Kevin Drum

Happy Bonus Season!

| Fri Oct. 30, 2009 11:36 AM EDT

Good news!  The financial industry plans to pick up the stimulus slack as the government's efforts start to tail off next quarter:

Having shaken off the biggest economic decline since the 1930s, almost three in five traders, analysts and fund managers believe their 2009 bonuses will either increase or won’t change, according to a quarterly poll of Bloomberg customers. Only one in four see a decline. Asians are the most optimistic about pay and Americans and Europeans somewhat less so.

“The large banks are knocking the cover off the ball,” said Daniel Alpert, managing director of New York-based investment bank Westwood Capital LLC. The industry is “making money, though with government help.”

Worldwide, a majority of market professionals in the survey also turn thumbs down on government attempts to limit compensation, with 51 percent saying restrictions will stifle useful innovation. Only about 38 percent think pay limits will control excessive risk-taking.

There are still some naysayers out there, like Mark Borges, a compensation consultant at Compensia Inc., who says the survey results "give some fuel to the people who claim that Wall Street hasn't really gotten it."  But me?  I'm just grateful that bankers are going to be part of the economic recovery of struggling Porsche dealerships and Cape Cod real estate agents.  I'd say they get it just fine.

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High Noon

| Fri Oct. 30, 2009 1:47 AM EDT

Now that it looks like Congress is only inches away from producing a surprisingly decent healthcare bill, Paul Krugman lays down the law:

Everyone in the political class — by which I mean politicians, people in the news media, and so on, basically whoever is in a position to influence the final stage of this legislative marathon — now has to make a choice. The seemingly impossible dream of fundamental health reform is just a few steps away from becoming reality, and each player has to decide whether he or she is going to help it across the finish line or stand in its way.

....For conservatives, of course, it’s an easy decision: They don’t want Americans to have universal coverage, and they don’t want President Obama to succeed.

....Should progressives get behind this plan? Yes. And they probably will.

The people who really have to make up their minds, then, are those in between, the self-proclaimed centrists....I’d just urge them to take a good hard look in the mirror. If they really want to align themselves with the hard-line conservatives, if they just want to kill health reform, so be it. But they shouldn’t hide behind claims that they really, truly would support health care reform if only it were better designed.

For this is the moment of truth. The political environment is as favorable for reform as it’s likely to get. The legislation on the table isn’t perfect, but it’s as good as anyone could reasonably have expected. History is about to be made — and everyone has to decide which side they’re on.

I don't know if "self-proclaimed centrists" listen to Krugman, but he's right.  The modest public option that's survived the sausage factory so far just isn't a big enough deal to sink the entire bill over.  At least, it's not if you really want healthcare reform in the first place.  It's time for everyone to figure out if they do.

Gay Marriage in Maine

| Thu Oct. 29, 2009 5:34 PM EDT

Via Andrew Sullivan, here's a sample of the pro-marriage (left) and anti-marriage (right) ads running in Maine right now.  Reminds me of California 11 months ago: generally bright and positive from the pro side, dark and fearmongering from the anti side.  Note especially the almost comically menacing musing from the anti folks.

Of course, as we all know, fear sells: the anti side won in California.  But not by much!  Only by a couple of points, and I remain convinced that if Barack Obama had been willing to step in a little more forcefully he might have turned things around.  I understand his reluctance to address hot button cultural issues until he gets most of his legislative agenda through Congress this year, but justice is justice.  He ought to speak up on this.

Quote of the Day

| Thu Oct. 29, 2009 4:18 PM EDT

From Fay Chapman, former chief legal officer at Washington Mutual, about loan standards during the housing bubble era:

"Someone in Florida had made a second-mortgage loan to O.J. Simpson, and I just about blew my top, because there was this huge judgment against him from his wife's parents," she recalled. Simpson had been acquitted of killing his wife Nicole and her friend but was later found liable for their deaths in a civil lawsuit; that judgment took precedence over other debts, such as if Simpson defaulted on his WaMu loan.

"When I asked how we could possibly foreclose on it, they said there was a letter in the file from O.J. Simpson saying 'the judgment is no good, because I didn't do it.' "

Via Mark Thompson.

Taking on the Iron Triangle

| Thu Oct. 29, 2009 2:30 PM EDT

It's a testament to the difficulty of healthcare reform and the power of the healthcare lobby that it's able to make reform of Pentagon procurement look almost easy by comparison.  But that's how it's turned out: at the same time that President Obama's healthcare reform has been fighting through the congressional underbrush one painful subparagraph at a time, his defense cuts have practically sailed through.  Remarkably enough, he's succeeded almost completely in cutting back the weapons platforms he targeted earlier this year, and he's succeeded so quietly that I'd pretty much forgotten it was even happening.  But it did, and the defense appropriations bill Obama signed yesterday included nearly all the cuts he had asked for:

Rahm Emanuel, the White House chief of staff, said Wednesday that the plan was to threaten a veto over a prominent program — in this case, the F-22 fighter jet — “to show we were willing to expend political capital and could win on something that people thought we could not.”

