Kevin Drum

Razzle Dazzle From Goldman

| Thu Dec. 10, 2009 8:13 PM EST

Goldman Sachs plans to restructure its bonus payouts this year:

With a resurgent Goldman set to award billions of dollars in bonuses — a trove that could rival the record payouts of the bubble years — the bank said that its 30 most-senior executives would be paid in the form of a special stock, rather than in cash.....This year, [CEO Lloyd Blankfein] and other top executives will receive bonuses in the form of what Goldman called “shares at risk,” or stock that cannot be sold for five years and can be retracted if the executive does something reckless or risky that hurts the firm.

Can I just take this opportunity to say how underwhelmed I am with this?  Let me count the ways.  (1) The amount of the bonuses hasn't changed a whit, only their form. (2) The whole point of changing a compensation plan is to change incentives.  Announcing a new bonus plan at the end of the year does nothing to change incentives unless Blankfein invents a time machine too. (3) It's only for the top 30 executives.  What about the traders? (4) It's apparently only for this year. See #2.  (5) The official definition of reckless ("materially improper risk analysis") is so stringent that there's really no chance it will ever apply to anyone.

So what's the real point of this little kabuki play?  Dennis Berman translates here.

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El Niño and the Deniers

| Thu Dec. 10, 2009 3:47 PM EST

The last major El Niño event occurred in 1997-98 and it produced a big temporary spike in global temperatures.  This has given climate deniers like George Will a field day: if 1998 was hotter than 2008, global warming must be a hoax!  This is ridiculous, of course: El Niño events happen every five years or so (the 2004 El Niño was a smallish one) and choosing one of those years as your baseline for temperature activity is like choosing 2000 as a baseline for dotcom activity.

Well, El Niño is back, and this year's version looks like it's going to be at least a moderate strength occurrence lasting through next summer.  This means that temperatures are likely to spike over the next 12-18 months, and that in turn means that even with the sun in a deep solar minimum, next year might set a new warming record:

The current El Nino is forecast to get stronger, probably pushing global temperatures even higher next year, scientists say. NASA climate scientist Gavin Schmidt predicts 2010 may break a record, so a cooling trend "will be never talked about again."

Unfortunately, this is wishful thinking.  If 2010 really is hotter than 1998, I suspect that deniers will suddenly discover the virtue of not relying on a single year that's strongly affected by decadal oscillations.  They're clever that way.

Getting to Yes

| Thu Dec. 10, 2009 1:30 PM EST

David Frum, who has been estranged from the hard-right wing of the Republican Party for a while, explains what their "Party of No" strategy has produced:

1) Instead of a healthcare reform to slow cost increases, Democrats in the Senate seem to be converging upon an expansion of Medicare to include age 55-64 year-olds....Republicans could have been architects of improvement, instead we made ourselves impotent spectators as things get radically worse. Plus — the bad new Democratic proposal will likely be less unpopular with voters than their more promising earlier proposal. Nice work everybody.

2) House and Senate conferees last night rejected a proposal to deny EPA funds to enforce its new powers over greenhouse gasses. So instead of an economically rational approach to carbon abatement — a carbon tax or even a cap-and-trade system stripped of the abuses and boondoggles attached to it by House Democrats — we’re going to have the least rational approach: bureaucratic enforcement.

The furious rejectionist frenzy of the past 12 months is exacting a terrible price upon Republicans. We’re getting worse and less conservative results out of Washington than we could have negotiated, if we had negotiated.

Roughly speaking, I think Frum is right.  The Republican strategy is high-risk/high-reward.  If it works, then no legislation is passed and they get everything they wanted.  But if it doesn't, they get a far worse deal than they could have gotten if they'd bargained.

But I'd a few caveats to Frum's specifics.  First, the healthcare bill could have been improved only if Republicans had proposed serious cost-control ideas within the basic Democratic framework.  After all, Democrats won the election, and the very least they expect is to be able to dictate the basic framework.  But it's not clear to me that Republicans even have any ideas along those lines.  It's possible that they could have bargained for, say, some tort reform concessions, but how else would they have cut costs?  There's no one in the GOP seriously in favor of sticking it even harder to doctors, insurance companies, Big Pharma, or the elderly.  So what would they have proposed?  Their pet ideas (HSAs, gutting state regulations, etc.) don't really fit within the Democratic framework, and to be honest, their support for these ideas has always been so ephemeral and opportunistic that I'm not sure they care about them very much anyway.  It's hard to believe that they genuinely believe in any of this stuff enough to bargain their votes away for it.

