Kevin Drum

A Nuclear Iran

| Wed Aug. 11, 2010 12:12 PM EDT

Here is Jeffrey Goldberg on the likely consequences of an Israeli strike on Iran's nuclear sites, which he estimates is 50% likely within the next year:

They stand a good chance of changing the Middle East forever; of sparking lethal reprisals, and even a full-blown regional war that could lead to the deaths of thousands of Israelis and Iranians, and possibly Arabs and Americans as well; of creating a crisis for Barack Obama that will dwarf Afghanistan in significance and complexity; of rupturing relations between Jerusalem and Washington, which is Israel’s only meaningful ally; of inadvertently solidifying the somewhat tenuous rule of the mullahs in Tehran; of causing the price of oil to spike to cataclysmic highs, launching the world economy into a period of turbulence not experienced since the autumn of 2008, or possibly since the oil shock of 1973; of placing communities across the Jewish diaspora in mortal danger, by making them targets of Iranian-sponsored terror attacks, as they have been in the past, in a limited though already lethal way; and of accelerating Israel’s conversion from a once-admired refuge for a persecuted people into a leper among nations.

Well I'm sold. Who wouldn't be? But this is basically all boilerplate: everyone acknowledges that an Israeli attack on Iran would carry massive blowback. What's more, Israel is only barely capable of carrying out such an attack since Iran's facilities are at the far edge of the combat radius of its F-15 and F-16 jets. So why consider it? Here's Goldberg's summary:

Israeli policy makers do not necessarily believe that Iran, should it acquire a nuclear device, would immediately launch it by missile at Tel Aviv....The challenges posed by a nuclear Iran are more subtle than a direct attack, Netanyahu told me. “Several bad results would emanate from this single development. First, Iran’s militant proxies would be able to fire rockets and engage in other terror activities while enjoying a nuclear umbrella.....Second, this development would embolden Islamic militants far and wide, on many continents, who would believe that this is a providential sign, that this fanaticism is on the ultimate road to triumph.

“You’d create a great sea change in the balance of power in our area,” he went on. An Iran with nuclear weapons would also attempt to persuade Arab countries to avoid making peace with Israel, and it would spark a regional nuclear-arms race. “The Middle East is incendiary enough, but with a nuclear-arms race, it will become a tinderbox,” he said.

Other Israeli leaders believe that the mere threat of a nuclear attack by Iran—combined with the chronic menacing of Israel’s cities by the rocket forces of Hamas and Hezbollah—will progressively undermine the country’s ability to retain its most creative and productive citizens. Ehud Barak, the defense minister, told me that this is his great fear for Israel’s future....“Our young people can consciously decide to go other places,” if they dislike living under the threat of nuclear attack. “Our best youngsters could stay out of here by choice.”

I assume this is the best case they can make, and it's pretty unconvincing. In fact, the only compelling part of it is the part that's always been most compelling: that it might spark a nuclear proliferation nightmare. "If Iran gets a nuclear weapon," Hillary Clinton declared a few months ago, "then other countries which feel threatened by Iran will say to themselves, ‘If Iran has a nuclear weapon, I better get one, too, in order to protect my people.’ Then you have a nuclear arms race in the region." Saudi Arabia is usually touted as the most likely country to follow up, followed by Turkey.

This is what I was talking about when I said that I'd believe American attitudes toward foreign adventurism had changed only "when something actually happens overseas, a president tries to build support for intervention, and Congress and the public—including Joe Klein and me—balk." But I'm not sure. Will Joe Klein and I — and most of the rest of the country — balk at this if and when the time comes? Probably. But I'd be less than honest if I said I knew for sure.

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Goldman Sachs Still in the Money

| Wed Aug. 11, 2010 10:40 AM EDT

Back when the financial reform bill was passed, I said that if bloated finance industry profits declined over the next few years that meant reform had probably worked. If not, not. It's still too early to know if that's going to happen, but today the LA Times reports on a bellwether:

As Wall Street scrambles to find the best and most profitable way to operate under the new financial reform law, Goldman Sachs Group Inc. — the firm that was expected to suffer the most under the legislation — could emerge practically unscathed.....Top Goldman executives [have] privately advised analysts that the bank did not expect the reform measure to cost it any revenue.

....Richard Bove, a bank analyst at Rochdale Securities, said he had changed his view of the law's effect on Goldman. "I thought this company was going to be really harmed by this bill; now I've figured out that it's not going to happen," he said. "They should win big here."

