Kevin Drum

A Shot Across the Bow

| Wed Oct. 21, 2009 7:02 PM EDT

I'm pretty sure that Lefty High Command has instructed us not to refer to the Obama administration's "coordinators" as czars anymore, but anyway, Obama's pay czar has apparently decided to show that he's no potted plant.  Kenneth Feinberg announced today that banks that got a big chunk of bailout aid will have to rein in their top managers:

The seven companies that received the most assistance will have to cut the cash payouts to their 25 best-paid executives by an average of about 90 percent from last year....Total compensation, which includes bonuses, will drop, on average, by about 50 percent.

The companies are Citigroup, Bank of America, the American International Group, General Motors, Chrysler and the financing arms of the two automakers.  At the financial products division of A.I.G., the locus of problems that plagued the large insurer and forced its rescue with more than $180 billion in taxpayer assistance, no top executive will receive more than $200,000 in total compensation, a stunning decline from previous years in which the unit produced many wealthy executives and traders.

There's certainly some justice in this.  But I'd prefer something less punitive and more useful: a limit on the total bonus pool at these banks.  The point isn't just that executives who imploded their companies don't deserve huge paydays — though there's a lot to be said for that — it's that financial companies in trouble should be using their retained earnings to build up their capital base, not to pay their staffs outlandish salaries.  Today's action is nicely symbolic, but insisting on a more wide-ranging cultural change that helps the entire system recover would be even better.

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That Word Does Not Mean What You Think It Means

| Wed Oct. 21, 2009 2:33 PM EDT

Bloomberg listens in on a panel discussion entitled “What is the place of morality in the marketplace?”and hears this:

A Goldman Sachs International adviser defended compensation in the finance industry as his company plans a near-record year for pay, saying the spending will help boost the economy.

“We have to tolerate the inequality as a way to achieve greater prosperity and opportunity for all,” Brian Griffiths [said].

Hmmm.  I haven't personally noticed any of the rest of us prospering from Wall Street's silicon-powered, supercharged rent seeking in the capital markets.  Perhaps Griffiths could enlighten us on that score.  More here.

Chart of the Day

| Wed Oct. 21, 2009 1:30 PM EDT

Via Felix Salmon, this might be the most perfect blog chart ever: totally fascinating but without any serious redeeming value at all.  Even better, it provides support for virtually any politico-cultural argument you care to make.  It comes from Credit Karma:

Based on a sample of 20,000 credit scores, our data shows that there is a difference of average scores based on what email service users prefer. Interestingly, Gmail and Comcast users came out the top with a higher average, while AOL and Yahoo users had the lowest average credit scores.

Hah!  Stupid Yahoo users do poorly!  But — southerners seem to do well!  Snooty Gmail users aren't as great as they think!  Etc.  I'll bet David Brooks could squeeze an entire column out of this.

Psst! Ben Bernanke is a Chinese Mole

| Wed Oct. 21, 2009 1:11 PM EDT

Why is there so much keening and wailing on the right over the decline of the dollar, a technical issue that virtually every economist agrees is (a) inevitable (b) good for America? Apparently the answer is Matt Drudge, who now writes about the weak dollar about as frequently as he writes about hurricanes during storm season.  Eamon Javers at Politico:

Clearly, Matt Drudge has developed a fascination with the declining U.S. dollar.  “He’s fixated on it,” said Tom Rosenstiel, director of the Pew Research Center’s Project for Excellence in Journalism. “There’s no question that Drudge can alter what people are paying attention to.”

This comes via Dan Drezner, who points out both the obvious (a weak dollar is a positive development, not a negative one) and the slightly less obvious (perennial worries that the dollar is losing its status as a global reserve currency are mostly absurd).  Then he puts on his blogging cap:

So, what's really going on here?  I suspect that with the Dow Jones going back over 10,000, Republicans are looking for some other Very Simple Metric that shows Obama Stinks.  The dollar looks like it's going to be declining for a while, so why not that?  Never mind that the dollar was even weaker during the George W. Bush era — they want people to focus on the here and now.

