Kevin Drum

The Gift Card Activation Scam

| Fri Aug. 13, 2010 10:46 AM EDT

I guess I lead a sheltered life or something, but I didn't know about this:

Los Angeles resident James Myers stopped by a Target store in Culver City recently to buy a $25 gift card. Easy, right?

Not so much, it turns out. Inspecting his receipt, Myers discovered that he'd been charged $29 for the transaction. He was told that the price included a $4 "activation fee."

....Target isn't the only gift-card provider to charge an activation fee. American Express, for example, charges up to $6.95. Visa gift cards can come with activation fees of up to $5.95.

That's from LA Times consumer columnist David Lazarus, who notes that not only is $4 outrageously high for swiping a piece of plastic and pressing a couple of keys, but "the company offering the gift card already benefits in other ways." Like, say, taking in money now and getting to keep it until the gift card is used. Or the fact that some gift cards get lost and never redeemed at all. But enough is never enough, is it?

By the way, in the same column Lazarus reports that Wells Fargo and Bank of America have no intention of changing their habit of reordering debit card transactions even though Wells was just fined $203 million for doing it. "Say this about big banks," Lazarus writes, "They're persistent."

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Every Click You Make

| Fri Aug. 13, 2010 5:00 AM EDT

Last week the Wall Street Journal ran a terrific series of stories called "What They Know." The general subject was personal privacy—or the lack of it—in the digital world, and the first article in the series explained how websites routinely track your movements on the web and collect a genuinely astonishing amount of personal information about you in the process. The Journal examined 50 sites using a test computer and discovered that these sites collectively installed a total of 3,180 tracking files—an average of 63 tracking files per site:

The state of the art is growing increasingly intrusive, the Journal found. Some tracking files can record a person's keystrokes online and then transmit the text to a data-gathering company that analyzes it for content, tone and clues to a person's social connections. Other tracking files can re-spawn trackers that a person may have deleted.

....Some of the tracking files identified by the Journal were so detailed that they verged on being anonymous in name only. They enabled data-gathering companies to build personal profiles that could include age, gender, race, zip code, income, marital status and health concerns, along with recent purchases and favorite TV shows and movies.

A full list of the sites they examined is here. The most intrusive were and, which installed over 200 tracking files each. The least intrusive were and

What to do about this? Europe, which generally has better rules than the U.S. regarding the collection and use of personal data, actually has tighter regulations about how long online data should be stored. After all, the local police might want to use it someday. The Christian Science Monitor reports that this is finally provoking a reaction:

Across Europe, a backlash against the storage of private data is growing. Civil society groups like the European Federation of Journalists have criticized the practice, and in Germany almost 35,000 people, including Justice Minister Sabine Leutheusser-Schnarrenberger, sued their own government over the issue.

"There is a real problem in Europe today. It is a breach of the European Convention on Human Rights, which says that everyone has the right to a private life. That fundamental right has to extend into digital life," says Christian Engström, a member of the European Parliament for Sweden's controversial Pirate Party, elected on a platform of digital rights.

This tension means that governments aren't always eager to restrict the collection of personal data online. Beyond that, though, there are technical difficulties for those who want to prohibit the practice. When Congress passed the Do Not Call law in 2003, their job was easy: everyone has a telephone number, and all you have to do is put those numbers into a database and tell solicitors not to call them. But there's no equivalent of a phone number in the digital world. Your computer's ID is its IP address, but most IP addresses change regularly. There's no way of creating a "Do Not Track" database and telling online solicitors to keep their tracking files away from everyone who signs up.

Alternatively, as Harlan Yu wrote recently, we could adopt the opposite approach: instead of asking users to register, we could require solicitors to register and then rely on browser settings that would prevent their domains from installing tracking files. Unfortunately, this has technical drawbacks as well, so Yu suggests instead a new standard that would allow your browser to notify every site you visit that you don't wish to be tracked:

The browser could enable x-notrack for every HTTP connection, or for connections to only third party sites, or for connections to some set of user-specified sites. Upon receiving the signal not to track, the site would be prevented, by FTC regulation, from setting any persistent identifiers on the user’s machine or using any other side-channel mechanism to uniquely identify the browser and track the interaction.

