Kevin Drum

Turning Down the Volume

| Fri Oct. 1, 2010 10:26 AM EDT

Fellow MoJoer Nick Baumann draws my attention to a report suggesting that the U.S. Senate isn't completely worthless after all. Here's the evidence:

Legislation to turn down the volume on those loud TV commercials that send couch potatoes diving for their remote controls looks like it'll soon become law. The Senate unanimously passed a bill late Wednesday to require television stations and cable companies to keep commercials at the same volume as the programs they interrupt.

....Managing the transition between programs and ads without spoiling the artistic intent of the producers poses technical challenges and may require TV broadcasters to purchase new equipment. To address the issue, an industry organization recently produced guidelines on how to process, measure and transmit audio in a uniform way.

The legislation, sponsored by Sheldon Whitehouse, D-R.I., requires the FCC to adopt those recommendations as regulations within a year and begin enforcing them a year later. Rep. Anna Eshoo, D-Calif., is the driving force behind the bill in the House.

It's not a done deal yet: the bill still has to go to conference and then get a final vote in both House and Senate. But apparently no one expects that to be a problem unless someone throws a tantrum and decides to shut down the Senate because Barack Obama insulted their dog or something.

Anyway, this is indeed one of my great pet peeves. It's sort of like the Do-Not-Call list: I don't really care about principled arguments on either side. I don't care if this regulation should be considered liberal, conservative, libertarian, fascist, or anything else. I just want the damn volume on advertisements to go down. If the only way to do it were to put a few network chiefs in front of firing squads just to send a message to the rest of them, I'd probably favor that too. Just get it done.

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Finally a Winner in Iraq

| Fri Oct. 1, 2010 9:57 AM EDT

We might finally have a winner from the March election in Iraq:

Powerful Shiite cleric Muqtada al-Sadr has agreed to support the bid by Iraq's prime minister to retain power, aides said Friday, in a move that could speed an end to the seven-month political impasse and bring dealmaking that may give key concessions to al-Sadr's anti-American bloc.

The decision by al-Sadr would mark a significant boost for Prime Minister Nouri al-Maliki's Shiite-led coalition to secure enough parliament seats to form a new government.

....Al-Sadr's move apparently sets aside past animosity with al-Maliki for a chance to gain a greater voice in a possible new government. Al-Sadr — who has been in self-exile in Iran since 2007 — has denounced al-Maliki's government for its close ties to Washington and a joint security pact that allows U.S. military presence through at least the end of next year.

So we get the same old Maliki government, but with a greater role for Muqtada al-Sadr. I can't say this fills me with hope for Iraq's future, but I suppose it fills me with relief that they're at least going to have a government of some kind. Stay tuned. 

Wall Street's Sigh of Relief

| Fri Oct. 1, 2010 5:00 AM EDT

How will we know if the financial reform bill passed in July has worked? A few months ago I mentioned four metrics to watch for:

  • Borrowing rates for large banks
  • Derivatives trading
  • Leverage ratios
  • Industry profitability

Of these, the most important and the easiest to measure is the last one: industry profitability. Once you cut through all the chaff and all the technical details, you're left with a simple truth: a safer, less leveraged banking sector is inherently less profitable than the casino trading and finance-oriented one we have right now—the one that accounted for an astonishing third of all corporate profits in the United States during the Bush era. If profits stay at pre-bubble levels, it almost certainly means that financial reform failed.

It's too early to tell how reform will turn out, of course, but recently we got a disturbing glimpse. The people in the best position to know how the new regulations are going to affect the banking sector are the bankers themselves, and bankers don't seem to be very worried. Researchers at an IBM think tank, the Institute of Business Value, did a survey of top financial executives recently and asked them how the new regs were likely to affect them. Results are at the right: a mere 13% of them thought industry returns would decrease significantly. The vast majority thought returns would be the same or only slightly less.

It's a small sample—only 54 executives—and maybe they're just being overoptimistic. But it's a bad sign that they aren't a little more worried. (Another bad sign: asked about their top concerns, the #3 answer was figuring how to get around the new regulations.)

Of course, there's more to banking regulation than just Dodd-Frank. There are also the new capital standards recently adopted by the Basel Committee, and at first glance they seemed gratifyingly stiff. But they were announced two weeks ago, on Sunday the 13th, and when markets opened on Monday the 14th bank stocks shot up. Yet again, the people who are in the best position to judge the real effect of the new regulations didn't seem too worried.

