Kevin Drum

Money Money Money

| Fri Sep. 18, 2009 2:22 PM EDT

Hmmm.  Apparently Ben Bernanke wants to change the way that bankers pay themselves:

The Federal Reserve is preparing what would be the most sweeping rules yet to regulate the pay at banks across the country, people close to the discussions said on Friday.

The rules would apply not just to the compensation and bonuses of top executives but also to traders, loan officers and other employees. But rather than focusing on the specific amount employees are paid, Fed officials will be scrutinizing whether the structure of compensation, like the use of bonuses based on the volume of loan origination, encourages excessive risk-taking.

....The surprising move comes as both the Obama administration and the Congress, as well as governments in other industrialized countries, are pushing for restrictions on executive pay, which many experts say contributed to reckless risk-taking that led to the financial crisis of the last year.

In the mood I'm in right now, I don't think I'd do more than raise an eyebrow if Bernanke suggested we just shoot every tenth banker on Wall Street as an object lesson to the rest of them.  But even so, I'm really lukewarm to this idea — and not just on the practical grounds that it's almost impossible to really make it work properly.

Basically, I think it's an admission of surrender.  It's the kind of thing you do either because (a) you can't solve the underlying problem that causes dangerous pay packages in the first place, or (b) you don't want to solve the underlying problems and are casting around for some kind of window dressing to divert everyone's attention from that fact.

The big issue isn't that bankers get paid too much.  That's just a symptom.  The big issue is that banks make too much money by engaging in risky practices.  If you reduce that ocean of money, pay will follow.  If you don't, no set of rules in the world will prevent it from eventually making its way into the hands of traders and executives. So instead of trying to regulate pay, why not regulate the dangerous practices themselves and let compensation sort itself out naturally?

Paul Volcker, for example, thinks we ought to get banks largely out of the securities trading business.  If we did, that would automatically eliminate gigantic bonuses based on risky, short-term trading profits.  We could institute serious rules on the abuse of leverage and overnight repo financing.  That would eliminate some of the most volatile sources of short-term earnings.  We could levy a transaction tax, which would reduce some of the riskiest (but most lucrative) spread bets.  We could limit the size and interconnectedness of hedge funds and other parts of the shadow banking system.  All of these things would reduce the amount of money banks earn and therefore the amount they pay their executives.

Plus there's another bonus!  If you reduce the earnings banks get from risky and socially useless financial legerdemain, then (a) Wall Street will be forced to make money by providing actual useful services to the rest of the business community, and (b) more money and investment will flow into productive parts of the economy.  If we do that, bad pay practices won't be a big problem anymore.  If we don't, bad pay practices will be the least of our worries.

Advertise on MotherJones.com

Jargon Watch

| Fri Sep. 18, 2009 12:33 PM EDT

Just as we were all getting used to "AfPak" as the insidery way of referring to the comingled problem area of Afghanistan and Pakistan, apparently the State Department is pulling a switcheroo:

State Department inspector general Harry Geisel, testifying about waste, fraud and abuse in Afghanistan and Pakistan to the House oversight subcommittee on national security, called the region "PakAf."

...."Is that just you," [Rep. Jeff] Flake asked, "or are others expected to do that?"

Geisel said he would check and, a few minutes later, offered this. "My staff has been kind enough to explain to me how AfPak became PakAf. And the answer is it was Ambassador Richard Holbrooke who started using PakAf."

You have been put on notice.  There will be a test on this stuff later today.

The Future of TV

| Fri Sep. 18, 2009 12:11 PM EDT

In a move clearly inspired by Barack Obama's plan to turn the United States into a grim socialist hellhole, California plans to regulate giant TVs:

The first-in-the-nation TV efficiency standards would require electronics retailers to sell only energy-sipping models starting in 2011. Even tougher efficiency criteria would follow in 2013.

....The rules, which took more than a year to develop, are designed to shave $8.1 billion off Californians' electricity bills over a 10-year-period. That works out to $30 per set per year, according to commission officials.

It will also help California utilities head off the need to build more power plants just so residents can watch "American Idol" and other shows. TVs already account for 10% of residential energy use in California, driven largely by surging demand for large-screen TVs. Strict state mandates for cutting greenhouse gas emissions are further pressuring officials to act.

