Has Wall Street Given Up on Boehner?

A friend sends me an interesting email:

I spoke to some (very) conservative investment bankers yesterday on some deals we are handling and asked about the debt ceiling as an aside. They were very concerned about the ceiling and seemed very favorable to McConnell's offer. Europe is really, really spooking the investment community. Thus, they would like to tamp down the uncertainty here in the hopes that some sense of normalization here will help the sanity over there and otherwise across the board.

They said it was common knowledge that McConnell was taking very serious back-channel heat from Wall Street because the conclusion was that there was no reliable leadership in the House with Boehner unable to control his caucus and Cantor making his leadership play now. They view Boehner as out. In other words, McConnell is Wall Street's only viable player and so he is taking all the calls. And those calls are not saying to insist upon cuts only come hell or high water. They are saying raise the F-Ing ceiling NOW.

Have no idea if this was true. It's in their interests to say all is well because the players in their deals want that to be the case, so who knows.

I think the issue to watch is how commentators who came out against McConnell's plan more toward begrudging agreement on the theory that there is an unreasonable authoritarian socialist in the WH and, contrary to said President who seems happy to send the country into default and cut off entitlements, they'll be the responsible party, take their lumps and move on. For the good of the country.

This sounds sort of plausible to me, but your mileage may vary. In any case, the final paragraph of this email amused me because I noticed the same thing yesterday, and it's a testament to the efficiency of the conservative messaging machine. Literally within a few hours, I swear that every single conservative politician and pundit had adopted the line that talks had broken down because it was just impossible to negotiate with a socialist thug who was obviously dealing in bad faith. (The "bad faith" in question, of course, was Obama's continuing insistence that modest revenue increases be part of any deal.) The speed with which this talking point made the rounds was truly impressive.

Bernanke: Fed Not Out of Ammo Yet

Ben Bernanke told Congress today that the economy is still pretty shaky, and the Fed will take action if it turns down:

Bernanke said that the Fed could start new purchases of securities....his clearest indication to date that a third round of so-called “quantitative easing” is in the realm of possibility. Another option would be to provide “more explicit guidance” about how long the Fed’s current policy of ultra-low interest rates will remain in place....The Fed chief also said that the central bank could lower the rate it pays banks to park money at the Fed, currently 0.25 percent.

That's reassuring, I guess. In related news, Cate Long reports that Ron Paul continues to be a gold bug:

Ron Paul to Bernanke: "Is gold money?" Bernanke: "No it's a precious metal". Paul: "Why do central banks hold it?" Bernanke: "Tradition."

Roger that. Time to grow up, Ron.

Europe Starting to Look Ever More Wobbly

The Wall Street Journal reports that European banks are getting very, very nervous:

As the crisis deepens, even European central banks are considering the possibility that one or more countries could leave the currency bloc, according to people familiar with the matter, a scenario that until a week ago seemed to many as implausible.

Overall, European banks appear to be growing increasingly wary of lending to each other, even on a short-term basis. Deposits parked at the European Central Bank's overnight deposit facility jumped Tuesday to €90.5 billion....While the amount of funds parked in the ECB facility ebbs and flows over the course of each month for technical reasons, it has historically been a good proxy for how fearful banks are about lending to each other—and about the financial crisis intensifying.

....The defensive moves have the potential to put further pressure on those economies by reducing the already limited supply of credit. This occurred at the outset of the U.S. financial crisis in 2008, deepening the recession. One official said the situation in Italy is being monitored "moment by moment."

This is really not good. Banking crises tend to move slowly at first and then gather speed seemingly from nowhere before finally imploding. That's how, say, Lehman Brothers can be just a wee bit shaky one week and then a week later be close to bringing down the entire global financial system. When the breakdown of trust happens, it happens very, very quickly.

And just to add an American spin here, this is really not the time to be dicking around with Treasury's ability to sell U.S. bonds. Maybe this is all just a false alarm, but then again, maybe not. And if it's not, America needs to be ready and able to provide a financial backstop to the world without a bunch of squabbling congressmen getting in the way. That's part of the responsibility that comes with being a superpower.

The Great Netflix Shaft

The latest from Netflix:

Netflix Inc. boosted by 60% the price of its cheapest movie-rental plan that includes streaming and DVD rentals, triggering an outcry among customers who still use the disc format despite the growing popularity of online movies.

Am I missing something here? Of course there's an outcry from customers who still — still! — use prehistoric disc technology. I've been a Netflix customer for about a year, ever since the last DVD rental place around here pulled up stakes, and the reason I still rent discs is because the selection of streaming movies on Netflix is pathetic. At a guess, I'd say that when I go to look for a title, it's available in streaming format about 10% of the time. The other 90% of the time I have no choice but to get the disc.

