Kevin Drum

Why on Earth Are Argentine Bonds So Hot Right Now?

| Mon Jul. 28, 2014 1:11 PM EDT

What's the hottest ticket in the global bond market right now? That's right: Argentine bonds. They're on a tear. But why? Didn't Argentina just lose—once and for all—its court case against vulture funds who own old Argentine bonds and are refusing to accept partial payment of the kind that everyone else accepted after Argentina's default a decade ago?

Why yes, they did lose. Argentina now has to pay the vulture funds—which is politically unthinkable for any Argentine politician who wants to avoid being tarred and feathered—or else it has to default on all its bonds, including the restructured "exchange" bonds that it issued in 2005. So why are these exchange bonds becoming more valuable? Argentina has always been willing to pay those bonds, so it's not as if the court ruling has made default less likely. The risk of default was already close to nil. So what's up?

Felix Salmon, having gotten tired of financial journalists offering up bizarre theories to explain this, tells us today that it's probably all simpler than it seems. In fact, the odds of default have gotten higher, just as logic dictates, but this might actually be a good thing for bondholders. Normally, he points out, there's no upside to bonds: you get the coupon payment, but you never get anything more. In Argentina's case, however, that might not be true.

First off, there's something called a RUFO clause. This means that if Argentina does eventually settle with the vulture funds, it has to offer the same deal to all the other bondholders.

Obviously, Argentina doesn’t have the money to pay out the exchange bondholders in full according to that clause. But if Argentina is paying out billions of dollars to vultures who deserve much less than they’re getting, and if those payments create a massive parallel legal obligation to the bondholders who cooperated with the country and did everything they asked, then it’s not unreasonable to expect that Argentina might end up paying something to the exchange bondholders, if doing so would wipe out any RUFO obligations.

Then there are interest payments:

The second way that exchange bondholders could get more than 100 cents on the dollar is, paradoxically, if there is a default. The minute that Argentina goes into arrears on its coupon payments, the clock starts ticking. From that day onwards — and actually, that day has been and gone already — bondholders are owed not only those coupon payments but interest on those coupon payments. And the interest accrues at the standard statutory rate of 8% — a massive number, these days.

So there you have it: a paradoxical case in which bonds might be viewed as more valuable if the odds of default are higher. Salmon admits that he's just speculating here, since no one knows for sure why the market is so hot for Argentine bonds in the wake of Argentina losing its court case. But this is at least a reasonable guess. And a fascinating one.

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Congress Might Actually Pass a Bill to Address VA Problems

| Mon Jul. 28, 2014 11:38 AM EDT

Since I've been griping for a long time about Congress being unable to pass so much as a Mother's Day resolution these days, it's only fair to highlight the possibility of actual progress on something:

House and Senate negotiators have reached a tentative agreement to deal with the long-term needs of the struggling Department of Veterans Affairs and plan to unveil their proposal Monday.

Sen. Bernie Sanders (I-Vt.) and Rep. Jeff Miller (R-Fla.), who lead the Senate and House Veterans' Affairs committees, continued negotiating over the weekend. Aides said they "made significant progress" on legislation to overhaul the VA and provide funding to hire more doctors, nurses and other health-care professionals. Sanders and Miller are scheduled to discuss their plan Monday afternoon.

We don't have all the details yet, and the bill hasn't actually passed or anything. There's still plenty of time for tea partiers to throw their usual tantrum. And there's also plenty of time for the House GOP leadership to respond to the tantrum by crawling back into its cave and killing the whole thing. It'll be President Obama's fault, of course, probably for attending a fundraiser, or maybe for sneezing at the wrong time.

But maybe not! Maybe they really will pass this thing. It would provide vets with more flexibility to see doctors outside the VA system, which is a bit of a Band-Aid—but probably a necessary one—and it provides additional funding for regions that have seen a big influx of veterans. On the flip side, I don't get the sense that the bill will really do much to fix the culture of the VA, which becomes a political cause célèbre every few years as we discover that all the same things we yelled about the time before are still true. But I guess that's inevitable in a political culture with the attention span of a newt.

All things considered, it would be a good sign if this bill passed. The VA, after all, isn't an inherently partisan issue. Just the opposite, since both parties support vets about equally and both should, in theory, be more interested in helping vets than in prolonging chaos for political reasons.

In other words, if there's anything that's amenable to a basically technocratic solution and bipartisan support, this is it. In a way, it's a test of whether our political system is completely broken or just mostly broken. "Mostly" would be something of a relief.