For now, then, things don't look so good. Both Dodd-Frank and Basel III are improvements, but the best evidence so far—namely the reaction of people with money at stake—suggests that it won't be long before Wall Street is back to business as usual. It's been an opportunity lost.

No Good Deed Goes Unpunished

| Thu Sep. 30, 2010 11:00 PM EDT

An internal White House report concludes that money from the stimulus bill has been well spent:

By the end of September, the administration had spent 70 percent of the act's original $787 billion, which met a White House goal of quickly pumping money into the nation's ravaged economy, the report says. The administration also met nearly a dozen deadlines set by Congress for getting money out the door...

Meanwhile, lower-than-anticipated costs for some projects have permitted the administration to stretch stimulus money further than expected, financing an additional 3,000 projects, according to the report..."Certainly, the fraud and waste element has been smaller than I think anything anybody anticipated," said Steve Ellis, vice president of Taxpayers for Common Sense, a nonpartisan watchdog group.

...An independent board established to provide oversight has received just 3,806 complaints — less than 2 percent of more than 200,000 awards. Prosecutors have initiated 424 criminal investigations, representing 0.2 percent of all awards. Typically, 5 to 7 percent of government contracts attract complaints, [Jared] Bernstein said.

According to CBO reports, the stimulus has created 3.5 million jobs and kept unemployment about 1 to 2 percent lower than it otherwise would have been, and apparently it's accomplished this efficiently and with minimal waste. It's a testament to what happens when you take good policy seriously.

Unfortunately, it's also a testament to how little most people care about good policy and competent execution. As near as I can tell, it's practically conventional wisdom these days that the stimulus package was a complete bust—and all because the Obama administration initially made a lousy projection about the future course of the recession and suggested that the stimulus package would reduce unemployment to 8 percent. If their forecast of the depth of the recession had been correct and they'd predicted, say, 11.5 percent unemployment without a stimulus package and 10 percent with it—which is what happened—elite opinion about the stimulus would probably be completely different.

So there you have it. Good policy and good execution gets you bubkes. All it takes is one wrong forecast number to wipe it all out. Welcome to the real world.

Endgame for AIG

| Thu Sep. 30, 2010 4:24 PM EDT

The New York Times reports today:

A.I.G. Reaches Deal to Repay Treasury and Fed for Bailout

This is good news. But take it with a grain of salt. Here's the part about repaying the Fed:

The insurance giant [] owes the Fed about $46 billion in two forms: about $20 billion in borrowings under the original revolving credit facility, and a $26 billion preferred stake that the company must redeem....The company said it would use its own resources to pay back the $20 billion in loans....In addition, the Treasury has agreed to help the Fed sever its ties with A.I.G., by providing the means for the company to redeem most of the Fed’s $26 billion in preferred interests. That money will come from the unused portion of an emergency assistance package that the Treasury made available to A.I.G. as its troubles reached a peak in early 2009.

OK. So AIG is going to pay back $20 billion by selling off some assets, but the other $26 billion comes from tapping into unused parts of the existing Treasury rescue package. So now AIG will owe the Treasury even more. How is that going to be paid off?

The Treasury will come out of the transaction with a larger preferred stake in A.I.G....Once the Fed has been fully repaid, the agreement calls for A.I.G. to exchange all of the Treasury’s preferred shares for 1.65 billion shares of common stock....When the exchange from preferred to common has been done, the Treasury will be able to sell its common shares on the public markets, something it is expected to do gradually over time.

This might work! Then again, when the government starts selling off billions of shares of AIG stock, whether slowly or not, it might not. Only time will tell. Basically, though, the Treasury now owns 92% of AIG, and taxpayers will get paid back only if and when it sells that stake. Once this deal is complete I think Treasury will be on the hook for about $50 billion or so in outstanding loans to AIG, so if AIG's share price holds up at around 40 bucks while Treasury's shares are dribbled out to the market, we the taxpayers will end up in decent shape on the whole deal.