So how can anyone, least of all Netflix themselves, supposedly be surprised that discs remain popular? Again, am I missing something here?

On a related topic, this is a crappy way to treat customers. When I signed up for Netflix, I remember thinking that they were just trying to lure customers in with a low price that would suddenly jump when enough people had gotten used to the service and would either (a) not notice the price hike or (b) just shrug and keep their subscriptions due to inertia. But I confess that it never occurred to me that Netflix would suddenly jack up their price 60%. Credit for moxie, I guess.

On the other hand, I imagine it's going to work great. They'll get some griping and some cancellations, but nowhere near enough to eat into the higher revenue from the price hike. Whether they'll continue to grow at a decent clip at this new price point is another question.

UPDATE: Interesting comments. The most common is that I shouldn't be blaming Netflix, I should be blaming the studios, who are in the process of jacking up their contract demands in order to get their hands on a bigger piece of the distribution pie.

Class Warfare Boomerangs on the GOP

When I came in from lunch and read about Mitch McConnell's debt ceiling proposal, my jaw dropped. The cynicism of the thing was enough to leave my tongue hanging out of my mouth the entire time I was writing the post below. So that's all I wrote about.

But I suppose there's a bigger picture here than just McConnell's cynicism. And the bigger picture, obviously, is that McConnell wouldn't have proposed giving Obama his debt ceiling increase with only political strings attached unless he was convinced that Republicans were losing the PR battle for a more comprehensive deal. And since the only real stumbling block to a comprehensive deal was Obama's insistence on revenue increases, McConnell must have felt that they were losing the PR battle even there. After years of owning the tax issue, this must have come as something of a tectonic shock.

Which is.....interesting. Obviously, Obama has been positioning himself all along as the reasonable, centrist guy, willing to agree to trillions in spending cuts as long as Republicans are willing to close a few modest tax loopholes. Last week Republicans derided Obama's repeated focus on tax breaks for corporate jets as class warfare etc., but you know what? It must have been working. Somewhere down in the bowels of the GOP's polling operation, they must have discovered that the public was buying Obama's pitch that "the wealthy need to pitch in too."

Which, in a way, isn't surprising. Raising taxes on the rich has always polled well, and Republicans may have recently figured out that this support was more than just theoretical. Eventually Obama would have made his detailed proposals public, and apparently McConnell had started to realize that shutting down the government over tax breaks for hedge fund billionaires and shorter depreciation schedules for corporate jet owners was really, really, not going to go down well, even among Republicans. So he pushed the eject button and tried to bail out.

It probably won't work, though. The political cynicism of his proposal is almost certainly too much for some Democrats, and giving up on spending cuts will be too much for most Republicans. Still, it provides a hint about who has the upper hand in the debt ceiling negotiations right now. And it ain't McConnell.

When John Boehner said earlier today that the debt ceiling was 100% Obama's problem, I took it as political hyperbole. But apparently it was much more than that. A couple of hours ago Boehner's Senate doppelganger, Mitch McConnell, proposed a truly bizarre plan that would, literally, make the debt ceiling 100 percent Obama's problem. It goes like this:

  1. Next month Obama would receive approval to raise the debt ceiling $700 billion.
  2. A "resolution of disapproval" would then be taken up by Congress on an expedited basis (i.e., no filibusters allowed).
  3. If the resolution passes, Obama can veto it.
  4. If he vetoes it, it requires a two-thirds vote of both houses to override.
  5. If there's no override, the debt limit is increased, but Obama would be required to lay out a "hypothetical" set of budget cuts totaling $700 billion.
  6. This would be repeated (in $900 billion increments) in the fall of 2011 and summer of 2012.

WTF? This is possibly the most juvenile, most buck passing, most transparently mendacious proposal I can recall from any party leader in recent memory. The bright idea here is to force Democrats to repeatedly vote to raise the debt ceiling during campaign season, and to repeatedly force Obama to lay out enormous budget cuts that have no purpose except to piss off interest groups. The whole thing is so patently, ridiculously political that it's breathtaking. It ought to be named the "Gratuitous Embarrassment of Barack Obama and the Democratic Party Act of 2011."

Does McConnell really think that he's being clever here? That his purpose isn't plain to everyone? The Republican Party has now passed from Alice in Wonderland to Lord of the Flies. It's like dealing with a bunch of kids on a playground. Are McConnell and Boehner trying to prove Obama's point that he's the only adult at the table right now?

1No insult to actual sixth-graders intended.

Quote of the Day: John Boehner Shows His Cards

From Republican Speaker John Boehner, on President Obama:

This debt limit increase is his problem.

OK then. Glad we got that straight. At least now we know how Boehner really feels.

