Kevin Drum

Heroic Corruption

| Sat Dec. 13, 2008 1:06 PM PST

HEROIC CORRUPTION....One of the things that's made the Rod Blagojevich scandal so amusing is that Blagojevich wasn't just corrupt, he was comically, heroically, epically corrupt. It was the kind of over-the-top corruption you don't really expect to see outside an episode of The Sopranos or a Gilbert & Sullivan operetta.

But you know who else is like that? The credit card industry:

The Federal Reserve on Thursday will vote on sweeping reform of the credit card industry that would ban practices such as retroactively increasing interest rates at will and charging late fees when consumers are not given a reasonable amount of time to make payments.

....Among the many provisions is a ban on raising interest rates on existing balances unless the customer was 30 days or more late in paying the minimum....Banks would also not be able to treat a payment as late if the customer had not been given a fair amount of time to make that payment.

The proposal would also dictate how credit card companies should apply customers' payments that exceed the minimum required each month. When different annual percentage rates apply to different balances on the same card, banks would be prohibited from applying the entire amount to the balance with the lowest rate. Many card issuers do that so that debts with the highest interest rates linger the longest, thereby costing the consumer more.

Credit card issuers, of course, are swearing on their mothers' graves that these changes will doom the entire industry. They have to have the ability to retroactively change your interest rate just because they feel like it. They have to have the ability to treat payments as late even if customers haven't been given a fair amount of time to make the payment. They have to have the ability to apply payments to whichever balance is worst for the consumer and best for them.

Of course they do! Never mind the fact that these rules are so comically, so heroically, so Simon Legree-ishly unfair that most people think you're making things up when you tell them that not only are they legal, they're standard practice. And despite the protestations of doom, it's worth noting just how mild these proposed changes are. Card issuers can still retroactively change your interest rate merely for being late on a single payment, after all, which for some people amounts to a late fee of several thousand dollars. Ka-ching!

And while we're at it, note also that all the wailing and moaning over these new rules comes despite the fact that card issuers succeeded a few years ago in rewriting the bankruptcy laws to give them almost total protection from having to practice actual risk management. They prefer the version where they can give credit to anyone, raise rates whenever they want, and never lose a dime because even if you declare bankruptcy you still have to pay them off.

Universal default should be flatly banned. The 2005 bankruptcy law should be repealed. Credit card fees and interest rates should be brutally capped. Here's a decent start. Put that in your populist pipe and smoke it.

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Transition

| Sat Dec. 13, 2008 11:00 AM PST

TRANSITION....According to the New York Times, the Obamas were hoping to move temporarily into Blair House before the inauguration, but it wasn't available:

The Obamas were told that they could move into Blair House on Jan. 15, but no earlier, because it is booked, an Obama transition official said, speaking on the condition of anonymity. "We explored the idea so that the girls could start school on schedule," the official said. "But there were previously scheduled events and guests that couldn't be displaced."

....White House officials said the protocol was that Blair House is available to presidents-elect starting Jan. 15, five days before the inauguration.

I'd never thought about this before, but this is sort of odd, isn't it? Wouldn't it make sense for the government to provide quarters for the president-elect starting right after the election? It doesn't have to be Blair House, though apparently it's pretty convenient since it's already inside the Secret Service's security cordon, but surely it makes sense to provide something. Maybe somebody ought to give some thought to changing this protocol in the future.

Friday Cat Blogging - 12 December 2008

| Fri Dec. 12, 2008 1:05 PM PST

FRIDAY CATBLOGGING....Like Rod Blagojevich until Patrick Fitzgerald got his mitts into him, Domino sees nothing but sunshine hanging over her. I'm pretty sure Fitz doesn't have her phones tapped — and in any case we all know that cats have interdimensional ways of communicating anyway — so I imagine her life will remain sunny and indictment free. Inkblot, on the other hand, apparently thinks someone is trying to watch us from behind our bathroom mirror, so maybe there's more going on here than I think.

The Bailout Deal

| Fri Dec. 12, 2008 11:34 AM PST

THE BAILOUT DEAL....Here's the White House's response to the failure of the auto bailout bill last night:

"Under normal economic conditions we would prefer that markets determine the ultimate fate of private firms," Dana Perino, Mr. Bush's spokeswoman, said in a carefully nuanced statement released minutes before the financial markets opened in New York. "However, given the current weakened state of the U.S. economy, we will consider other options if necessary — including use of the TARP program — to prevent a collapse of troubled automakers."

The Treasury Department promptly indicated that it would provide short-term relief to the automakers. "Because Congress failed to act, we will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry," a Treasury spokeswoman, Brookly McLaughlin, said.

This whole thing just gets stranger and stranger. Bush sent a handpicked squad of West Wing bigfeet to Capitol Hill a couple of days ago to press Republicans to pass the bill, and they failed miserably. In one sense, of course, this is just more of the same: Bush is a lame duck, even his own party sneers at him these days, and this is yet another demonstration that they couldn't care less about what he does or doesn't want.

