Kevin Drum

A Tiny Violin

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| Tue Oct. 28, 2008 11:42 AM PDT

A TINY VIOLIN....Yesterday I read that Porsche had increased its ownership stake in VW to 74% and was seeking a "dominance" agreement that would give it control over the company. Today, via Tyler Cowen, the Financial Times reports that hedge funds are pretty unhappy about this:

VW shares rose 147 per cent after Porsche unexpectedly disclosed that through the use of derivatives it had increased its stake in VW from 35 to 74.1 per cent, sparking outcry among investors, analysts and corporate governance experts.

....The sudden disclosure meant there was a free float of only 5.8 per cent — the state of Lower Saxony owns 20.1 per cent — sparking panic among hedge funds. Many had bet on VW's share price falling and the rise on Monday led to estimated losses among them of €10bn-€15bn ($12.5bn-$18.8bn).

"This was supposed to be a very low-risk trade and it's a nuclear bomb which has gone off in people's faces," said one hedge fund manager.

Technically, the complaint is that Porsche has been less than transparent about its maneuverings, and it might well be that current German regulation is too lax in this regard. That aside, though, can I just say that my heart is not exactly breaking for the hedge funds who got burned here? The whole point of most hedge funds is to invest vast sums of money with the least possible transparency possible, and now they're complaining because somebody else has executed a slick maneuver that made what was "supposed" to be a very low-risk trade into a money loser.

Well, guess what? There's are no tablets from Mt. Sinai that guarantee hedge funds access to low-risk-high-return investments. Their bet turned out to be a bad one, and now they're unhappy about it. Boo hoo.

For more, check out the first commenter to Tyler's post. He explains pretty well what happened here and how the hedge funds got burned.

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Plan vs. "Plan"

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| Tue Oct. 28, 2008 10:58 AM PDT

PLAN vs. "PLAN"....Ezra Klein catches McCain advisor Douglas Holtz-Eakin accidentally telling the truth about McCain's healthcare plan:

John McCain's health care plan aims to do something very simple: Raise taxes on the employer health insurance market so individuals move to the individual health insurance market. What Doug Holtz-Eakin just said is that even McCain's top advisers realize that this will mean much worse health care coverage for everyone involved. As he put it, "what they are getting from their employer is way better than what they could get with the [tax] credit."

Poor Douglas Holtz-Eakin. He's stuck having to defend a healthcare plan that's really a healthcare "plan." It doesn't work in theory, it doesn't work in practice, and it's not something that would appeal to most Americans in any case. But McCain needed a plan to compete with Obama's plan, and Republicans like tax credits, so that became the basis of his plan. The fact that it doesn't make sense isn't something that McCain really cares much about.

UPDATE: More here from Time's Karen Tumulty: "If Doug Holtz-Eakin doesn't believe that young, healthy people would leave the system, he might want to talk to Mitt Romney, who actually studied the situation in the real world when he was reforming the health care system in Massachusetts. It's not — as Holtz-Eakin suggests — that these healthier citizens would choose between staying with their employer-provided benefits or buying them on the open market. It's that they would decide to go uninsured entirely — leaving older and sicker people in the employer-provided system. That would make it even more expensive for employers to continue to provide coverage for their workers, accelerating a trend that we are already seeing, in which fewer and fewer companies are providing coverage."

Stimulate Me!

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| Tue Oct. 28, 2008 10:22 AM PDT

STIMULATE ME!....We have a long, hard recession ahead of us, and monetary policy has already done about as much for us as it can. That means we need fiscal stimulus and plenty of it. But what kind? Mark Zandi from Moody's Economy.com provides the answer and EPI makes it into a chart for your consideration. Basically, they suggest that the money is best spent (a) on low and middle income workers who will actually buy things with it, (b) infrastructure, because the recession is likely to be long and infrastructure projects take a while to get up and running, and (c) aid to states, who would otherwise have to cut back spending and thus blunt the effect of the stimulus package. Works for me.


Civil War Watch

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| Tue Oct. 28, 2008 9:48 AM PDT

CIVIL WAR WATCH....From the LA Times:

The social conservatives and moderates who together boosted the Republican Party to dominance have begun a tense battle over the future of the GOP, with social conservatives already moving to seize control of the party's machinery and some vowing to limit John McCain's influence, even if he wins the presidency.

In skirmishes around the country in recent months, evangelicals and others who believe Republicans have been too timid in fighting abortion, gay marriage and illegal immigration have won election to the party's national committee, in preparation for a fight over the direction and leadership of the party.