Who's Serious About Medicare?

Yuval Levin says he listened goggle-eyed to President Obama yesterday saying that "it’s not an option for us to just sit by and do nothing" about Medicare:

This has to make us wonder why the president has been sitting around doing nothing about all of this for two years (that is, when he hasn’t been making it worse) and keeping others from doing anything about it. It should also make us wonder what it is that he proposes to do now, since so far the only concrete ideas he has laid out involve doubling down on the current system.

The rest of the post is an entertaining temper tantrum, but one that seems to exist in some kind of alternate universe. Far from "doing nothing," here's how I remember the last couple of years of action on Medicare:

  1. During the 2008 campaign, it was a complete non-issue. It was barely mentioned, and neither candidate made any big promises about it.
  2. As part of healthcare reform, Obama cut Medicare expenses by $500 billion over the next decade, putting it on a substantially more solid financial footing. This was passed, as you might recall, on a party-line vote with zero Republican support.
  3. During the 2010 campaign, Republicans hammered the daylights out of every Democrat who voted to do this. They were destroying Medicare!
  4. Today, with the campaign over, suddenly Republicans like Levin are claiming that Obama is reckless for not proposing even bigger cuts to Medicare.

Maybe Levin remembers things differently. But as this CBPP chart shows, the healthcare reform act has done a lot to shore up Medicare's finances, and Obama has repeatedly (and to the fury of his liberal base) endorsed a deal that would do even more. However, Republicans are resolutely refusing to even discuss this if the deal involves even the slightest amount of increased revenue.

Conversely, the only proposal on the table from Republicans is Paul Ryan's transparently specious plan to voucherize Medicare, a plan that most of his fellow Republicans have treated about the same way that vampires treat a silver cross. So far, the only serious action has come from Democrats, and the only serious proposals going forward have also come from Democrats. At least, in the universe that most of us live in.

Remind Me Again Why We Have a Debt Ceiling?

About a million political analysts have reminded us lately that it's crazy for the United States to even have a debt ceiling. No other country does, after all. And it doesn't make any sense: Congress incurs the debt when it passes a budget. Why bother with an entirely separate restriction on the level of debt? It's just goofy.

So here's my question: Since this is almost universally acknowledged, why do we have a debt ceiling law? Why wasn't it repealed long ago by a majority party tired of the opposition using it to score political points? My seat-of-the-pants guess is that repeal could be passed as part of the budget reconciliation process, which means you wouldn't even have to worry about a filibuster. You just need to control Congress and the presidency, and both parties have done that on a number of occasions over the past few decades.

So what keeps it around?

Understanding Obama

Josh Marshall asks a question that I've been asked via email a few times:

There are many things I do not understand about the progress of this so-called debt negotiation. But of many here's one that perplexes me the most. If Hill Republicans will not allow the government to continue borrowing money beyond the current statutory debt limit, I think there's probably a decent constitutional argument that the president must shut down parts of the government....And the most logical places to start are with Social Security payments and Medicare reimbursements. Stuff like cutting Social Security checks in half starting the following week.

There are plenty of ways you could piece it together. But I think it's fair to say that there's no way to do it without immediate and huge cuts to entitlements and the military. Discretionary spending just isn't a big enough piece of the pie. So why the adamant refusal to put this in front of the public?

I think that this fundamentally misjudges Obama. Eventually things may come to this, but the fact is that he genuinely wants a deal. If he can't get one, then obviously he wants to maneuver things so that Republicans get the blame. But that's a fallback position. His primary position is that he really, truly wants to make a significant deal that includes both large spending cuts and moderate (but still substantial) tax increases. Once you understand this, a lot of seemingly inexplicable things suddenly make sense.

So why isn't Obama making it clear that Social Security checks will dry up if Republicans refuse to do a deal? Because that would put pressure on Republicans to simply cave in and raise the debt ceiling. But that isn't what Obama wants. He wants a deal.

I don't know all the reasons for this. But my guesses are fairly conventional. (1) Obama truly believes that the long-term debt is a problem, and this is a good opportunity to do something about it with bipartisan cover. (2) He wants Republicans on record as supporting a tax increase. Why? Perhaps he believes that once he's forced Republicans away from an absolutist position, that position is gone for good and it will make future negotiations less hostile. (3) He's courting independents, and independents want a deal that gets concessions from both sides.

But the reasons don't matter much. Just do this: whenever you think Obama has done something dumb or weak-minded or inexplicable, remind yourself that he doesn't necessarily have the same goals as you. He sincerely wants a deal that involves concessions from both sides, and once you understand that his actions will suddenly seem a lot less dumb, weak-minded, and inexplicable. In fact, they'll seem pretty obvious.