Once the Senate voted in July to stop buying F-22s, Mr. Emanuel said in an interview, that success “reverberated down” to help sustain billions of dollars of cuts in Army modernization, missile defense and other programs.

....Military analysts said [Defense Secretary Robert] Gates, a holdover from the Bush administration, also aimed at the most bloated programs. And Senator John McCain of Arizona, the former Republican presidential candidate, who has criticized the Pentagon’s cost overruns, provided Mr. Obama with political cover to make the cuts without being seen as soft on the military.

“They probably get an ‘A’ from the standpoint of their success on their major initiatives,” said Fred Downey, a former Senate aide who is now vice president for national security at the Aerospace Industries Association. “They probably got all of them but one or maybe two, and that’s an extraordinarily high score.”

Yes, Obama and Gates mostly took on only the most egregiously bloated Pentagon programs and then plowed the money they saved into other areas, which probably cut down considerably on opposition grumbling.  Still, this is a landmark effort.  Cutting even a single bloated program is usually the work of years, and to cut three or four at once is unprecedented.

Having a conservative (and politically savvy) Defense Secretary like Gates carrying the ball for the program cuts was instrumental in getting them done, in the same way that having a conservative like Gates carrying the ball for ending DADT will probably be instrumental in getting it abolished next year.  I was sort of ambivalent about the Gates appointment when it was announced last year, but I have to admit that so far he's come through on the potential upside.

(Via Steve Benen.)

Palin and the Presidency

| Thu Oct. 29, 2009 1:40 PM EDT

Iowans aren't accustomed to paying politicians to speak at their events.  Just the opposite, in fact: as the kick-off state for the presidential primary season, most politicians are so eager to speak in Iowa that they're almost willing to pay for the privilege.

But not Sarah Palin!  She's hungry for scratch, and Iowans have to pay up the same as anyone else:

A conservative Iowa group’s effort to lure Sarah Palin to its banquet next month has had an unintended effect: Rather than exciting conservatives about the prospect of a visit from the former Alaska governor, the group’s plan to raise a six-figure sum to bring her to the state has GOP activists recoiling at the thought of paying to land a politician's speaking appearance.

Matt Yglesias is cynical: "The hard-right loves Sarah Palin and wants her to be president, but she really just wants to cash in." Nick Baumann isn't so sure: "Running for President does mean sucking up to Iowans, and if Sarah Palin isn't willing to do that, she either has an outrageously inflated sense of her own importance or she isn't planning on running. You can probably find evidence for either of those explanations."

Why yes you can.  Or both!  As for myself, I go back and forth on whether Palin plans to run for president in 2012.  At times, it really does seem as if the 2008 campaign made her realize that the rigors of big-time politics weren't for her.  On the other hand, she really, really loves the spotlight, and what's a bigger stage than the White House?  But if she planned to run, would she really be quite so obviously frenzied about cashing in on her notoriety while she has a chance?  Still, Nick is right: her sense of self-importance is so manifest that you can practically see her measuring the Oval Office drapes when she makes public appearances.  But surely her advisors know perfectly well that she has absolutely no chance of beating Barack Obama and will let her know that?  Maybe so, but that might just mean she'll find herself new advisors.  The ability of people to convince themselves that they can win the presidency (Fred Thompson?  Chris Dodd?  Seriously?) is the stuff of legend.

So I don't know.  I'd put it at about 50-50.  Or maybe 45-55.  If I had to bet, I'd say she won't run.  But I wouldn't bet very much.  Give her another year or two and she might very well delude herself into thinking that the American people are really, really yearning for her to be the leader of the free world.  After all, they love her book, don't they?

POSTSCRIPT: If you want to know the truth, this post is really just an excuse to include that picture of Palin, captured some time ago from her old Twitter page.  It cracks me up.  The first time I saw it she reminded me of some Paul Bunyanesque giant gazing down curiously on the antlike peasants below — perhaps just before rampaging over the Alaskan tundra and crushing a few villages in the process.  Or maybe I just have an odd sense of humor?

UPDATE: As is so often the case with Palin, it turns out that the real story here is murky.  Is she really asking for $100,000?  Is she even planning to be in Iowa at all?  Maybe not.  More here.