Obviously this sounds crazy to liberal ears, but I guess I can't blame them. After all, the job of a true believer is to believe. And turning elections into culture war battlefields certainly seems to have worked in the past for them.

But times change. Among vast swathes of the young, the culture war has lost its salience. Worse, it's become an albatross, a sign of intolerance and hatred that young voters despise. The results are crystal clear in party ID polling: twenty-somethings have fled the Republican Party in numbers not seen since the Great Depression, and if social conservatives manage to wrest control of the GOP and start shrieking 24/7 about banning abortion and hating gay people, they'll be guaranteeing Democratic dominance among an entire cohort of voters for decades to come.

Which is fine with me, of course. But the adults in the Republican Party better plan on knocking heads very hard and very fast if they don't share my attitude. Sarah Palin isn't the future of their party, she's the future of mine.

Mosul

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| Mon Oct. 27, 2008 11:53 PM PDT

MOSUL....For years, Iraq observers have been warning about the ongoing tensions in Kirkuk between Sunni Arabs and ethnic Kurds. That tension is now in danger of exploding into outright war, but it turns out the initial flashpoint isn't Kirkuk after all. It's Mosul:

The Shiite-led government of Prime Minister Nuri Kamal al-Maliki is squeezing out Kurdish units of the Iraqi Army from Mosul, sending the national police and army from Baghdad and trying to forge alliances with Sunni Arab hard-liners in the province, who have deep-seated feuds with the Kurdistan Regional Government led by Massoud Barzani.

...."It's the perfect storm against the old festering background," warned Brig. Gen. Raymond A. Thomas III, who oversees Nineveh and Kirkuk Provinces and the Kurdish region. Worry is so high that the American military has already settled on a policy that may set a precedent, as the United States slowly withdraws to allow Iraqis to settle their own problems. If the Kurds and Iraqi government forces fight, the American military will "step aside," General Thomas said, rather than "have United States servicemen get killed trying to play peacemaker."

I don't blame Thomas for taking this attitude. At the same time, if American troops aren't there to keep the peace, what are they there for?

The War Against Gore

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| Mon Oct. 27, 2008 5:39 PM PDT

THE WAR AGAINST GORE....Today Bob Somerby finds yet another excuse to remind us all of how badly Al Gore was treated by the press during the 2000 campaign. And, as usual, he's pissed that the rest of us aren't as obsessed by this as he is:

To this day, our side has agreed to keep its traps shut about the trashing of the Clintons and Gore. As we've done so, we've given away a giant political advantage. Millions of people [] hear that the press corps just hates Big Republicans. And they rarely hear a peep from our side. We've agreed not to tell them the truth.

In large part, our side has kept its traps shut about the Clinton/Gore era for corrupt, careerist reasons....Kevin won't tell you. Josh won't tell you. Ezra spoke once, then shut the f*ck up. Your "nominal allies" are very quiet. Atrios rarely offers a peep.

First things first: Yes, Gore was indeed treated badly. He never said he invented the internet, he never said he discovered Love Canal, he wore pretty much the same clothes he'd always worn, he didn't hire Naomi Wolf to teach him how to be an alpha male, and he wasn't a serial liar. Etc. Bob is right about all that stuff.

But here's what I don't get: why does Bob think that liberals are giving away a "giant political advantage" by not harping on this constantly? Frankly, I'd be delighted to harp away if I actually thought this was one of the top 100 issues that might help the future of liberalism, but it's not, is it? Media criticism in general helps our side, but what exactly would it gain us to relate everything back to Al Gore's decade-old mistreatment with the Ahab-like intensity that Bob does? Wouldn't it just cause everyone to tune us out as cranks and fogeys? Anyone care to weigh in on this, on either side?

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Stevens Guilty

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| Mon Oct. 27, 2008 3:34 PM PDT

STEVENS GUILTY....Ted Stevens, whose defense against corruption charges was that he was just "borrowing" stuff from campaign donors, lost his case today:

Alaska Sen. Ted Stevens was convicted today of lying on financial disclosure forms to hide tens of thousands of dollars in gifts and renovations to his Alaska home that were financed mostly by a powerful business executive and his oil services company.

....Despite the guilty verdict, Stevens remains on the ballot in Alaska, where he is locked in a tight race with Anchorage Mayor Mark Begich.