I suppose Congress could override this rule if TVs were part of interstate commerce, but that's a pretty ridiculous notion since practically everyone buys televisions from stores in their own state1.  So I guess we're out of luck.  We Golden Staters will have to continue our desperate struggle against the jackboot of the California Energy Commission all by ourselves.

1In case you don't get the joke, see here.

Fiji Water's Treats for Tweets

| Fri Sep. 18, 2009 5:00 AM EDT

It's Laura. Happy Friday! To celebrate, Fiji Water would like to give you a beach towel. Or some free junta-fueling water. Anything, really, if you'll just promise to tweet nicely about them—something people aren't doing after reading the MoJo Fiji Water investigation. Plus: 3 MoJo stories today you might like:

1) Why is GOP pit bull Darrell Issa modeling himself after the Dems' fiercest watchdog, Henry Waxman?

2) What happens when Enron-schooled ex-lobbyists become top energy regulators?

3) Can the drug ecstasy help post-traumatic stress patients confront their fears?

Laura McClure hosts weekly podcasts and is a writer and editor for Mother Jones. Read her recent investigative feature on lifehacking gurus here.

"Both Parties"

| Fri Sep. 18, 2009 2:14 AM EDT

Here's the fascinating lead in today's Washington Post story about healthcare reform:

Lawmakers in both parties raised concerns Thursday that the health-care reform bill offered by Senate Finance Chairman Max Baucus a day earlier would impose too high a cost on middle-class Americans and said they will seek to change the legislation to ease that potential burden.

Italics mine.  Technically, this is true: apparently Olympia Snowe would like to increase subsidies to middle-income families above the level in Baucus's draft bill.  So that's one.  But the only other Republican even mentioned in this story is Chuck Grassley, who is suggesting "government assistance to insurance companies" to help them lower premium costs.

That's evidently the basis of the claim that "both parties" are concerned about the cost of healthcare insurance to middle class workers.  One Republican senator.  And a second who thinks insurance companies could use a little extra help.  Somebody shoot me now.

Truthers, Birthers, Tenthers

| Fri Sep. 18, 2009 1:47 AM EDT

Fox News legal analyst Andrew Napolitano, after citing a case in which the Supreme Court struck down a law that prohibited possession of guns in school zones, has this to say:

Applying these principles to President Barack Obama's health-care proposal, it's clear that his plan is unconstitutional at its core. The practice of medicine consists of the delivery of intimate services to the human body. In almost all instances, the delivery of medical services occurs in one place and does not move across interstate lines. One goes to a physician not to engage in commercial activity, as the Framers of the Constitution understood, but to improve one's health. And the practice of medicine, much like public school safety, has been regulated by states for the past century.

Orin Kerr, not exactly a screaming lefty, is fascinated by the sheer volume of obvious inanity in just this one paragraph.  "How many errors, misstatements, and plainly weak claims can you count?" he asks?

Sadly, I'm not a lawyer, so I can't really play.  But let's rewrite this a bit:

Applying these principles to President Johnson's civil rights proposal, it's clear that his plan is unconstitutional at its core. Running a restaurant consists of the delivery of vital nutrients to the human body. In almost all instances, the delivery of food occurs in one place and does not move across interstate lines. One goes to a restaurant not to engage in commercial activity, as the Framers of the Constitution understood, but to eat. And the licensing of eating establishments, much like public school safety, has been regulated by states for the past century.

To the dismay of people like George Wallace and Robert Welch, that didn't fly back in 1965 and it won't fly today.  Taking money for the delivery of services, intimate or not, is plainly commerce.  (In the case of medical services, about $2 trillion worth of commerce every year.)  Virtually everything in a doctor's office has crossed state lines to get there.  Thousands of insurance companies, medical groups, hospital chains, and medical suppliers are nationwide corporations.  The federal government has regulated the sale and distribution of pharmaceuticals for over 70 years.  Doctors are routinely employed by out-of-state corporations.  If the medical industry isn't interstate commerce, then nothing is.

Napolitano's reasoning wouldn't pass muster in a first-year con law class.  Like all the other "tenthers" trying to claim that Congress has no constitutional authority to regulate healthcare, he may really, really wish that his arguments were true.  But they aren't.  The guy's a clown.