This would, of course, require legislation that requires online sites to honor the x-notrack request. That's the bad news. The good news is that whatever the eventual solution, the problem itself is finally getting some attention on Capitol Hill: Politico reported last week that Sen. Mark Pryor (D–AR) is writing a bill "aiming to give consumers more control over their online data....The focus of the bill, which is still in rough draft form, will be giving consumers the ability to opt out of being tracked across the Web." So stay tuned.

In the meantime, the Journal's full package of privacy articles is here, and they're well worth browsing through. It includes pieces that explain web tracking, cell phone monitoring, how much these tracking services know about you, the role of big companies like Google and Microsoft, and even advice on how to avoid tracking. You can't avoid it all, but there are things you can do to minimize it.

Scott Pilgrim vs. The Expendables

| Thu Aug. 12, 2010 3:58 PM EDT

So which movie will be the top grosser this weekend? In the red corner, we have Matt Zoller Seitz:

This weekend, "Scott Pilgrim" goes head-to-head with Sylvester Stallone’s 1980s-style, tough-guy action picture, "The Expendables," at the box office. ("Pilgrim" will win, trust me. Box office is driven by young viewers, and young viewers don't line up to see films starring 64-year-old men.)

And in the blue corner, Ben Fritz:

"The Expendables," directed by and starring Sylvester Stallone, has men of all ages excited to come to theaters this weekend, with pre-release surveys indicating it will sell about $35 million worth of tickets in the U.S. and Canada...."Scott Pilgrim vs. The World," based on a cult favorite series of graphic novels, has demonstrated only limited appeal among young men and is set to open to only about $15 million.

May the best man win. Which one are you planning to see?

Quote of the Day: El Salvadoran Sour Cream

| Thu Aug. 12, 2010 3:14 PM EDT

This is why I sometimes hate foodies. Here is Tyler Cowen explaining how to top off your frozen corn tamales after steaming them for ten to twelve minutes:

Serve with El Salvadoran white sour cream on top or to the side. (Honduran or Guatemalan white sour cream will do in a pinch.)

In a pinch! God only knows what chaos might ensue if you tried Nicaraguan sour cream!

(I'm kidding. Honest. But still.)

Gay Marriage Getting More Popular

| Thu Aug. 12, 2010 1:36 PM EDT

And now for some good news:

It's only one poll, but it's clearly part of a multi-decade trend that's been moving in the right direction at the rate of a little over 1% a year. Until recently that is: in the past three years, polling on this question has improved at the rate of 3-4% a year. And this might end up being the greatest legacy of Vaughn Walker's decision in the Proposition 8 case. His opinion might not have much influence on the Supreme Court when they end up ruling on the issue, but it probably does have an impact on public opinion. People respond to the opinions of thought leaders and authority figures, and when judges and politicians start speaking out more openly about this, it makes it safer for ordinary citizens to follow suit. Some of that is probably what's happening here.

What's also remarkable — though not new — is the huge gender divide on this question: men are obviously far more threatened by the idea of same-sex marriage than women are. Being thought a sissy during childhood is a common and scarring experience for boys, but being thought a butch or a tomboy probably isn't such a wide or traumatizing experience for girls. In this particular case, men remain far more trapped in their traditional gender roles than women.

Fannie and Freddie

| Thu Aug. 12, 2010 12:45 PM EDT

Felix Salmon — tanned, rested, and ready — reads three op-eds about Fannie Mae and Freddie Mac in the New York Times today and comes away unimpressed. Whatever you might think of Fannie and Freddie, they aren't going away anytime soon:

The fact is, as John Carney says in his own op-ed (the most sensible, but also the narrowest, of the three), that the FHA and Frannie now back more than 95 percent of new mortgages. If they simply stopped buying new mortgages, the entire housing-finance business in the US would come to a screeching halt. No one could buy, no one could sell, and home values would be entirely hypothetical for years.

Yes, it's possible to slowly build an entirely private system of mortgage lending. But you can't do that overnight, as Poole seems to think. And he's completely wrong, too, when he says that “if the home finance market were fully private, then it would bear the losses from its own mistakes in pricing and insurance”. Not true: when there's a major housing crash, the government ends up bailing out the lenders whether they're public or private. Look at Ireland.