If he can pull off an upset victory, Stevens could remain in the Senate for months, if not longer, if he chose to appeal the verdict. Tradition allows him to exhaust his appeals before the ethics committee begins expulsion hearings, according to the Historical Office of the Senate.

A reader asks, "If Stevens is re-elected and the US Senate then kicks him out, can Palin then name herself to replace him?" I assume the answer is no, and I further assume that even if the answer is yes Palin wouldn't have the chutzpah to do it. But of course, those are my big city values talking, so I might be off base here.

In any case, I assume that Stevens is now considerably more likely to lose his seat next week, thus making this point moot. Any Alaskans care to weigh in on how this is going to play up in the Great White North Last Frontier?

UPDATE: False alarm. Sorry. After Frank Murkowski appointed his daughter Lisa to an open Senate seat in 2002, Alaskans approved a ballot initiative to change the law. An open Senate seat in Alaska is now filled via a special election.

Watching the Polls

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| Mon Oct. 27, 2008 11:56 AM PDT

WATCHING THE POLLS....I sometimes feel a little guilty for not posting poll results more often, but I figure you hardly need me for that, do you? Still, we're down to the wire and it's worth seeing the big picture of public opinion as the race careens to its end. And the big picture is....no change. In the RCP poll of polls, Barack Obama is still way ahead of John McCain.

Obama and the Courts

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| Mon Oct. 27, 2008 11:29 AM PDT

OBAMA AND THE COURTS....I see that Drudge is blaring a headline about how Barack Obama believes it's a tragedy that the Supreme Court hasn't confiscated all your money and given it to poor people. Turning on the TV, I see that Fox New is all over it too. So is John McCain. Clearly, the guy's a total socialist.

Except, you know, he's not. The whole thing is based on a distinctly academic radio panel Obama was part of seven years ago, and over at the Volokh Conspiracy even conservatives Orin Kerr and David Bernstein aren't buying this nonsense. After all, Obama specifically says in the interview that it's a mistake for liberals to rely too heavily on the courts, rather than on public opinion and the legislative process. And supporting a progressive income tax or equal funding for school districts is hardly a sign of incipient socialism.

I dunno. Maybe this stuff would have worked four years ago. But now? After eight years of stagnant middle class wages and an epic collapse of the world financial system? Not so much. Is this really the best McCain can do?

UPDATE: Meanwhile, in other "Obama is a secret radical" news, ABC's Brian Ross is busily trying to dragoon washed-up terrorist and noted Obama pal Bill Ayers into an interview as he tries to catch a cab. Enlightening stuff.

More on Prop 1A

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| Mon Oct. 27, 2008 10:47 AM PDT

MORE ON PROP 1A....You will be unsurprised to learn that I took a ton of flak in comments yesterday over my opposition to California's Proposition 1A, a bond measure that would fund a high-speed train between LA and San Francisco. My position was primarily based on a generic opposition to bond measures, but since that isn't enough for most people, how about if we discuss the project on its merits too? That will give you all a second chance to yell at me.

(I also took some flak for supporting Prop 11, a redistricting initiative, because it might dilute the power of the Democratic Party slightly. Actually, based on how redistricting was done the last time around, I'm not sure it would, and I'm OK with forcing both parties to fight harder for their seats anyway. Still, the issues there are more obvious, so I'll leave it alone for now.)

So here's the thing about Prop 1A: yes, it's a high-speed rail initiative. And we all love high-speed rail. But if we're going to continue living in the reality-based world, we have to accept that there are both good rail projects and bad ones. And I have some very serious doubts that this is a good one.

In order to be competitive, it relies heavily on a projection that the train will make the LA-SF run in about 2.5 hours. This is almost certainly a fantasy given terrain, trackage, and existing technology. It will probably be closer to 3.5 or even four hours, which would make it almost completely noncompetitive with air travel. It also relies heavily on a projection of 100 million users by 2030. This is fantasy squared. And it further relies on funding assumptions that are practically laughable. Even if Prop 1 is passed, there's a good chance this train won't even be built by 2030, let alone carrying 100 million people per year.

There are plenty of promising short-haul rail projects that we should be considering, but long-haul rail is just really problematic. The numbers don't work out most of the time without heroic assumptions, and the money could almost certainly be better used on other things. So even if California were in good shape fiscally, I doubt very much that Prop 1A would be a good dea.

For more, click the link to read an email on the subject from an extremely dedicated rail proponent. I find it pretty persuasive.

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