Friday Cat Blogging - 25 July 2014

| Fri Jul. 25, 2014 2:50 PM EDT

Say hello to Mozart, the latest addition to the Drum family menagerie. One of my mother's neighbors found him wandering around, so naturally he ended up at my mother's house. He's a very sociable cat and appears to be very pleased with his choice of home. To celebrate his appearance, today you get two catblogging photos: one that shows his whole body and one that's a close-up of his face. Enjoy.

Doctors Aren't Really Very Smart About Buying Generics

| Fri Jul. 25, 2014 2:05 PM EDT

Sarah Kliff takes a look today at our use of generic drugs. Long story short, it's surprising how few of us save money by buying generic pain medicine instead of name brands (Advil, Tylenol, Bayer, etc.). Why? In most cases, I suppose it's just ignorance: people don't realize that the "store brand" is genuinely identical to the name brand. In other cases it might be something else. I buy generic ibuprofen, and it usually comes in the form of small brown pills. One day, however, I went to to a different drug store to stock up, and it turned out that their generic ibuprofen came in the form of small orange pills. Marian used these for a while, but really hated them. Eventually she cracked, and insisted on buying a new bottle from our usual drug store. Sometimes little things can make all the difference.

Anyway. The main point of Kliff's post is that generics are good, and as evidence of this she puts up a chart showing what doctors themselves buy. Here's an excerpt from the chart:

It's true that doctors mostly favor generics when it comes to basic pain relievers. But frankly, what's amazing to me is how little they prefer them. For chrissake, they prefer generic aspirin by only ten percentage points. That means they buy the name brand about 45 percent of the time. Why would a doctor do this? Granted, the extra few dollars is probably no big deal to them, but why waste it anyway? Certainly not because of ignorance. Are their spouses doing the buying? Or what?

And why the active preference for name-brand rubbing alcohol, of all things? It's hard to think of anything more generic than that. What's the deal here?

As for Alka-Seltzer, the dislike of generics is so huge that there just has to be some real difference here. But what?

In any case, I suspect this might have some real importance beyond the question of doctors spending a few dollars they don't have to. If physicians aren't really sold on generics in their own personal lives, does this mean they're not really sold on them in their professional lives too? Do they tend to prescribe name brands when they shouldn't? And how much does this cost all of us?

Republicans Maybe Not as Inept as We Think

| Fri Jul. 25, 2014 12:49 PM EDT

Paul Waldman thinks Republicans have become a bunch of bumblers and idiots:

Think about it this way: Has there been a single instance in the last few years when you said, "Wow, the Republicans really played that one brilliantly"?

In fact, before you'll find evidence of the ruthless Republican skillfulness so many of us had come to accept as the norm in a previous era, you'll need to go back an entire decade to the 2004 election. George W. Bush's second term was a disaster, Republicans lost both houses of Congress in 2006, they lost the White House in 2008, they decided to oppose health-care reform with everything they had and lost, they lost the 2012 election—and around it all they worked as hard as they could to alienate the fastest growing minority group in the country and make themselves seem utterly unfit to govern.

In fact, in the last ten years they've only had one major victory, the 2010 midterm election.

Hmmm. It's true that the GOP has had a rough decade in a lot of ways. The number of self-IDed Republicans has plummeted since 2004; their standing among the fast-growing Hispanic population has cratered; and their intellectual core is now centered in a wing of the party that believes we should return to the gold standard. This isn't a promising starting point for a conservative renaissance.

Still, let's not kid ourselves. If Republicans were really as woefully inept as Waldman says, then Democrats should be kicking some serious ass these days. I haven't especially noticed this. They won in the sixth year of Bush's presidency, when out parties always win, and then won in 2008, when an economic collapse pretty much guaranteed a victory for anyone with a D after their name. Then they had a single fairly good year—followed by an epic blunder that lost them a sure seat in Massachusetts, and with it control of the Senate. They got crushed in 2010. They won a squeaker in 2012 against an opponent who made a wedding cake figurine look good by comparison. For the last four years, they've basically gotten nothing done at all.

And what about those Republicans? Well, they have a hammerlock on the House, and they might very well control the Senate after the 2014 election. They've won several notable Supreme Court victories (Heller, Citizens United, Hobby Lobby, etc.). They control a large majority of the states, and have passed a ton of conservative legislation in areas like voter ID and abortion restrictions. Their "Just Say No" strategy toward President Obama has tied Democrats in knots. They won an all but total victory on spending and deficits.