Two thoughts come immediately to mind. First, the only reason Fannie and Freddie are semi-public institutions in the first place is because the private markets wanted nothing to do with buying up mortgages when the idea was first broached. The original plan was that the FHA (created in 1934) would guarantee home loans and private industry would then step in to create a secondary market. But private industry wasn't interested, so in 1938 Fannie Mae was created to do it instead. So the question is: what's changed since then? If private industry wasn't interested in 1934, what makes us think they'd be interested now?

The answer, of course, is that lots of things have changed. But that's a two-edged sword and it leads to the second obvious thought: most European countries don't have anything similar to Fannie and Freddie, and they still manage to sell lots of houses there. There are pluses and minuses to the European model (and there have been proposals in the past to create an EU-wide GSE like Fannie and Freddie), but still, the fact that the European housing market exists and works adequately suggests that the U.S. could get by without Fannie and Freddie if we wanted to.

But, as Felix says, we probably can't get rid of them too quickly. We don't need another housing bubble, but neither do we need another housing crash. So while a private secondary market might be able to take Fannie and Freddie's place, it's going to take a while to create one that keeps the housing market working smoothly. In the meantime, we should concentrate on workable foreclosure reform and sensible housing policies, not bubble-era stuff like $1000-down mortgages. Fannie and Freddie need to be taken care of, but there's no rush.

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The Permanent Campaign Meets the Obstructionist Senate

| Thu Aug. 12, 2010 12:07 PM EDT

Dan Drezner puts two and two together and wonders what it adds up to:

Executive branch burnout is a bipartisan phenomenon, and as the article notes, the real-time news cycle is only making things worse. This is particularly true on the foreign policy beat. Even if it's 3 AM in Washington, it's 6 PM somewhere else, and someone is doing something that will require an American response....After four years, even policy principals will find their brains going to mush.

On its own, this phenomenon wouldn't be that big of a deal — indeed, some personnel churn is likely a good thing, prevents groupthink and all that. The problem is that this trend is intersecting with another one — the increasing length of time it takes to appoint and confirm high-level personnel. With greater fixed costs involved in vetting and sheparding people through the confirmation process, presidents will be exceedingly reluctant to let these people go, which means that many of them will stay on for longer than perhaps they should.

The 24/7 news cycle has been partly responsible for turning the executive branch into a permanent campaign, and the kind of grueling schedule Dan is talking about here is what this mostly reminds me of. Nobody seriously thinks that even a superman can handle the rigors of a presidential campaign for more than 12-18 months, but that's what high-level White House positions have become. In fact it's worse than that. A guy like Robert Gibbs, for example, spent a couple of years in the pressure cooker atmosphere of the Obama campaign and then went straight into the frenzied atmosphere of the White House press room. Is it any wonder if maybe he's starting to crack a bit after nearly four years of this?

Obama Gains in the Polls!

| Thu Aug. 12, 2010 11:53 AM EDT

Here's a trivial little tidbit from the latest NBC/Wall Street Journal poll:

What a difference a couple of months makes. Nothing at all has changed in Obama's actual handling of the BP spill, of course. He's doing exactly the same things he was doing back in June. But now the leak has finally been capped, and that must mean he's doing a better job, right?

Fascinatingly, though, the poll also includes a comparison to approval ratings of George Bush's handling of Hurricane Katrina, and in that case time definitely didn't heal all wounds. In the immediate aftermath of the storm Bush's approval-disapproval rating was 48-48. A year later it had dropped to 36-53. I guess by 2006 people were just really, really tired of George Bush.


Do We Have a Debt Time Bomb?

| Thu Aug. 12, 2010 11:09 AM EDT

Carmen Reinhart and Kenneth Rogoff say (approximately) that when a government's debt level gets above 90% of GDP, that's a warning sign. Based on a massive database of past financial crises collected in their recent book, This Time is Different, they suggest this is the level at which growth starts to stall and economies go into a tailspin.

The title of the book, of course, is ironic: their whole point is that, in fact, this time isn't different. We should pay attention to all this economic history. Still, you could pretty reasonably argue that the postwar global economy really is distinct from the gold-standard-based economies of the previous few centuries, so maybe you should confine yourself to looking at just the past 60 years. Reinhart and Rogoff's latest crack at their argument goes back over a century, and Paul Krugman narrows it down:

Skeptics like me quickly questioned the causal interpretation of the correlation. [The single U.S. data point was due to postwar demobilization.] We pointed out that other episodes of high debt and low growth, like Japan since the late 1990s, were arguably cases in which causation ran from collapsing growth to debt rather than the other way around.

