursuing their ideology to the point of self-destruction) or an exceptionally foolish one (convinced that anyone with a great big pile of money is their friend). There may be another explanation. To paraphrase something Clinton aide David Dreyer said many years ago, Republicans have done Lord Acton one better — they’ve been corrupted by power they don’t even have.

There's actually an interesting question here: why do Republicans support the preferred policies of the rich so reliably, when that support isn't reciprocated? I can think of a few possibilities:

  • Inertia. The rich did support Republicans in the past and old habits die hard. Although party leaders seem to understand that ever since Nixon their base has been primarily among the white working class, they still haven't really internalized what this means. So they just keep on supporting the rich.
  • Why not? Republicans appeal to the working class mainly via social policies. So even if it won't get them overwhelming support, why not get whatever support they can from the rich by supporting economic policies they like?
  • Coincidence. The GOP is the party of big business, and the interests of big business mostly coincide with the interests of the rich.
  • Bad data. Actually, the rich do support Republicans more than Democrats. The top 20 zip codes are heavily urban and Jewish, which are traditional Democratic constituencies, so this isn't good evidence of their overall habits. A better survey of the rich might show that, in fact, they support Republicans pretty heavily.
  • Something else I haven't thought of. That should cover all the remaining possibilities.

Vote in comments!

Should Felons Be Allowed to Vote?

| Tue May 4, 2010 11:03 PM EDT

Over at The Corner, Roger Clegg writes:

The Supreme Court has asked the Obama administration for its views on whether to grant review in a case that challenges felon disenfranchisement as a violation of the Voting Rights Act. It will be interesting to see what the solicitor general does. The Left does not like it when felons are not allowed to vote, but the Justice Department in years past has defended these laws, and a partisan volte-face will, or at least should be, embarrassing.

Help me out here. Why should it be embarrassing for the Obama administration to take a different position than previous administrations? Don't presidential administrations do that all the time?