The EPA endangerment ruling is a different kettle of fish.  My sense is that the Obama administration has no real desire to use the Clean Air Act to regulate greenhouse gases.  The reason they've moved ahead quickly on the endangerment finding isn't because they really want to implement it, but precisely because they think it's a good stick to get some Republican support.  The message is: you might not like cap-and-trade, but if you scuttle it you're going to get something worse.  So why not work with us?

So far, then, conservatives haven't really lost anything on this front.  They're just being confronted with some hardball politics.  As with healthcare reform, though, I wonder what Republicans have to offer.  It's true that cap-and-trade was originally a conservative idea that was largely adopted by liberals after it proved itself in the case of acid rain, which means that theoretically Republicans ought to be able to support it.  But the "boondoggles" that have been attached to it haven't really been ideological.  They've been cave-ins to corporate and regional interest groups.  What are the odds that Republicans would help resist that kind of pressure?

Still, Frum does have a point: Democrats are genuinely anxious to have a few more votes for both the healthcare bill and the climate bill, and I'm pretty sure they'd be willing to bargain away a fair amount in exchange for a vote.  So I'm curious: within the basic Democratic framework of these two bills, what kind of deals does Frum think Republicans could plausibly make that would be worth trading their vote for?  This is a real, not a rhetorical or snarky, question.  Given the current state of the conservatism,1 it's hard to see what they'd be.

1Which, admittedly, is Frum's whole point.  There are no deals to be made until conservatives start getting serious about governance again.

Watching the Finance Lobby at Work

| Thu Dec. 10, 2009 12:42 PM EST

After following the sausage-tastic construction of healthcare reform over the past year, no one should be surprised to learn that financial regulatory reform is likely to be even harder to get right.  After all, the finance lobby is bigger and more pervasive than the medical lobby.  What's more, they benefit from the fact that they frequently lobby for things so arcane that no one really understands them.

Take derivatives.  (Please.)  One of the key changes that reformers want to see is a regulation that requires credit derivatives to be traded on an exchange, just like stocks and pork belly futures.  It wouldn't solve all the world's problems, but it would add a layer of transparency to the derivatives market that would help regulators keep a better handle on brewing problems.

Barney Frank agrees, and so the House bill includes a section that requires credit derivatives to be traded on an exchange.  Except there's an exception for "end users" who want to buy things like currency hedges as part of their day-to-day business, not as a financial speculation.  That's basically fine.  But the exception was worded in a way that would allow pretty much anyone to claim they were an end user doing real hedges, not speculation.  So after a big fight the wording was changed.  Hooray!

But as Nick Baumann reported the other day, the Project on Government Oversight says that a subsequent amendment may gut the rule yet again.  It allows derivatives to be traded on either an exchange or a "swap execution facility."  Mike Konczal explains further:

First the definition of a swap execution facility has been expanded to include “a person” (different from the “or entity”). It’s also expanded to an “or trading” definition, and includes voice brokerage firms....This could, quite simply, be a telephone over which two people trade a derivative (with one person declaring himself to be the exchange?).

....[Another sentence] allows an intermediary to execute a swap, ignoring the section 2(k) which is the meat of the reform, as long as the swap is recorded somewhere. Now we already have, from above, that a swap execution facility can be something other than the exchange. This is a rule that guts the regulation right out the door, and for no apparent benefit to reform. Many of these alternative swap facilities will be owned by the banks, so it won’t necessarily force the price transparency that has been promised. To trust regulators to simply do the right thing is naive at best when the ability to follow fixed rules is available.

Obama in Oslo

| Thu Dec. 10, 2009 12:11 PM EST

Ross Douthat thinks that Barack Obama threaded the needle pretty decently in his Nobel acceptance speech today:

He didn’t give the address that American neoconservatives would have written for him, obviously, but pieces of that speech showed up — the defense of the war in Afghanistan and the idea of just war in general; the Bush-ian, “make no mistake, evil does exist in the world” line; the insistence that “the United States has helped to underwrite global security for sixty years, with the blood of our citizens and the strength of our arms.” He didn’t give a Gandhian ode to nonviolence, or an activist’s paean to human rights, but those threads were woven in as well.

He talked up international institutions, promised action against climate change, and took credit for ordering the closing of Guantanamo (one of the few applause lines, inevitably), but at the same time he praised the use of force for humanitarian purposes, and reserved the right to act unilaterally in America’s interests. He defended diplomatic outreach to Iran, called on the world to put pressure on Iran’s nuclear program, and promised that the world would stand behind Iran’s protestors — and he made it all run smoothly together, in rhetoric if not in reality. And he managed to co-opt everyone from M.L.K. to J.F.K. to Nixon to John Paul II and Reagan along the way.