Nor is it really true that today's GOP is notably more bumbling than it used to be. The myth of "ruthless Republican skillfulness" in the past is just that: a myth. George H.W. Bush screwed up on Supreme Court picks and tax hikes. Newt Gingrich—ahem—sure didn't turn out to be the world historical strategic genius everyone thought he was in 1994. George W. Bush—with the eager backing of every Republican in the country—figured that a war in Iraq would be just the ticket to party dominance for a decade. Ditto for Social Security reform. Republicans were just sure that would be a winner. By contrast, their simpleminded Obama-era strategy of obstructing Democrats at all times and on all things has actually worked out pretty well for them given the hand they were dealt.

Make no mistake: It's not as if Republicans have been strategic geniuses. There's no question that they have some long-term issues that they're unable to address thanks to their capitulation to tea party madness. But if they're really so inept, how is it that in the past 15 years Democrats haven't managed to cobble together anything more than about 18 months of modest success between 2009-10?

I dunno. Republicans keep getting crazier and crazier and more and more conservative, and liberals keep thinking that this time they've finally gone too far. I've thought this from time to time myself. And yet, moving steadily to the right has paid off pretty well for them over the past three decades, hasn't it?

Maybe it will all come to tears in the near future as the lunatic wing of the party becomes even more lunatic, but we liberals have been thinking this for a long time. We haven't been right yet.

Gruber: "It Was Just a Mistake"

| Fri Jul. 25, 2014 11:17 AM EDT

Why did Jonathan Gruber tell an audience in 2012 that states which failed to set up Obamacare exchanges would be depriving their residents of federal subsidies? Jonathan Cohn caught up with Gruber this morning and got an answer:

I honestly don’t remember why I said that. I was speaking off-the-cuff. It was just a mistake.

....There are few people who worked as closely with Obama administration and Congress as I did, and at no point was it ever even implied that there’d be differential tax credits based on whether the states set up their own exchange. And that was the basis of all the modeling I did, and that was the basis of any sensible analysis of this law that’s been done by any expert, left and right.

I didn’t assume every state would set up its own exchanges but I assumed that subsidies would be available in every state. It was never contemplated by anybody who modeled or worked on this law that availability of subsides would be conditional of who ran the exchanges.

So there you have it: Gruber screwed up. More importantly, as he points out, he's performed immense amounts of technical modeling of Obamacare, and all of his models assumed that everyone would get subsidies even though not every state would set up its own exchange. As Cohn says, this was pretty much the unanimous belief of everyone involved:

As I’ve written before, I had literally hundreds of conversations with the people writing health care legislation in 2009 and 2010, including quite a few with Gruber. Like other journalists who were following the process closely, I never heard any of them suggest subsidies would not be available in states where officials decided not to operate their own marketplaces—a big deal that, surely, would have come up in conversation.

Kudos to Peter Suderman and his sleuths for uncovering this and getting everyone to talk about it for a day. It's a news cycle win for conservatives. But restricting subsidies to state exchanges just flatly wasn't part of Congress's intent. There's simply no way to rewrite history to make it seem like it was.

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57 Percent of Republicans Want to Impeach Obama

| Fri Jul. 25, 2014 10:38 AM EDT

This is completely, barking insane:

I don't even know how to react to this stuff anymore. A solid majority of Republicans wants to impeach President Obama for....what? An EPA regulation they don't like? Postponing Obamacare's employer mandate for a year? Not prosecuting some immigrant kids who have been in the country since they were three?

This goes beyond politics as usual. It's nuts. Fox News is now officially in charge of one of America's two major political parties.

Did Congress Actually Intend to Withhold Subsidies From Federal Exchanges?

| Fri Jul. 25, 2014 2:24 AM EDT

In the Halbig case, the plaintiffs argued that the provision in Obamacare limiting subsidies to people enrolled through state exchanges was no typo. In fact, they claimed, Congress intended to limit subsidies to state exchanges as an incentive for states to set up their own exchanges instead of relying on the federal government. The problem with this theory is that literally nobody who was involved with the legislation or who covered it during its passage remembers anything of the sort, and the rest of the bill pretty clearly assumes that everyone gets subsidies regardless of whether they're enrolled via a state exchange or the federal exchange.

Today, however, Peter Suderman presents some evidence that this was indeed Congress's intent. It's not evidence from 2009-10, when the bill was being debated. Nor is it from anyone involved in Congress. It's from Obamacare expert Jonathan Gruber speaking to an industry group in January 2012:

What’s important to remember politically about this is if you're a state and you don’t set up an exchange, that means your citizens don't get their tax credits—but your citizens still pay the taxes that support this bill. So you’re essentially saying [to] your citizens you’re going to pay all the taxes to help all the other states in the country.

