Kevin Drum

Basel III Update

| Thu Jun. 3, 2010 4:55 PM EDT

So how are the Basel III negotiations going? You know, the ones that would tighten bank capital requirements, reduce leverage, and, in the words of the Wall Street Journal, "have greater implications for banks and the global economy than the U.S. regulatory changes emerging in Washington"? Here's the latest:

International regulators are moving toward an agreement that would require banks to raise vast sums of new funds to cushion against future losses, but in a concession to the industry and some governments, the rules are likely to take effect later than expected, according to people familiar with the matter.

....France, Germany and Japan have pushed for as much as a 10-year window before the rules go fully into effect, and U.S. and U.K. officials recently have indicated that they would support a gradual time frame, according to people familiar with the matter. "I'm perfectly comfortable with us negotiating reasonable transition period to help make people more comfortable that they can live with those new standards," U.S. Treasury Secretary Timothy Geithner said Wednesday afternoon in Washington, before leaving for the G-20 meeting.

Hell, even I don't have any problem with this. And it sounds like no one else does either. If the new requirements are stiff enough to actually make a difference, we'd be nuts to demand that banks adopt them immediately in an environment where growth is already slow, lending is anemic, and raising risk capital is difficult. The real question isn't so much the timeframe for adopting the new rules, it's whether the rules are any good. Here's what we know about that:

Other crucial details remain unresolved, including disputes over the types of funds banks will be allowed to count toward toughened capital and liquidity requirements. Bank executives, sometimes with backing from their governments, have been waging an intense lobbying campaign to water down parts of the so-called Basel proposals, known for the Swiss city in which the accords traditionally have been negotiated.

This is the real battleground, but the Journal doesn't have anything to tell us about that. The best we have right now, via Felix Salmon, is an article from Global Risk Regulator a few days ago that suggests the Basel negotiators are likely to stick to their guns and issue tough new regulations in the very near future. Keep your fingers crossed.

Advertise on

Poll Wonkery Goes Big Time

| Thu Jun. 3, 2010 3:06 PM EDT

The New York Times announced today that it would begin hosting, Nate Silver's stat-wonkery site that shot to fame dissecting poll data during the 2008 election. Henry Farrell comments:

Newspapers have traditionally been highly allergic to statistics, charts and the like, in the belief that they turned readers off. FiveThirtyEight has demonstrated that there is a sort-of-mass readership for this kind of material, if it is presented in the right way. That the New York Times has bought the site — and is seeking to integrate Silver into its broader operations — suggests that it wants to tap into that market.

Hmmm. I guess "sort-of-mass" covers a lot of territory, but I have my doubts that the readership for heavy duty number crunching is any bigger than it's ever been. Instead, I'd guess that "presented in the right way" is really the operative phrase here. And that doesn't so much refer to the way Nate displays his results (though he does a very good job of it), but the fact that he's pretty clearly a liberal partisan. I don't mean that in the sense that he distorts his results to favor a liberal point of view — as far as I can tell, he doesn't — just that he's very good at addressing the topics that liberal readers are most interested in hearing about.

To a certain extent I think this is the future of political journalism. Readers of political reporting pretty clearly prefer a point of view, but in its more rarefied precincts that doesn't mean they want the obvious agit-prop of a Fox News or conservative talk radio. They want their facts more or less straight, which is what Nate provides, but they don't want to wade through thousands of words of junk to find the bits and pieces they're interested in. Rather, they want a guide who already knows what's important to them and puts it front and center. That's what provides. The fact that it's all number-centric is secondary.

The Virtue of Competition

| Thu Jun. 3, 2010 12:55 PM EDT

Back home from China, Ezra Klein writes about the common sentiment that America needs to do better on [fill in the blank] because otherwise China will surge ahead of us:

Polls and focus groups show that people go nuts for this sort of rhetoric. If you want the country to get behind your policy initiative, just tell them that China is beating us to the punch. But.....

Wait a second. "But" what? If the rhetoric works, why not use it? If competition with the Soviet Union could get us to the moon in less than a decade, why not let competition with China help jumpstart green energy development? Ezra again:

Competitive language is used in service of worthy goals, but it's also dangerous stuff. We're telling Americans to fear the economic development of other countries, when what they should actually fear is the reverse. If China or India stagnate, that means they won't become huge markets for our exports, it means they won't develop new technologies that can better our lives, it means that they won't be geopolitical anchors in the way that only rich, stable countries can be. The global economy isn't a race so much as it's a relay.