I didn't listen to the speech, but I've read it and I mostly agree.  (Here's a transcript.)  Frankly, though, I really don't think neocons have much to complain about even if Obama didn't use the opportunity to announce construction of a new generation of nuclear missiles or something.  Given that he was, after all, accepting a peace prize, it was a surprisingly robust defense of war and America's military role in the world.  Surprisingly Bushian, really, with one obvious caveat: among the many wars he mentioned as necessary and justified, there was one that was deliberately conspicuous by its absence: Iraq.  So neocons have that to gripe about if they're in a griping mood.  (And when are they not?)

One additional thing that struck me, though, was that the speech seemed pretty mechanical.  Like his West Point address.  It's possible that this is more an artifact of reading the transcript vs. hearing the speech, but it sounded to me a little too obviously like he was trying to thread a needle.  There wasn't any single place where I felt like he laid down a marker and really spoke about something he believed deeply in.  Dan Drezner made (I think) a related point: "Pick a paradigm, and you can find a sliver of the speech dedicated to its theoretical propositions."  But he also explained it: "Doesn't this imply that the speech was logically contradictory?--ed.  No, it implies that the world is a hell of a lot more complex than any of these theoretical approaches.  Alas, knowing when to apply each of these worldviews is more art than science."

And there's another parallel between Obama's West Point speech and this one: both times he told his audience (i.e., the one actually in the room with him) something they didn't want to hear.  At West Point he stressed that we have limited resources for war when those resources are desperately needed at home.  In Oslo he stressed that wars aren't going away and the United States is going to keep fighting them.  Is this a demonstration of bravery?  Or an indication that his real audience is always the one on TV?  Either way, I'd say it worked better this time than it did last week.

Tired of Bankers?

| Thu Dec. 10, 2009 1:29 AM EST

General Electric CEO Jeffrey Immelt spoke at West Point today:

I think we are at the end of a difficult generation of business leadership, and maybe leadership in general. Tough-mindedness, a good trait, was replaced by meanness and greed — both terrible traits. Rewards became perverted. The richest people made the most mistakes with the least accountability. In too many situations, leaders divided us instead of bringing us together.  As a result, the bottom 25% of the American population is poorer than they were 25 years ago. That is just wrong.

John Gapper comments:

Mr Immelt’s remarks are the latest — perhaps the strongest — among business and financial leaders calling for self-restraint and a change in attitude. Such appeals have fallen on deaf ears.

....Many people — probably most — believe that bankers’ bonuses are profoundly unfair, especially since they were not curtailed in the wake of the financial crisis. Meanwhile, bankers regard themselves as victims of  populism kindled by politicians and the media.

The significance of Mr Immelt’s speech, I think, is that the leader of one of the biggest companies in the US is willing to say publicly what many non-business people feel. Leaders in non-financial industries have worried since last year about being tainted by the behaviour of bankers. Now, it seems, they are running out of patience.

Well, we can hope.  But I hope Immelt keeps in mind that it's not just bankers.  They may be the worst offenders, but they're not the only ones.

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Taxing Banks

| Wed Dec. 9, 2009 6:55 PM EST

A couple of days ago I wrote about Britain's proposed super-tax on big bank bonuses.  Today, via , I see that it would work a little differently than I thought:

Banks will be charged a 50 percent tax on 2009 bonuses of more than £25,000, or $40,800. It will be imposed on the pool of bonuses paid by a bank, rather than individual payments, and it will be paid by the bank — not by the recipient of the bonus. It will take effect immediately and will affect banks’ 2009 profits.

For what it's worth, I like this approach better than an individual tax because it gets more directly at what the immediate outrage is.  Basically, the banking system was about to go under last year as a result of its own folly and was rescued by the government.  With a couple of exceptions, however, instead of outright nationalizing the weakest banks, the rescue plans in both Britain and the U.S. were aimed at boosting bank profits and letting them earn their way back to solvency.  You can argue about whether this was the right approach or not, but it's the approach we took.  Given that, it makes sense to give banks a strong incentive to retain their outsize earnings and use them to strengthen their balance sheets instead of paying out huge bonuses to their traders and executives.

Of course, this also puts paid to the whole idea that the tax might be a human rights violation.  Unless you want to argue that a bank has human rights.  Do you?

Quote of the Day: Climate Denialism

| Wed Dec. 9, 2009 5:19 PM EST

From Al Gore, on why climate deniers get so much attention:

If the people that believed the moon landing was staged on a movie lot had access to unlimited money from large carbon polluters or some other special interest who wanted to confuse people into thinking that the moon landing didn't take place, I'm sure we'd have a robust debate about it right now.