....Some on Wall Street had predicted the reform would trigger an exodus of traders and executives to hedge funds and other private firms that will not fall under the jurisdiction of the new regulatory regime. But with the adaptations the banks have been making, they have so far persuaded most of those employees to stay, industry insiders say.

Among those staff members, "some of the anxiety that was tied to this bill really dissipated after it was signed," said Ron Geffner, head of the financial services group at New York law firm Sadis & Goldberg.

Who knows? Maybe Goldman really is just smarter than all the other guys, and they're going to prosper even as the entire industry shrinks. Anything is possible. But this is really not a healthy sign.

Good Morning!

| Wed Aug. 11, 2010 10:00 AM EDT

The Washington Post surveys the global economic scene following yesterday's anemic Fed action:

Overnight in Asia, China released data showing that its economy was beginning to cool rapidly....The government also announced a looming economic problem: the inflation rate spiked 3.3 percent in July, amid flooding that disrupted food supplies.

....In Europe, the Bank of England lowered its GDP growth forecast for 2011 to 3 percent annually, down from 3.4 percent, saying the country faces a "choppy recovery."

....In the morning, there was more bad news from a third continent: the United States. The Commerce Department said the trade deficit ballooned more than analysts expected in June, after the stronger dollar made it easier for people in the U.S. to snap up cheaper exports from countries such as China. The gap widened to $49.9 billion in June, up from a revised $42.0 billion in May.

No worries, though. The Fed and congressional Republicans will do something eventually. Maybe. Best to wait until the elections are over, though.

Overdraft Justice

| Wed Aug. 11, 2010 12:17 AM EDT

Here's a tidbit of good news:

Wells Fargo & Co. should pay about $203 million to customers who say the bank manipulated debit-card transactions without their knowledge to increase revenue from overdraft fees, a federal judge ruled....Wells Fargo changed the way it treated customers' daily debit transactions and cash withdrawals in December 2001, according to the lawsuit filed in 2007. Transactions with the highest dollar amount posted first, rather than in the order they occurred.

I'm pretty sure this is the result of a suit brought against Wachovia, which was purchased by Wells Fargo a couple of years ago. In any case, the practice of reordering debit card transactions has been fraudulent from the beginning, and I'm glad to see a judge doing the right thing here. (More about overdraft reordering here and here.) Hopefully the award won't get knocked down by an appellate court.

The Long-Term Unemployed

| Tue Aug. 10, 2010 7:58 PM EDT

Matt Yglesias put up a chart today showing that unemployment is high among the less educated but pretty low among the well educated. Then this comment:

Virtually every single member of congress, every senator, every Capitol Hill staffer, every White House advisor, every Fed governor, and every major political reporter is a college graduate. What’s more, we have a large amount of social segregation in the United States — college graduates tend to socialize with each other. And among college graduates, there simply isn’t an economic crisis in the United States.

Here's another chart that, if anything, makes this point even more strongly: it shows the rate of long-term unemployment by educational level. I had to cobble it together with an interpolation or two,1 but I think it's pretty close to the mark, and what it shows is that for those with a high school diploma or less, the long-term unemployment rate is about 5-6%. If this is the social class you hang out with, then out of a circle of a few dozen friends and acquaintances you probably personally know four or five who are currently out of work, and of those perhaps two or three who have been out of work for six months or more and are getting truly desperate.

But if you're a college grad? Obviously this varies from person to person, but chances are that you know only a couple of people who have been out of work for even a couple of months and nobody who's been out of work for six months. Or, at most, maybe one. And chances are that even that one has a way better safety net — savings, parents, credit cards, etc. — than the blue collar folks who have been out of work that long.

Being out of work for a few weeks — or even a couple of months — is bad but not debilitating. It's long-term unemployment that makes people profoundly fearful and discouraged. But among the college-educated crowd, it barely exists. The fear just isn't there, and that makes it awfully easy to ignore.

1I'm not sure why BLS doesn't make this stuff more easily available. If anyone has the raw data for this and can provide exact numbers, let me know.