I don't really know what to make of this. It's a very odd mistake for Gruber to make, because in January 2012 the IRS had already issued a preliminary ruling on this exact question and had already held a public hearing asking for comments. Gruber surely knew this, and therefore knew that (a) the final ruling hadn't been issued yet, but (b) the IRS had already signaled that it intended to rule that subsidies were allowed on federal exchanges. Maybe he misremembered the IRS's preliminary ruling, or maybe he was just mixing this up with something else. Who knows? Perhaps Gruber will tell us on Friday.

In any case, I doubt this changes anything too much. Although Gruber was a consultant on the law and intimately familiar with its details, he was neither a legislator nor a congressional staffer. The fact that he bollixed an audience question two years after the law's passage doesn't mean much. It's a nice gotcha moment, but probably not much else.

Power Outage Blogging

| Fri Jul. 25, 2014 1:02 AM EDT

Hey, I'm back! It turned out that today was the day for our annual neighborhood power outage, and at first I thought I was sitting pretty. I've got a Windows tablet, which means it's compatible with MoJo's blogging software. I've got my Bluetooth keyboard. And my phone will act as a WiFi hotspot, so I can connect to the net. Who needs electricity?

Well, apparently this year's blackout was so extensive that it took out the local T-Mobile cell tower. So that was that. No internet connection. I thought I had this thing wired, but apparently not.

Anyway, at the time my computer died I think I was writing a brilliant post about Republicans and abortion, but I no longer remember just what brilliant point I was going to make. It probably amounted to an assertion that they've always been against it and nothing has really changed. Maybe I'll remember tomorrow.

In the meantime, what happened this afternoon? Anything I need to get on top of?

Help Us Solve the Rotisserie Chicken Mystery

| Thu Jul. 24, 2014 2:18 PM EDT

Megan McArdle alerts me today to a story from a local TV station that answers a question I've vaguely wondered about for a while: Why is it cheaper to buy a cooked and seasoned rotisserie chicken than a raw chicken? Cat Vesko provides the straight dope:

Right now, an uncooked chicken at Ralphs runs you $9.87, but a rotisserie chicken is $6.99; at Gelson's, you'll pay $8.99 for a cooked chicken or $12.67 for the raw version; and at that beloved emporium of insanity Whole Foods, a rotisserie chicken is $8.99, while a whole chicken from the butcher counter is $12.79 ... per pound.

....In most cases, preparing meals from scratch is significantly cheaper than buying them pre-made. What makes rotisserie chickens the exception? The answer lies in the curious economics of the full-service supermarket....Much like hunters who strive to use every part of the animal, grocery stores attempt to sell every modicum of fresh food they stock. Produce past its prime is chopped up for the salad bar; meat that's overdue for sale is cooked up and sold hot. Some mega-grocers like Costco have dedicated rotisserie chicken programs, but employees report that standard supermarkets routinely pop unsold chickens from the butcher into the ol' rotisserie oven.

This is a curiously roundabout explanation, but it boils down to this: whole chickens that are about to reach their sell-by date—and be thrown out—are instead taken to the deli to be cooked up. The grocery store doesn't make as much money as it would selling the chicken fresh, but it makes more money than it would by throwing it out.

I guess this makes sense. Except for one thing: the number of rotisserie chickens in your average supermarket is huge. As near as I can tell, the number being roasted in any single hour is greater than the total number of raw whole chickens in the entire poultry section. In other words, there's just no way that supermarkets toss out (or come close to tossing out) enough whole raw chickens to account for the vast pile of rotisserie chickens on offer. An awful lot of these chickens must have been purchased explicitly for the rotisserie. At least, that's what my informal eyeball estimate tells me.

What's more, the availability of all those cheap rotisserie chickens is a conspicuous incentive to stop buying whole raw chickens in the first place, and supermarkets obviously know this. This is one of the reasons most supermarkets stock so few whole chickens these days.1 So selling rotisserie chickens cheaply is just cutting their own throats. Why would they do that and lose money on the chicken?

So there must be something else going on. I'm not sure what, but I suspect there's more to the story than just using up chickens that are approaching their sell-by date. Do I have any readers who work in supermarkets and can enlighten us?

1Not the only reason, or even the main reason, of course. The main reason is that most of us just don't want to bother cooking a whole chicken these days.

UPDATE: The most popular guess in comments is that rotisserie chickens are a loss leader. Sure, you lose a dollar or two on each one, but you make up for it with the cole slaw and 2-liter sodas and so forth that everyone buys to go with them.

This is the most obvious explanation, and I'm totally willing to buy it. I just want to know if it's true. Not a guess, but a confirmation from someone who actually knows if this is what's going on. Anyone?