Vegetable Research Grant Needed

| Thu Sep. 30, 2010 1:34 PM EDT

Adam Ozimek rants about vegetables:

[Alice] Waters and her organization are touting a new study showing that school gardens get kids to eat more vegetables. This isn’t surprising, but how much does it impact their lives once they graduate? Are future blue collar workers really going to take the time to grow themselves vegetable gardens in window boxes outside their apartments?....From every description of these programs I’ve read they have an obsession with local, fresh, organic, and growing your own food. The obsession should be on quick, easy, delicious, and inexpensive. These sets of descriptors are damn near antonyms.

If you can get kids to eat and prefer frozen vegetables then you’ve got a sustainable improvement in diet and nutrition. If you get them to like fresh organic vegetables they’ve grown in the garden or bought at the farmers market, then you’ve temporarily instilled in them the tastes of upper middle class people with enough time and money on their hands for such luxuries.

If people like Alice Waters and Jaime Oliver want wider support for heathy schools movements they need to purge them of the wasteful upper-class liberal obsession over local, fresh, and organic foods, and instead focus them on practical and sustainable lessons like how to prepare frozen vegetables cheaply, quickly, and deliciously.

I feel ideally situated to report objectively on this since the only vegetables I like are tomatoes, and they aren't even really vegetables at all — though the Supreme Court has decreed otherwise. In any case, I figure they're close enough, and better than eating nothing vegetable-ish at all.

But back to all those upper-class liberal vegetable gardens in local schools. Haven't they been around long enough for someone to do a serious study of this?1 You know the drill: interview ten thousand 30-year-olds, control for a whole bunch of variables, and then do a regression that plots years of tending vegetable gardens in school vs. current consumption of vegetables. Let's settle this thing once and for all.

1In fact, longer than you think. My mother says her first grade class had a little garden, and that was back in 1938.

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The Counterintuitive World

| Thu Sep. 30, 2010 1:06 PM EDT

Back during World War II, the RAF lost a lot of planes to German anti-aircraft fire. So they decided to armor them up. But where to put the armor? The obvious answer was to look at planes that returned from missions, count up all the bullet holes in various places, and then put extra armor in the areas that attracted the most fire.

Obvious but wrong. As Hungarian-born mathematician Abraham Wald explained at the time, if a plane makes it back safely even though it has, say, a bunch of bullet holes in its wings, it means that bullet holes in the wings aren't very dangerous. What you really want to do is armor up the areas that, on average, don't have any bullet holes. Why? Because planes with bullet holes in those places never made it back. That's why you don't see any bullet holes there on the ones that do return. Clever!

On a related note — related because it involves both an air force and some counterintuitive statistical reasoning — Henry Farrell writes about a passage from Justin Fox's Myth of the Rational Market involving the great behavioral economist Daniel Kahneman. Here is Kahneman reacting to an Israeli Air Force flight instructor who told him that whenever he chewed out a student he got better performance the next time out, but whenever he praised a student he got worse performance:

As a man trained in statistics, Kahneman saw that of course a student who had just brilliantly executed a maneuver (and was thus praised for it) was less likely to perform better the next time around than a student who had just screwed up. Abnormally good or bad performance is just that — abnormal, which means it is unlikely to be immediately repeated. But Kahneman could also see how the instructor had come to his conclusion that punishment worked. “Because we tend to reward others when they do well and punish them when they do badly, and because there is regression to the mean,” he later lamented, “it is part of the human condition that we are statistically punished for rewarding others and rewarded for punishing them.”

Likewise, we tend to go to the doctor only when an illness has become really bad. Sometimes, though, that just means the illness is at its lowest point and has nowhere to go but up. And sure enough, after we see the doctor we get better. But it's not always because of something the doctor did. Sometimes it's just a natural consequence of when humans choose to see them.

Finally, on yet another related note — related this time solely because it involves counterintuitive statistical reasoning, not because it involves an air force — check out Nate Silver's brief seminar on how weak most of us are at calculating how much variance there is in the things we do every day. There's a lot of natural variance in everyday life, and there's not always a reason for it. But we like to make up reasons anyway. Statistics is a profoundly unnatural enterprise for most of us.