Credit Reports and Employers: A Story From the Trenches

| Tue Aug. 10, 2010 4:22 PM EDT

Normally I omit names when I publish email from readers. But this one comes from Michael David Smith, and as you'll see, knowing his name is an important part of the story. So, with his permission, here's his email:

I hope you'll keep hammering away at the credit reporting agencies. Several years ago my then-boss mentioned to me off-handed, "We hired you even though you have terrible credit." I was rather stunned and said, "What are you talking about? I have perfect credit, and even if I didn't, how would you know?" He then informed me that they did a background check on me before hiring me, got a report saying I had terrible credit, but decided I was their best candidate anyway. I asked to see the report they had for me, and my boss dug it out of the HR files. It listed my name (which is a very common name shared by thousands of Americans), four different social security numbers, and about two dozen different credit cards I had allegedly fallen behind on.

So I called the credit reporting agency (I think it was Experian). It took forever to actually get a person on the phone who knew who knew what he was talking about, but when I finally did, the guy said, "Oh, yeah, that happens all the time with people who have common names. Your credit got mixed up with other people who have the same name as you. There's really nothing we can do about it."

Eventually, I filled out all sorts of forms contesting all the bad credit they had attributed for me and got them to send me a clean credit report that didn't mix me up with other Michael Smiths. But it was a long, painful process.

I think this is about par for the course for credit reporting agencies. Basically, they don't really give a shit if their information is correct. It's always seemed to me that you should be able to sue them for libel if they distribute false information about you, but outside my own personal fantasyland I assume that's impossible.

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Tread Boldly

| Tue Aug. 10, 2010 3:53 PM EDT

Hot diggity. The GOP leadership has released "Tread Boldly," a guidebook for Republican members of Congress during the summer recess, and it includes a whole section called "Spending Restraint Solutions for Discussion." Finally, we'll get some details! So here they are:

Canceling unspent “stimulus” funds, saving up to $266 billion....Canceling excessive spending increases already in the pipeline....Cap Discretionary Spending....Freeze Congress’ Budget....Eliminate Unnecessary and Duplicative Federal Programs....Audit the Government for Ways to Save.

That's fairly underwhelming, no? I'll give them credit for the business about canceling unspent stimulus funds. That's actual money. But a spending cap? Attacking waste'n'fraud? Freezing the minuscule legislative budget? "Auditing" the government? These are the hoariest tropes imaginable for anyone who wants to sound tough on spending but avoid any actual, real-life spending cuts. Where's Social Security? Medicare? Medicaid? The Pentagon? Farm subsidies? Or any other actual, named program? Nowhere.

But there is support for extending the Bush tax cuts at a cost of $3.1 trillion over ten years. There's no problem being specific about that. For some reason, it's only spending they have trouble getting serious about.

(Via Hit & Run)

POSTSCRIPT: The cover is sort of....odd, too, isn't it? I guess all parties do the nostalgia thing now and again, but Ike and Churchill and Maggie and Reagan and Lech (what? no John Paul II?) and TR and Jack? Seriously? Two British prime ministers, and pride of place to two Republicans who modern party members wouldn't be caught dead endorsing?

And "Tread Boldly"? Not to get too ridiculous here, but when you think of "treading," is "boldly" really the first word that comes to mind?

Employers and Credit Scores: An Update

| Tue Aug. 10, 2010 2:32 PM EDT

A couple of weeks ago I blogged about an uptick in employers using credit scores as part of their background checks for new employees. Greg Fisher of, who's no fan of credit scores, emails to say that "consumer reporting agencies all state that they do not provide credit scores for employment screening" and suggests I make a clarification.

Done! But let's dig a little deeper. According to a post on Fisher's site, "TransUnion does not provide a credit score for employment screening purposes." Another agency concurs: "ChoicePoint does not offer credit scores for purposes of employment-related background checks." Excellent. But wait. It turns out this doesn't mean that agencies don't provide credit checking services to employers. Lester S. Rosen, a lawyer and president of Employment Screening Resources, clarifies:

Even though credit reports are utilized by some employers for particular positions, a “credit score” is not a tool used for pre-employment screening. For pre-employment credit reports, the credit bureaus use a special reporting format that leaves out the credit score, along with actual credit card account numbers, and age.

Sure enough, Experian says its report "enhances traditional employment decision making tools by providing credit information which would not normally appear on an application, but may have an impact on job performance....The report includes the applicant's credit history, providing an objective overview of how financial obligations are handled over a period of time." And TransUnion touts its reports as "a completely unbiased account of a potential candidate’s financial background information....PEER traces the person’s credit history. PEER can then help you identify those applicants who are potentially financially overextended or on the brink of problems that could adversely affect their performance on the job."