Well, maybe. If the competition trope turns into China bashing, and if it takes a turn toward actively trying to impede China's development instead of improving ours, then sure. It's a bad thing. But I'd argue that for the most part, it (a) hasn't and (b) probably won't. We will, I think, shortly end up in some pretty serious competition with China over resources — mostly oil, but possibly other commodities as well — but if anything, that should just reinforce the message that we need to get more serious about renewable energy.

Competitive fervor can be a great motivator. Granted, there's sometimes a thin line between a bit of healthy motivational anxiety and outright populist fearmongering, but I'd say this is a risk worth taking in this case. The American public could use a little motivation right now.

The Times Takes on Dartmouth

| Thu Jun. 3, 2010 12:23 PM EDT

As you may recall, one of the best known studies of healthcare costs, and one that got a lot of attention over the past year, is the Dartmouth Atlas of Health Care, which shows, for example, that although patients in Miami get a lot more healthcare than people in Minnesota, and they get it a lot more expensively, their health outcomes aren't any better. This suggests that there are lots of possibilities out there for cutting back on healthcare costs without impacting the quality of care.

Last night I came across a New York Times article that questioned whether the Dartmouth folks had really proven anything at all. But lazy bastard that I am, I got this far and then just gave up:

But the real difference in costs between, say, Houston and Bismarck, N.D., may result less from how doctors work than from how patients live. Houstonians may simply be sicker and poorer than their Bismarck counterparts. Also, nurses in Houston tend to be paid more than those in North Dakota because the cost of living is higher in Houston. Neither patients’ health nor differences in prices are fully considered by the Dartmouth Atlas.

WTF? This stuff has been controlled for endlessly, and the Dartmouth data still holds up. But I was tired, so I went to bed instead of posting about this. However, other, more energetic people have now taken the trouble to lay out the evidence, so let's review. Here's one of the co-authors of the Dartmouth study explaining their work a year ago in the New York Times (!):

It is true that some regions of the country experience more illness than others, and of course sick people spend more on health care. To deal with this bias, the Dartmouth group has compared expenditures and frequency of treatment across regions for people with similar diseases. The most extensive study compared spending across regions using a variety of cohorts such as people who had suffered a hip fracture or heart-attack patients. This study examined people who were equally sick, whether they lived in Louisiana or Colorado. The researchers further adjusted for any differences in patient income, race, and prior health. They still found gaps of up to 60 percent in spending among regions.

And here, via Brad DeLong, is David Cutler, who was quoted in support of the writers' point that "failing to make basic data adjustments undermines the geographic variations the atlas purports to show":

[T]he reporter asked ‘what do you make of the fact that the price adjustment changes the ranking of communities?’ I said something to the effect of ‘why do I care about the non-price adjusted data.’... [T]he Dartmouth people have done the price adjustment, so we don’t have to fight about what such an adjustment would do. Hard to tell why my comments are beating up on anything (except a mythical version of the Dartmouth data in which they had never done price adjustment)...

Bottom line: all the "data adjustments" the Times reporters talk about have, in fact, been done. Researchers at Dartmouth and elsewhere have controlled for price levels, for demographics, and for differing rates of sickness, and their results largely hold up. There are big variations in cost that have very little impact on quality of outcome. In the end, then, the authors of the Times piece end up with almost nothing. By the time their piece is done, they've basically only got two things left. First, the Dartmouth researchers admit that, on occasion, they might discuss their findings more broadly than they should when they're talking to a lay audience. Second, there are individual bits and pieces of their dataset that other researchers have disputed. Just as there are with any large, complex dataset.

In other words, there's no there there. The Dartmouth research is not the be-all-end-all of healthcare research, but its basic conclusions are extremely robust and have been confirmed over and over. Why the Times chose to pretend otherwise is a mystery.

POSTSCRIPT: The Dartmouth researchers respond to the Times here.

Quote of the Day: Obama on Republicans

| Thu Jun. 3, 2010 11:17 AM EDT

From Barack Obama, explaining the Republican attitude toward governing:

It’s a belief that government has little or no role to play in helping this nation meet our collective challenges. It’s an agenda that basically offers two answers to every problem we face: more tax breaks for the wealthy and fewer rules for corporations.