So surely the question is how much of the correlation survives once we restrict ourselves to cases in which the causation is plausibly from debt to poor growth, rather than likely being spurious or reversed. But R-R don’t offer any response to that question. They do give us a list of peacetime high-debt episodes: [List follows]

....If I’m reading this right, then the postwar cases other than Japan — which I’ve argued looks like reverse causation — are Belgium, Ireland, and Italy. Are these cases enough to bear the weight now being placed on that supposed 90 percent red line?

The causation-correlation argument is obviously an important one. Still, we now have six postwar data points (Krugman leaves out Greece), all in advanced Western economies. This is a small enough sample that it's tempting to treat every episode as a special case: the U.S. doesn't count because of postwar demobilization, Japan doesn't count because causation probably ran in the other direction, Italy doesn't count because its government is famously dysfunctional, Greece doesn't count because it hasn't been a rich country very long, etc.

This is good reason to look at the data skeptically. The problem is that it also provides us with a strong temptation to ignore data we don't want to see. But even given the caveats, we now have centuries of data points that R&R say support their thesis, and half a dozen that seem to be highly relevant to our current circumstances: namely that the U.S. is now above the 90% threshold if you use gross debt as a measure, and below it but getting there fast if you count only debt held by the public. Either way, it's a warning sign.

Overall, I'd say that R&R's data supports the policy that both Krugman and I endorse: stimulus now to help the economy recover from a financial shock, combined with credible future austerity and tax plans to reduce the deficit. This time might indeed be different, but I wouldn't bet the ranch on it.

How Obama Whiffed on Foreclosure Reform

| Wed Aug. 11, 2010 9:16 PM EDT

Atrios on the Obama administration's weak response to the recession:

I'm sympathetic to the argument that a bigger stimulus couldn't have gotten through Congress. So what did they do wrong? They failed to actively support judicial bankruptcy for primary residence first mortgages (aka cramdown) and they totally screwed up HAMP. The latter was entirely under their control and the former would have stood some chance of passing if the White House had thrown its weight behind it. It didn't.

Actually, it's even worse than that! Stephen Labaton of the New York Times, who has done some of the best reporting on the legislative nuts and bolts of financial reform, wrote the definitive account last June of how the banking industry teamed up with Republicans and centrist Democrats to defeat the cramdown proposal. Their secret? Lots of money, a solid front of opposition from Republicans, and, yes, a lethargic effort by the White House:

In the end, the banks’ startling success in defeating the provision, which was pushed hardest by Senator Richard J. Durbin, Democrat of Illinois, caught even their lobbyists by surprise. Not only did they defeat the cramdown provision, but the banks walked away with billions in new bailout money.

....While Mr. Obama reaffirmed his support for the proposal shortly after becoming president, administration officials barely participated in the negotiations, a factor that lobbyists said significantly strengthened their hand. Lawmakers who have discussed the issue with the administration said that the president’s senior aides had concluded that a searing fight with the industry was simply not worth the cost.

Moreover, Timothy F. Geithner, the Treasury secretary, did not seem to share Mr. Obama’s enthusiasm for the bankruptcy change. Mr. Geithner was lobbied by the industry early. Two days after he was sworn in, he invited Mr. Fine from the community bankers to his office for a private meeting. The association, with influential members in every Congressional district, is one of Washington’s most powerful trade groups.

....While Mr. Durbin had trouble rounding up Democratic votes, Republican leaders kept their members — and potential renegade banks — in line....There was no counterweight to that legislative muscle. Bankrupt homeowners do not have a political action committee or lobbyists.

Mr. Fine reports that the political action committees run by his association alone have built a war chest of nearly $2 million, a 40 percent jump over the last year, even though members have had to cut other expenses in the recession. “The banks get it,” Mr. Fine said. “They understand you need a strong political action committee to get access to the fund-raisers. That’s where the lawmakers are.”

Italics mine. And I hope you paid attention to the first one: not only did the banks kill the cramdown proposal, they walked away with billions in extra bailout money for their trouble. And remember, this all happened in April of 2009, when the banking industry was at its absolute nadir. Isn't America great?