So I stand corrected. Credit reporting agencies don't pass along your credit scores to prospective employers. They do pass along your entire credit history and specifically promote it as a way of weeding out problem candidates, but there's no credit score. Just your entire credit history.

Fed Meets, Does (Almost) Nothing

| Tue Aug. 10, 2010 1:43 PM EDT

The Federal Reserve met today and issued this forecast:

Information received since the Federal Open Market Committee met in June indicates that the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Bank lending has continued to contract.

That doesn't sound good. So what do they plan to do about this?

The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions [...] are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

To help support the economic recovery in a context of price stability, the Committee will keep constant the Federal Reserve's holdings of securities at their current level by reinvesting principal payments from agency debt and agency mortgage-backed securities in longer-term Treasury securities.

Before he left on vacation, Scott Sumner took a guess at four possible actions the Fed might take in today's meeting, and the good news is that they avoided his "Very Bad" scenario. Instead, we got this:

Bad: The Fed does something minor. Perhaps it promises to maintain the monetary base at current levels by purchasing T-bonds as the more unconventional assets are gradually sold off. The Dow falls slightly. (Actually, people are now so discouraged that this might be viewed as good news.)

Yep, that's what the Fed did. Still: it's better than very bad! The one-sixth of you who continue to be out of work or underemployed will surely take solace in that.

Obama and the Base

| Tue Aug. 10, 2010 1:27 PM EDT

Earlier this morning, after Robert Gibbs took to The Hill to diss the "professional left" for being too whiny, I suggested that this kind of thing was inevitable. Since only 20% of the country self-IDs as liberal, Democrats have to pander to centrists and this is one way they do it. It's not pretty, but it's hardly surprising. I then went on to further annoy some fellow libs by tweeting, "Lefties used to talk about how WH could attack them in order to make its liberalism look more centrist. Doesn't seem so appealing now."

Now, this is all wildly inside baseball kind of stuff, and I'm about as far outside the ballpark as you can get and still talk about this stuff at all. So I wasn't going to defend my points any further — especially since I think Gibbs was pretty gratuitously insulting. But then I got to emailing with Matt Yglesias about this, and I figure our exchange might advance the arguments a bit. Or not. You decide:

MY: I think you're right about this in general, but not in particular. You don't do an interview with The Hill to communicate with a mass public of squeamish centrists. Talking smack about your base in an inside baseball publication just seems like a straight fuck-up to me.

KD: I agree. Gibbs is a smart enough guy not to do this, though, and I wonder what he intended? Must have been something. I don't think he just suddenly lost his temper in the middle of a sleepy interview with The Hill.

Just to be argumentative, though, maybe The Hill is a fine place to do this because Gibbs knows everyone will go berserk and it will get wider play? It's certainly safer than doing it on CNN, where it would be completely uncontainable if it went badly awry.

MY: I think they're genuinely pissed. There's a real dialogue of the deaf happening inside DC between issue advocates and the Obama administration. I sympathize with a lot of the White House's analytical view of the situation, but they really need to consider the emotional state of organizations that pulled out all the stops to get Obama elected and are now facing the reality that he's not going to deliver cap and trade or labor law reform or immigration reform. You need to be able to tell people "if you go do this and that, then the following policy results you want will happen." Right now they're not offering any credible path forward.

KD: You're more plugged into this stuff than I am, but I think I only half agree. Even activists are well aware that political realities interfere in ways that a president can't always control. So I don't think they demand results on every single issue (though certainly some do). My sense, though, is that Obama doesn't even give them the rhetoric they want, even in private. If they felt like he was really on their side, but stymied by the Senate, maybe they'd cut him more slack. For some reason, though, he doesn't seem willing to do this.

MY: I think we're basically agreeing. I think people do generally understand the idea of objective political constraints. But activists want political leaders to articulate some kind of theory of how to get from Point A to Point B. I don't think the White House is offering that.

So yeah: everyone agrees there are political constraints, but Obama seems unwilling — even in private — to do a little easy pandering to liberal interest groups. I don't get it. As Joan McCarter twittered to me, "They need base in a midterm. Pro lefties are also door-knockers, phoners, donors." This is obviously something that Team Obama is keenly aware of, and their unwillingness to do much to fire up the base is indeed puzzling.