....As November approaches, leaders in the other party will campaign furiously on the same economic arguments they’ve been making for decades. Fortunately, we don't have to look back too many years to see how their agenda turns out. For much of the last 10 years we've tried it their way. They gave us tax cuts that weren’t paid for to millionaires who didn’t need them. They gutted regulations and put industry insiders in charge of industry oversight. They shortchanged investments in clean energy and education, in research and technology. And despite all their current moralizing about the need to curb spending, this is the same crowd who took the record $237 billion surplus that President Clinton left them and turned it into a record $1.3 trillion deficit.

Feisty! But will he keep it up? One speech won't have much of an impact, but if he takes to the campaign trail and starts making this argument repeatedly, it might start to sink in a bit. It's worth a try.

New Life for the Volcker Rule?

| Thu Jun. 3, 2010 1:23 AM EDT

The conference committee for financial reform legislation won't start meeting until next week, but the Financial Times reports that one provision in the bill is already on target to get tightened up:

Congressional negotiators are moving to toughen financial reform legislation, raising the chances that banks will face a strict ban on proprietary trading and a new conflict of interest rule, people involved in the deliberations say....The provision, sponsored by Jeff Merkley and Carl Levin, two Democratic senators, would toughen the “Volcker rule”, which bans banks from trading for their own account or owning hedge funds and private equity firms, but gives regulators time to study the rule and modify it. “That is a very wishy-washy way to approach the issue,” Mr Merkley said.

Mr Levin said even though the Treasury would “probably...want as much power as they can get to...modify [the bill]”, he thought Congress should write a strong final version.

The Wall Street Journal reports that traders are genuinely unnerved:

Since political momentum began building earlier this year to limit trading for profit at Wall Street firms, traders have been exploring their options, and some have already left. Outside the banks, private investment funds looking for skilled traders have been gearing up for a hot talent market.

...."With Volcker, you've got everyone shaking in their boots, so these traders all have an ear to the ground," says John Pierson, a Manhattan-based headhunter for financial firms.

I guess I can live with this. I'd rather have trading being done in hedge funds, where it belongs, than in banks, where it risks blowing up the plumbing of the financial system. One caveat, though: that trading income should be taxed as ordinary income, not capital gains, as it is now. Other people's money, you know. The House has already done its part to change this, and now it's the Senate's turn.

Advertise on

Finding a New Job

| Wed Jun. 2, 2010 5:43 PM EDT

Andrew Sullivan posts a letter today from a reader in England who was laid off a year ago and hasn't had much luck finding a job since. Here's the concluding paragraph:

Several things I've learned: You can't apply for jobs well under what your previous job was; you won't be taken seriously and will be considered over-qualifed. You must fall completely to the bottom and get the occasional minimum wage, temporary job. No one will commit to any training for a new position. If you've done exactly the job advertised before, you'll be considered. But you'll be considered incapable of learning anything new. General experience will not be considered. Stuff learned on your own will be denigrated or discounted. University degree qualification doesn't matter. Age discrimination is alive and well.

Italics mine. This is a surprisingly widespread attitude, even in the white collar sector. Back when I had a real job and frequently hired new staff members, I always looked for people who had the right general background (product management, say, or tech writing) but I didn't worry too much about whether their background precisely matched what they'd be doing for me. This was, however, decidedly not the attitude of most of my peers. Many of my job candidates were interviewed by a few others in the company as well as by me, and I was always surprised by the number of people who would say "But he only has a hardware background" (we were a software company) or "she's never worked in document imaging" (we were a document imaging company). And the folks who said this were consistent when they were hiring for their own departments: they were really meticulous about looking only for people who had exactly the background they needed, whether that meant selling high-volume scanning software (for a sales job) or knowing the precise set of technologies we used to build our software (for a programming job).

This attitude wasn't universal, but it was surprisingly common. And it betrays a real laziness. Sure, someone with exactly the right background can be a plus sometimes, but most of the time all it gets you is a slightly faster learning curve for the first month or two. After that, the more talented person will be better no matter what their background was. (Within reason, of course.) A good product manager can learn a new product line and a good programmer can learn a new set of tools.