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Savings Glut, Investment Drought

| Thu Oct. 29, 2009 12:41 PM EDT

Atrios:

Last night at a roundtable for our nations's elite, that is to say, "bloggers," Richard Trumka, AFL-CIO President, implied, though did not say outright, that one consequence of the real estate bubble was that manufacturing and other types of businesses were finding it difficult to obtain credit at favorable terms. As I said, this seemed to be the gist of what he was saying though I'm not 100% sure that was his point. So I'm curious! How much was credit being funneled away from all other sectors in the economy?

I'd like to know too, though I'm not sure what the best measure of this would be.  But I've always thought that one of the most worrisome aspects of the recent credit bubble was the fact that it was at least partly driven by Ben Bernanke's famous "savings glut," big pools of money from Asia looking for a home.  Unfortunately, there weren't enough genuinely productive invesment opportunities to soak up all that money, so instead it ended up on Wall Street where it got funneled into a housing bubble and lots of financial engineering.

But why weren't there enough good, traditional places to invest that money?  And by "traditional" I mean people who want to build factories or expand call centers or start up biotech ventures.  That is, businesses that provide goods and services to meet demand from consumers and corporations.  The supply side of the economy may have been going great guns, but the demand side wasn't keeping up.  This is why some people think it's better to talk about this phenomenon as an "investment drought."

A lot of this has to do with the distribution of income that Steve Randy Waldman blogged about the other day: demand for goods and services is primarily driven by consumers, and if their wages aren't increasing then demand for goods and services can't increase very much either.  So instead excess money flows to Wall Street, where it gets loaned out to consumers as a substitute for wage growth.  Eventually, though, it becomes obvious that they can't take on any more debt, and then comes the crash.

So what happens next?  If we want stable growth, it really needs to be based on consumer demand, and that in turn mostly means middle class demand.  That demand will then provide investment opportunities for capital.  But that all depends on broad, sustained wage growth for the middle class, and as far as I can tell no one is talking much about how to promote that.  If that stays the case, and income inequality continues to rise once we're out of the woods, how far out can another crash be?

Is the Recession Over?

| Thu Oct. 29, 2009 11:54 AM EDT

No surprise here: GDP was up 3.5% in the third quarter.  But is the growth sustainable?

The cash-for-clunkers program helped boost consumer spending on durable goods....Similarly, economists say the $8,000 federal tax credit for first-time homebuyers helped revive spending on housing.

....Stagnant consumer demand and withering consumer confidence have left companies wary of hiring more employees — or, for that matter, taking any expensive risks. The jobless rate reached 9.8 percent in September, its highest rate in 26 years. According to Thursday’s report, business investment in buildings and other structures fell at an annual rate of 9 percent in the third quarter.

The Wall Street Journal also provides a note of skepticism: "Since the federal stimulus reached its maximum effect in the third quarter and the unemployment rate remains high, there's uncertainty over the sustainability of the recovery."  As for myself, I'm curious to know not just where the growth is coming from, but where it's going to. Wage growth has been weak this year, and there's not much sign that the recovery in Q3 did much to change that.  So who's getting the bulk of the benefit?

Chart of the Day

| Wed Oct. 28, 2009 7:22 PM EDT

Gallup released a poll on Monday showing a slight blip in the number of Americans who identify themselves as conservatives.  Since this got a fair amount of attention, I figured it was time to update my chart of the Harris Poll version of this data, which goes back to the early 70s and consolidates the results from multiple polls throughout the year.

As you can see, nothing much has happened for the past three decades.  In the mid-70s a bunch of "not sure" respondents decided they were conservatives after all, and since then the numbers have remained remarkably steady: about 18% identify as liberals, 37% as conservatives, and 40% as moderates.  This hasn't varied by more than three or four points since 1980.  The most recent Harris data is for 2008, and breaks down 18% liberal, 37% conservative, and 41% moderate, right in line with the historical averages.  It's possible that something dramatic has happened since then, but Gallup aside, I wouldn't count on it.  Ten bucks says Harris gets pretty much the same results when they consolidate all the 2009 data at the end of the year.

Taking Graft to New Heights

| Wed Oct. 28, 2009 5:01 PM EDT

I've never heard of the Italian news agency ADNkronos, but today they report a pretty spectacular statistic:

Kabul, 28 October(AKI) - Anti-corruption officials believe graft is eating up a staggering 75 percent of the Afghan government's revenues, a news conference heard on Wednesday. A senior official in Afghanistan's anti-corruption department, Muhammad Yasin Osmani, said most of the revenues were being wasted due to administrative corruption.

....Finance ministry spokesman Aziz Shams admitted government revenues were being squandered but said Osmani had over-dramatised the situation.

But does Aziz Shams mean over-dramatized in the sense of "wrong" or over-dramatized in the sense "making too big a fuss over it"?  Steve Hynd wants to know.