The Foreclosure Scandal

| Thu Sep. 30, 2010 11:09 AM EDT

I haven't posted yet about the news that thousands of delinquent homeowners are being booted out of their houses in special "expedited" courtrooms using flimsy and often fraudulent documentation produced by foreclosure mills that handle thousands of cases with factory-like efficiency. Part of the reason is that lousy documentation aside, it wasn't clear to me how many people were actually being unfairly evicted. Mike Konczal sets me straight:

I was raised by a family in law enforcement, and as such, I tend to think people who are arrested are usually guilty. And I think that the people who are ending up inside the Florida bankruptcy courts are usually going to be people that shouldn’t be in their homes.

It’s because of the fact that I and others usually believe this to be true that I think due process and the trust in the process of our courts is so incredibly important. It’s necessary to force the parties at hand to marshall evidence that they swear is true, and to present it to an impartial judge to render judgment after full consideration. This is America, where everyone gets a chance before the court. If this breaks, the weak and the innocent are the ones who suffer.

This is right. It's precisely when we're absolutely sure that someone is guilty that we need to be most careful about making sure we actually prove it. Beyond that, as Mike points out in the rest of his post, virtually all of these foreclosure problems could probably be resolved quickly and fairly amicably if banks were simply willing to share the loss with the homeowner. But they're not, and neither Congress nor the president has been willing to change the law to encourage this. It's all about protecting the banks, not anyone else.

Read the whole thing, and then click the links to read a bit more. I think Obama probably gets more flack for his economic policies than he deserves — for the most part they've been about as good as they could have been under the circumstances — but when it comes to home foreclosures the administration and Congress have been cynical and derelict in the extreme. It's a disgrace, whether Rick Santelli likes it or not.


| Thu Sep. 30, 2010 10:41 AM EDT

The New York Daily News reports that city residents are "outraged" because silly federal bureaucrats have ordered all their street signs to be changed from all-uppercase to upper-and-lowercase. Go down nine paragraphs, however, and you get this:

The mixed upper- and lowercase rule was adopted in 2003, but municipalities were given until 2018 to comply completely, Hecox said....The additional cost to the city, if any, will be "marginal" because it receives a steady stream of state funding for routine sign repairs and replacement, DOT spokesman Seth Solomonow said. The life of a typical sign is about a decade, so most of the city's signs would be replaced in the next few years anyway, Solomonow said.

So this rule was adopted in 2003, cities have until 2018 to comply, it improves safety, and it won't actually cost much of anything at all. Count me as disappointingly non-outraged.

The Latest Healthcare Non-Story

| Thu Sep. 30, 2010 10:29 AM EDT

Last night, in the latest evidence that the Murdoch-ization of the Wall Street Journal proceeds apace, the WSJ reported that McDonald's was threatening to cancel its employee health insurance, calling it "the latest indication of possible unintended consequences from the health overhaul."

Yawn. Put this one in the same bucket as the student health insurance scare a few weeks ago. As Aaron Carroll points out, there's nothing either new or unintended about this. As Igor Volsky points out, both McDonald's and the Obama administration said this morning that the story was overblown. "Wrong," said HHS. "Completely false," said McDonald's. And as Jon Cohn points out, this whole manufactured story is about crappy health plans that provide almost no benefit in the first place:

The policies in question are so-called mini-med plans with very limited benefits. In the case of McDonald's, according to the Journal, there are two options: Employees who go with the minimum plan pay $14 a week for a policy that won't cover more than $2,000 in medical bills a year. Employees who opt for the "generous" option pay about $32 a week for a policy that maxes out at $10,000.

To call that "insurance" is to distort the definition, since these policies would do very little to help people with even moderately serious medical conditions. (You can blow through $10,000 in medical care with one emergency room visit.)....In the long run, McDonald's employees need policies that protect them in case of serious medical problems. And they need policies they can afford. They'll get those policies thanks to the Affordable Care Act — but not until 2014, because the administration and Congress couldn't come up with enough money to implement the full scheme sooner.

To summarize: ACA requires health insurers to spend 80-85% of premium dollars on actual patient care. The mini-med folks claim they can't possibly meet this target. (They're probably blowing smoke, but leave that aside.) HHS knows all about this and is working on phase-in rules to accomodate problems. McDonald's says they have no plans to drop coverage. And the entire thing is a short-term transition issue, since crappy mini-med policies will hopefully be replaced by actual useful coverage when ACA fully kicks in in 2014.

But other than that, it was a great story.