Fine. But did he tell the reluctant Republicans that the Senate bill was their best chance for genuine industry restructuring? That if they didn't pass it, he'd be forced to use TARP funds and both the UAW and the car companies would probably end up getting a better deal? And then they'd get a way better deal next month after Democrats took over?

If he didn't tell them that, why not? And if he did, did the Senate Republicans really decide they didn't care that they were giving up what little leverage they had? That they just wanted to make their point, and reality be damned? Are they really that nuts?

I guess so. I wonder if their constituents will ever figure this out?

Finnish Education

| Fri Dec. 12, 2008 11:16 AM PST

FINNISH EDUCATION....Matt Yglesias, no doubt after knocking back a few shots of vodka in a Helsinki sauna during his "educational" junket to Finland, reports that teaching programs are much more competitive in Finland than in the U.S.:

It's a bit hard to say what accounts for the strong level of interest in a teaching career in Finland. Finnish teacher compensation seems about average for the US [but] the relative salary is higher because other professionals such as lawyers and doctors earn less in Finland than do their US equivalents. And the subjective quality of the job experience seems better in Finland since the kids have many fewer discipline issues.

I guess it's not so hard to say after all. This seems like a pretty adequate explanation to me, and unfortunately it also demonstrates why international comparisons are so often unhelpful. We're not going to slash the pay of lawyers and doctors, after all (though Wall Street brokers better watch their Armani-clad backs), and there's no way that teacher salaries will ever rise high enough to be competitive with current salaries in those professions. And "discipline issues," which covers a very wide territory indeed, is only partly amenable to work in the classroom itself. Inner city poverty and the bane of broken families have to be largely addressed elsewhere.

Still, it reminds me of this story from earlier in the year about a school in Washington Heights that plans to pay teachers $125,000 or more as a way of recruiting a top notch faculty and turning it loose in a poor school. I remain uncertain what this will prove, since even if it works it's not really replicable on a wide scale, but it's still interesting. Perhaps we'll create a little slice of Finland in the middle of New York City.

Czar Update

| Fri Dec. 12, 2008 10:36 AM PST

CZAR UPDATE....It looks like Congress might not appoint a "car czar" after all, but here's an update on where this whole czar business seems to have come from in the first place.

The word has been used for a long time as a generic term of abuse for someone who acts autocratically, but the "_____ czar" usage is more recent. Mark Kleiman traces it back to 1920, when Judge Kenesaw Mountain Landis was appointed the first baseball commissioner after the Black Sox scandal, and was given such wide ranging powers that he was known as the "czar of baseball." Apparently it caught on, and in 1926 the Milk Chamber of Commerce in New York appointed a "milk czar," while in 1933 New York Governer Herbert Lehman appointed New York City police commissioner Edward Mulrooney the state's "beer czar."

However, the modern day version, referring to a federal government appointee with supposedly vast powers, appears to date from World War II. In comments, Walsh provides us with this paragraph from the Washington Post in 1942:

Executive orders creating new czars to control various aspects of our wartime economy have come so thick and fast in the last week that it is difficult for the public to remember all of them. In rapid succession we have acquired a petroleum czar, a manpower czar, and a food czar. These, of course, were added to a long list of other super-executives directing war production, economic stabilization, price fixing, transportation, and so forth. So far as we can determine, the galaxy of czars is now complete, unless the President should decide to appoint a czar over the czars.

In particular, Donald Nelson was pretty well known as the "war production czar," and in 1943 Time magazine echoed the Post with this:

Czars were now a dime a dozen: the U.S. had Economic Czar James F. Byrnes, Production Czar Donald Nelson, Manpower Czar Paul McNutt, Food Czar Claude Wickard, Rubber Czar William Jeffers. But they were more like Grand Dukes than Czars: under their high-sounding titles, divided authority and lack of direction left them still snarled in invisible red tape.

Rubber Czar Jeffers, trying to do his job, had got all fouled up with the Army & Navy. Economic Czar Byrnes had stepped in to cut away the tangle — but no one was sure last week who would enforce the compromise he had laid down. Manpower Czar McNutt began stretching his muscles with a new work-or-fight order — and Congress promptly raised a howl. Czar Wickard was apparently frozen with fright at the horrible food prospects ahead.

Things then stayed relatively quiet on the czar front until 1973, when Richard Nixon appointed John Love as "energy czar," followed by William Simon in the same post. Since then, they've multiplied like flies. If Barack Obama puts a stop to it, I'm sure he'll have the thanks of a grateful nation.

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November Sales

| Fri Dec. 12, 2008 9:44 AM PST

NOVEMBER SALES....Retail sales were bad last month, but not terrible:

Retail sales dropped by 1.8% last month, the Commerce Department said Friday....The 1.8% drop was mildly better than expected. Economists expected a 2.2% decline in sales during November, traditionally a busy shopping time as the holidays approach.

....Stripping away sales at gas stations, demand at all other retailers fell 0.2% in November. Sales are falling because of dropping prices for gas.