Advertise on MotherJones.com

Fill the Seat!

| Fri Sep. 18, 2009 12:32 AM EDT

Back in 2004, when Mitt Romney was governor of Massachusetts and John Kerry looked like he had a chance of winning the presidency, the Democratic state legislature passed a bill to prevent Romney from appointing a replacement.  They didn't want him naming a Republican to take over Kerry's seat, after all.  So the new rules called for empty Senate seats to be filled by a special election instead.

But now it's 2009, a Democrat is governor, and the legislature is thinking they should change the rules back and allow the governor to name a quick replacement for Ted Kennedy. Apparently they're halfway there:

After hours of testy debate, the Massachusetts House of Representatives on Thursday approved legislation allowing Gov. Deval Patrick to appoint an interim successor to Senator Edward M. Kennedy.

The House voted 95 to 58; the measure now goes to the State Senate, which could take up the proposal on Friday....Therese Murray, a Democrat and president of the State Senate, has remained publicly noncommittal on the proposal despite calls from the Obama administration and from Victoria Reggie Kennedy, Mr. Kennedy’s widow. The Senate, which like the House is overwhelmingly Democratic, is said to be split on the issue.

Well, look, I sympathize with Sen. Murray and the mixed feelings of her fellow Dems.  This is obviously Calvinball, after all.  But seriously, ask yourselves this: do you think the Texas legislature would hesitate even a few hours to do the same thing in reverse?  Or any other Republican state legislature?

I didn't think so.  Now go change the law and let Deval Patrick fill that Senate seat.  Don't be chumps.

Quote of the Day

| Thu Sep. 17, 2009 4:48 PM EDT

From Marion Maneker's profile in Slate of finance blogger Felix Salmon:

The first time I met Salmon late last year, he appeared at lunch on a second-hand bicycle having pedaled over from the East Village wearing a puffy powder-blue jacket made from wispy fibers that gave him the air of a costumed-animal character at a theme park.

Ouch.  I sure hope Maneker never decides to write a profile of me.

Watching the Henhouse

| Thu Sep. 17, 2009 2:18 PM EDT

By law, two of the five commissioners of the Commodity Futures Trading Commission can't be from the president's party.  To fill those two slots, the president normally defers to senior leaders of the opposition party.  In the senate that would be Mitch McConnell, and for one of the two GOP positions McConnell has recommended one of his own former staffers: Scott O'Malia, the Republican clerk of the Senate Energy and Water Development subcommittee.

But before he worked for the Senate, O'Malia was a lobbyist.  And not just any lobbyist: back in the early 2000s he worked for Mirant, a company engaged in Enron-like misconduct that pushed relentlessly for deregulation of energy trading. Now, though, O'Malia says the Enron debacle opened his eyes to the problems caused by exactly the kind of deregulation his former employer championed.

Maybe so.  But surely the Republican Party can find someone who's been a little more dedicated to regulation all along?  David Corn and Daniel Schulman have the full story here.

Metrics for Afghanistan

| Thu Sep. 17, 2009 1:54 PM EDT

Well, we finally have our metrics for winning the war Afghanistan.  All 46 of them.  Or, more accurately, 46+, since there an undefined number of classified metrics as well.  Call it 50 in round numbers.

Some of them are ridiculously vague.  For example, "Status of relations between Afghanistan and its other neighbors," whatever that means.  Some are at least theoretically measurable: "Volume and value of narcotics."  Some have already been missed: "Afghan Government's... ability to hold credible elections in 2009 and 2010."  Some are darkly humorous: "Development of an enduring, strategic partnership between the U.S. and Pakistan."

I don't know what to think about this.  I just don't know.  It's not like I'm against the idea of setting out specific goals and trying to measure how well we're achieving them.  On the other hand, if you wanted to resurrect the ghost of Robert McNamara and convince everyone that Afghanistan is Vietnam 2.0, you could hardly do a better job than this list.  I don't doubt for a second that McNamara had something exactly like it in 1965 when he was meeting with LBJ and the Joint Chiefs in the Oval Office.

Still, if I had to pick out the one thing that bothers me most about this plan, it's how implicitly utopian it is.  We're not just trying to kill some terrorists here, we're apparently trying to turn both Pakistan and Afghanistan into thriving, peaceful, incorruptible, Westernized democracies.  But that's a hundred-year project, and it's not something we've ever demonstrated much skill at.  So what, exactly, makes us think we're going to be good at it this time around?