I just happen to have a good example of this on tap.  Last night I read a post over at Volokh about how climate data was being faked.  I sighed and moved on.  Then, about an hour ago, I got an email from a conservative reader asking if the Volokh post undermined my faith in global warming.  I told him it didn't.  Then, a few minutes later, I noticed Megan McArdle linking to the same post.  Obviously this thing wasn't going to go away quietly.

Basically, the Volokh post (by Jim Lindgren) passes along an analysis by Willis Eschenbach claiming that the instrument data for Darwin Airport in Australia shows flat or declining temperatures if you look at the raw data, and only shows an increase if you "homogenize" it.  Conclusion: the evidence of warming isn't from the data at all, but only from the manipulation of the data!  But via Tim Lambert, here's an excerpt from the original NOAA paper that explains how the homogenization was done:

A great deal of effort went into the homogeneity adjustments. Yet the effects of the homogeneity adjustments on global average temperature trends are minor (Easterling and Peterson 1995b). However, on scales of half a continent or smaller, the homogeneity adjustments can have an impact. On an individual time series, the effects of the adjustments can be enormous. [Italics mine.]

So, if you're a climate denier, what would you do?  You'd look for local effects and you'd look for an individual time series.  Look hard enough and you're bound to find some with large changes due to the homogenization.  And then you'd cry foul.  The books are being cooked!

Well, as I told my emailer, I'm not qualified to judge this stuff.  Neither is he.  Neither is Willis Eschenbach.  But it's easy to make a pretty graph that looks damning and then demand that the scientific community address it.  And when they don't — because it's amateur crap and isn't worth anyone's time — the deniers have a scalp.  Look!  The scientific community is so corrupt they won't even look at our evidence!  And Fox and Drudge and the Wall Street Journal all merrily pass it along.

Rinse and repeat.  Unfortunately, it's working pretty well.  More from Tim here.  Chris Mooney addresses the larger problem here.

Importing Socialism

| Wed Dec. 9, 2009 2:34 PM EST

Byron Dorgan (D–ND) has proposed an amendment to the Senate's healthcare bill that would legalize reimportation of prescription drugs from Canada.  No big surprise there: Dorgan's a Democrat, after all.  But drug reimportation has lots of Republican supporters too, including Olympia Snowe, David Vitter, Chuck Grassley, and John McCain.  Ezra Klein notes just how nonsensical this is:

The case for drug reimportation, as Vitter says, proceeds from the recognition that residents of other countries get much, much lower prices on drugs than Americans do. Many of these drugs were invented by American companies and produced in American factories. But Canada gets them at a discount. Why?

Well, Canada's government bargains its prices down. So does the French government, and the German government, and the British government....But Medicare, and the federal government more generally, are barred from doing the same. And this isn't just about drugs. The story is similar for everything from surgeries to doctor's visits.

....In closing, Vitter urged the Senate to "take this step and do what we all say should be a top priority and actually lower health-care costs. I urge all my colleagues to come together and do this in a bipartisan way." Boiled down to its essentials, Vitter just made a case for a bipartisan embrace of a single-payer system.

Drug reimportation is quite possibly the most ridiculous and hypocritical way conceivable to get lower pharmaceutical prices.  If you think the government should bargain down drug prices, then at least have the spine to say that the government should bargain down drug prices.  Don't outsource the job to Canada's government-run healthcare system, which, according to conservative conventional wisdom, is little better than an icy death factory that dooms its citizens to bad hips, painful cancer deaths, and endless waiting lines.

There are times when I feel that I'm pretty inured to political opportunism and duplicitousness.  But railing against any kind of government interference in the health industry as death panels and socialism, and then turning around and suggesting we take advantage of the benefits of an actual socialist healthcare system really takes the cake.

Reebok's Unhidden Agenda

| Wed Dec. 9, 2009 1:26 PM EST

Thankfully, I haven't yet seen a TV commercial for Reebok's new EasyTone shoe.  But Sophia Lear brings me up to date here:

It took being assaulted by this ad a few times to pinpoint what makes it so horrifying. The message of the ad seems to be: what women really want is to have a butt so cute that they will be objectified like the woman in the ad.

It took a few viewings to figure this out?  Here's the very first line of the ad:

Reebok EasyTone shoes not only look fantastic, they'll help make your legs and butt look great too.

Emphasis very decidedly in the original, accompanied by the camera zooming in for a tight closeup on the woman's butt.  This is not a subtle sales pitch.  You can see for yourself at the link.