"Lower" demand for gasoline is meaningless, since it's based solely on the fact that gasoline prices are dropping like a rock. It's actually good news.

Inflation in the rest of the economy is hard to guess, but it was probably up a small amount. In real dollars, then, seasonally adjusted retail sales in November were probably still down compared to October, but perhaps only by 0.3% or so. Could be worse.

And year-over-year, of course, it was worse. Compared to this time last year, retail sales are way, way down. Everyone's credit cards are maxed out, and for the first time since records have been kept people are paying them off instead of running them up. This had to happen eventually, but it's bad news for the economy while it's going on. Bottom line: it's time for Uncle Credit Card to step up to the plate.

No Bailout

| Thu Dec. 11, 2008 11:18 PM PST

NO BAILOUT....Senate Republicans have scuttled the auto bailout bill. Apparently Democrats and the UAW had agreed to deep wage cuts and work rule changes, but it still wasn't enough:

The automakers would [] have been required to cut wages and benefits to match the average hourly wage and benefits of Nissan, Toyota and Honda employees based in the United States, and the companies would have to impose equivalent work rules.

It was over this proposal that the talks ultimately deadlocked with Republicans demanding that the automakers meet that goal by a certain date in 2009 and Democrats and the union urging that the deadline wait until 2011 when the U.A.W. contract expires.

This is nuts. If you're just flatly against the bailout, fine. Vote against it. But if the wage cuts, along with the debt-for-equity swap that was also part of the bill, were enough to bring you around, why would you cavil at the cuts happening in 2011 instead of the end of 2009? It's only about an 18 month difference, and cutting wages makes a lot more sense in 2011 than it does in the middle of a massive recession anyway.

Another shining moment in the history of the modern GOP. Ideology uber alles.

Saving Detroit

| Thu Dec. 11, 2008 6:06 PM PST

SAVING DETROIT....Earlier this morning the auto bailout bill seemed destined for failure, but later in the day Harry Reid and Sen. Bob Corker (R–Tenn.) were busy trying to patch together one final effort at compromise:

As Reid spoke, a bipartisan group of senators and representatives from Detroit's Big Three automakers and the United Auto Workers union were meeting one floor below in the ceremonial Foreign Relations Committee Room, trying to broker an 11th-hour deal to save the rescue package.

....Corker today put forward a plan that would impose far more stringent auto industry restructuring standards than the House bill. It would reduce the wages and benefits of union workers at domestic car manufacturers by requiring the total labor costs of GM and Chrysler to be "on par" with those in non-union U.S. plants of foreign automakers such as Toyota and Honda.

OK, but I have one question: Is Corker also insisting that the total labor costs of GM's white collar management staff be on on par with those of Toyota and Honda? Just curious.

Obama and Afghanistan

| Thu Dec. 11, 2008 3:03 PM PST

OBAMA AND AFGHANISTAN....Michael Crowley talks to counterinsurgency guru John Nagl after a visit to Afghanistan:

Winning in Afghanistan, he realized, would take more than "a little tweak," as he put it to me from back in Washington a few weeks later, when he was still shaking off the gritty "Kabul crud" that afflicts traveler's lungs. It would take time, money, and blood. "It's a doubling of the U.S. commitment," Nagl said. "It's a doubling of the Afghan army, maybe a tripling. It's going to require a tax increase and a bigger army."

....Nagl's rule of thumb, the one found in the counterinsurgency manual, calls for at least a 1-to-50 ratio of security forces to civilians in contested areas....By Nagl's ratio, Afghanistan's population calls for more than 600,000 security forces. Even adjusting for the relative stability of large swaths of the country, the ideal number could still total around 300,000 — more than a quadrupling of current troop levels. Eventually, Afghanistan's national army could shoulder most of that burden. But, right now, those forces number a ragtag 60,000, a figure Nagl believes will need to at least double and maybe triple.

So how's that ragtag force coming? Joe Klein reports on his visit with British Lieutenant Colonel Graeme Armour in Helmand province last week:

Almost all the recruits were illiterate. "They've had no experience at learning," Armour said. "You sit them in a room and try to teach them about police procedures — they start gabbing and knocking about. You talk to them about the rights of women, and they just laugh."

....The war in Afghanistan — the war that President-elect Barack Obama pledged to fight and win — has become an aimless absurdity....The far more serious problem is Pakistan, a flimsy state with illogical borders, nuclear weapons and a mortal religious enmity toward India, its neighbor to the south. Pakistan is where bin Laden now lives, if he lives.

This has now become conventional wisdom: the real problem is Pakistan. So far, however, in the same way that plans for rescuing General Motors rely mostly on handwaving about "restructuring," plans for solving the Pakistan problem rely mostly on handwaving about "getting tough." Unfortunately, hardnosed details on how this is actually going to work are pretty thin on the ground. If Obama wants public support for an escalation of the war in Afghanistan, his national security team better start providing those details pretty quickly.