Of course, I've always wondered if I was wrong about this. Maybe I overestimated the ability of most people to learn new things. Maybe my department (marketing) was more forgiving of long learning curves than others. Maybe even good programmers struggle with new tools for a long time unless they've previously used something pretty similar. Maybe things are entirely different when you take a step down from the knowledge-intensive jobs that I'm most familiar with. It wouldn't be the first time I was wrong about something. What say you, readers who are also hiring managers? How close a fit do you usually look for in new hires?

Reforming the Senate

| Wed Jun. 2, 2010 2:56 PM EDT

Jonathan Bernstein writes about the growing abuse of the filibuster and then quotes CAP's John Lilly saying that rank-and-file senators will never be willing to give it up:

Lilly thinks the only hope is public outcry, but while I do think it might help a bit, I think it's mostly a pipe dream. The real hope is that senators find the collective frustrations of the current system an even bigger problem than the individual advantages it gives them — and finding a set of reforms that will on balance reduce the frustrations without cutting too deep into individual influence.

I'm with Jonathan on this. There are two almost insurmountable problems here. The first is that the American public is simply never going to get excited about internal Senate procedures. It's true that movement conservatives have shown an impressive ability to work their troops into a frenzy over some pretty peculiar things (repealing the 17th amendment, anyone?), but their more recondite issues still rarely manage to catch fire with more than a small fraction of the public. And that's best case. There are hot buttons that can be turned into mass movements, but dissatisfaction with Senate rules isn't one of them.

Second, even if, against all odds, you managed to get the public riled up over this, it's always going to be intensely partisan. The party out of power will always view the Senate rules as their last bulwark against incipient tyranny, and as long as this remains a partisan issue it has no chance of changing based on public outcry.

No, there's only one way that the filibuster or any of the Senate's other non-majoritarian rules will be changed: if Joe Biden and 51 Democrats decide to change them in January 2011. When the Senate reconvenes, Biden (and, implicitly, his boss) have to agree to make the required parliamentary rulings, the same way Nelson Rockefeller did in 1975, and a majority of the Senate would have to support him. In particular, Biden would have to rule that each new Senate draws up its own rules, and 51 Democrats would then have to approve changes to the existing rules. And since Democrats are likely to have a fairly thin majority next year, this means that practically the entire Democratic caucus would have to support change.

Is this feasible? It's hard to say since Obama hasn't said anything one way or the other about it. But even if he's willing, my guess is that there isn't enough support to change the filibuster rule. However, I wonder if there would be support for at least modifying the rules on holds and appointments? The abuse of holds and the obstruction of Obama's executive branch nominees has been brazen enough that there might be enough support to rein them in. But I'm not even sure of that.

Cars, Trucks, and iPads

| Wed Jun. 2, 2010 12:29 PM EDT

Here is Steve Jobs on the future of PCs:

“When we were an agrarian nation, all cars were trucks because that’s what you needed on the farms.” Cars became more popular as cities rose, and things like power steering and automatic transmission became popular.

“PCs are going to be like trucks,” Jobs said. “They are still going to be around.” However, he said, only “one out of x people will need them.”

I get Jobs's point, and if your definition of "PC" is narrow enough he's probably right.1 But where did this whole truck analogy come from? The first cars were cars, weren't they? And the rise of cities was pretty much unrelated to the rise of cars. What's he talking about here?

1For what it's worth, I think "PC" has a very wide definition indeed. The iPad, for example, is pretty clearly a PC. I get why Jobs wants to pretend otherwise, since he's pretty invested in the whole "magical experience" narrative of iPad ownership, but does anyone else buy this? I mean, it's a free-standing single-user device with a screen, a keyboard, a CPU, connectivity to the internet, and the ability to run lots of different apps. If that's not a PC, what is?

UPDATE: Man, I gotta learn to read to the end of posts. This comes via James Joyner, who makes the exact same point as me about the whole car/truck analogy. He even has links.

Chart of the Day: Employment by Gender

| Wed Jun. 2, 2010 11:59 AM EDT

This comes from Stuart Staniford, and it's an employment map of the United States by county. Dark areas have high employment and light areas have low employment. Bluish area have relatively high male employment and brownish areas have relatively high female employment.

What does it all mean? Beats me. Basically, it's just data geekery. But kind of interesting anyway, no? Stuart has more speculation over at his place.