This is helped considerably by the fact that upwards of 98% of the country hasn't the slightest idea of what a "weak" dollar is aside from the fact that "weak" doesn't sound very appealing, and upwards of 99% hasn't the slightest idea of what a reserve currency is or why it matters.  This makes it excellent fodder for Trilateral Commission style conspiracy theorizing,1 which in turn makes it excellent fodder for the current intellectual leaders of the conservative movement.  This is the kind of stuff that used to be limited to cranks with mimeograph machines but is now beamed into millions of homes via the wonders of cable TV and the internet.  That's progress, my friends.

1Remember back when the Trilateral Commission was running the planet?  Good times.  How have they managed to fall so low since then?

A Deal With Iran

| Wed Oct. 21, 2009 12:29 PM EDT

The talks with Iran about a deal to ship its low-enriched uranium out of the country to be turned into fuel for its medical research reactor went into overtime, but today a tentative agreement was announced:

The head of the world's atomic energy watchdog said Iran and world powers have until Friday to approve a proposed deal to transfer most of Iran's nuclear material abroad to be reformatted for medical purposes.

...."We have had very constructive discussions, intensive discussions," Iran's envoy to the atomic energy agency, Ali Asghar Soltanieh, said after the meeting, according to news agencies....Under the terms of the deal sketched out before this week's meeting, Iran would send up to 80% of its supply of low-enriched uranium to Russia, where it would be further refined, and France, where it would be turned into plates for use in a medical research reactor.

It's a positive step.  On the other hand, Iran's ability to enrich LEU into weapons grade uranium is a little fuzzy right now, so it's possible that this costs them nothing at all.  It will take them upwards of a year to replace the stockpile of LEU they send out of the country, but if they're a year away from mastering the full enrichment cycle then this deal doesn't actually slow them down any.

Still, this is good news.  It's not great news, and I wouldn't take it as a sign of a new era in Iranian relations or anything.  But it's better than nothing.

Outfoxed

| Wed Oct. 21, 2009 11:19 AM EDT

Shorter Mickey Kaus: every news organization has its own temperament, but only Fox News has Roger Ailes.

Note to the press etc.: When even Mickey agrees that Fox's brand of mendacity is in a class by itself, maybe it's time to start admitting the obvious.

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Practice: Not As Important As You Thought

| Tue Oct. 20, 2009 9:37 PM EDT

Bloomberg does some sleuthing through tax returns and reports on the income of the stage crew at Carnegie Hall:

Depending on wattage, a star pianist can receive $20,000 a night at the 118-year-old hall, meaning he or she would have to perform at least 27 times to match the income of Dennis O’Connell, who oversees props at the New York concert hall.

O’Connell made $530,044 in salary and benefits during the fiscal year that ended in June 2008. The four other members of the full-time stage crew — two carpenters and two electricians — had an average income of $430,543 during the same period.

Impressive.  Bloomberg's reporter suggests that the stagehands "benefit from a strong union."  No kidding.  But there's also this:

The Carnegie Hall board is led by Sanford I. Weill, former chairman of Citigroup Inc., and includes philanthropist Mercedes Bass, former World Bank president James Wolfensohn and Sallie Krawcheck, president of Bank of America’s wealth-management division.

OK, I see it happening like this.  It's 2005.  The union rep comes into the room and starts off with a joke.  "We're not greedy.  Half a mil a year will get us out of your hair."  Weill, who's busy trying to figure out his piece of Citi's structured finance action for the month, just laughs.  A minute later he's approved the contract and left the room.

Who says a rising tide doesn't lift all boats?

Quote of the Day

| Tue Oct. 20, 2009 3:10 PM EDT

From Andrew Ross Sorkin, on Hank Paulson's plan to meet socially with the Goldman Sachs board of directors in summer 2008 during a trip to Russia:

For fuck's sake! Wilkinson thought. He and Treasury had had enough trouble trying to fend off all the Goldman Sachs conspiracy theories constantly being bandied about in Washington and on Wall Street. A private meeting with its board? In Moscow?

"Wilkinson" is Treasury Department chief of staff Jim Wilkinson.  For the full context, see here.

Move Over, "Worthwhile Canadian Initiative"

| Tue Oct. 20, 2009 2:44 PM EDT

I hope the fine folks at CBPP won't take offense if I point out that this might be the new winner in the "Most Boring Headline Ever" sweepstakes:

Excise Tax on Very High-Cost Health Plans Is a Sound Element of Health Reform

Still, you can't argue with the truth.  It is a sound element of health reform for two big reasons.  First, since it's a tax on health plans, it rises at the same rate as healthcare costs.  This helps ensure that funding for healthcare reform stays budget neutral not just for its first ten years, but over the long haul as well.

Second, providing funding is only half its appeal.  It's also one of those rare policy measures that (a) might actually pass and (b) might actually slow down the growth of healthcare costs:

The proposed excise tax would make a major contribution to slowing the growth of health care costs by discouraging insurers from offering, and firms from purchasing, extremely generous health insurance coverage that can encourage excess health care utilization. That, in turn, would reduce incentives for excessive health care spending.

Congressional Budget Office (CBO) Director Douglas Elmendorf has stated that changing the tax treatment of high-cost health insurance to reduce its attraction is one of “two powerful policy levers” the federal government has available to encourage changes in medical practice and thereby slow the increase in health care costs. (Changing Medicare’s payment rules is the other.) “Nearly all analysts agree,” CBO has reported, “that the current tax treatment of employer-based health insurance — which exempts most payments for such insurance from both income and payroll taxes — dampens incentives for cost control because it is open-ended.”

For more geeky goodness, read the whole thing.  It might be opposed by both labor unions and Republicans, but it's still a good idea.

Financial Autopsies

| Tue Oct. 20, 2009 1:40 PM EDT

Mike Konczal writes today about the Grayson/Clay/Miller amendment, aka the "Financial Autopsy" amendment.  Basically, it would require the new Consumer Financial Protection Agency to take an annual look at the consumer products that have caused the highest rates of bankruptcy and foreclosure and report back on what ought to be done about them.  Here's Mike:

The CDC has a response team for when it finds cancer clusters. I like the idea of the CFPA having a similar response team, that can be called in for expert opinion in the case of foreclosure and bankruptcy clusters. A team of forensic accountants and financial experts who can be called in by members of Congress, or as a result of their own statistical samplings, to give opinions on what is going on on the ground in a member’s district when it comes to the end result of financial innovations. Financial detectives, if you will, who can shift through all the noise one finds with dealing with consumer finances to see if there’s any signal that is the result of changing products and options available to consumers.

And maybe the producers of House could create a spinoff series called Plank that solves financial mysteries.  Ripped right out of the headlines!

Anyway.  My first reaction is the same cynical one that Felix Salmon has: this might actually be mildly effective, so it will never see the light of day.  At least, not in any way that runs the risk of keeping it effective.

My second reaction, however, is that this is exactly the kind of thing I was talking about a while back when I objected to the Fed trying to do stuff like this.  As Mike points out in his post (and as Alan Greenspan acknowledged a few days ago), the Fed is institutionally incapable of this kind of regulation.  The only way it will ever happen is if it comes from an agency in which this is part of its cultural DNA.  An agency like the CFPA.

So how can it survive the usual gauntlet of opposition from bankers who don't want this kind of troublesome attention?  I'm not sure, but divide and conquer seems like the best bet.  There must be some corner of the financial industry (credit unions? community banks?) that mostly prospers from being careful and prudent, and would therefore benefit from having their least scupulous competitors put under an occasional microscope.  Bankers in general are so allergic to regulations of any kind that it's not clear you could get their support even for one that clearly benefits them, but you never know.  It's worth a try.