Kevin Drum

Quote of the Day: Our Demand for Idiocy

| Tue May 18, 2010 1:46 PM EDT

From Maureen Tkacik, the Dr. Jekyll side of former Jezebel writer Moe Tkacik:

What I sensed was that while the laws of supply and demand governed everything on earth, the easy money was in demand—manufacturing it, manipulating it, sending it forth to multiply, etc. As a rule of thumb (and with some notable exceptions), the profit margins you could achieve selling a good or service were directly correlated to the total idiocy and/or moral bankruptcy of the demand you drummed up for it. This was easier to grasp if you were in the business of peddling heroin, Internet stocks, or celebrity gossip; journalists, on the other hand, were at a conspicuous disadvantage when it came to understanding their role in this equation.

Tkacik developed this sense not while she was working for Jezebel, but while she was working for the Wall Street Journal in the early aughts. The rest of the piece is quite interesting too, though I'm not entirely sure what to make of it. But worth a read.

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Public and Private

| Tue May 18, 2010 1:06 PM EDT

Andrew Sullivan explains why he blogged last week about Elena Kagan's sexual orientation:

I was caught between two very powerful impulses: the ethical desire not to say anything untrue or unverifiable and the ethical compulsion I felt to be totally honest with my readers about what I made of the passing scene from day to day....And I could not wait or duck. A columnist can do that; a blogger cannot. To have stopped myself asking of Kagan's orientation would have been, to my mind, something of a rupture of trust between me and Dish readers. It would have erected a barrier between my own thoughts and what I allowed to appear on the blog.

I don't get this. A compulsion not to simply parrot the conventional wisdom or pull your punches I understand. But isn't silence ever an option? There's no rule that says every passing thought has to be memorialized in a blog post, is there?

Mitch McConnell's Problem

| Tue May 18, 2010 12:05 PM EDT

They're voting today in Kentucky — lucky devils, getting it over with now instead of making their residents endure yet another month of ravenous attack ads — and Senate minority leader Mitch McConnell's handpicked candidate is in a tough race. Josh Green reports:

In my talks with voters on the campaign trail today and yesterday, the idea that the Republican Party is as complicit as the Democratic Party in what ails the country is something I heard again and again. I made a point of seeking out registered Republican voters, and the frustration with Mitch McConnell, Kentucky's senior senator and the Senate Minority Leader, seemed indistinguishable from — or perhaps better to say, "was a large part of" — the general frustration with Washington. "Republicans in Washington, D.C. are just playing 'follow the leader,' Janice Cox told me at a rally in Paducah earlier today, to which she'd brought her daughter, grandchildren, and a jumbo-sized American flag. "We need a true constitutional conservative."

Jon Chait notes that McConnell "must want to tear his hair out." After all, he's relentlessly opposed Obama and the Democrats, and the fact that he hasn't been successful is largely due to the simple fact that Democrats have a huge majority in the Senate.

Mainly, of course, McConnell's woes are a demonstration of what happens when people get pissed off: they don't really care much about objective reality, they just want to register a protest. And voting for Mitch McConnell's guy doesn't feel like a protest.

But there's a second-string angle to this story that's sort of delicious too. Basically, the lesson is that if you live by the Senate rules, you can also die by the Senate rules. McConnell, after all, didn't fight Obama by mounting a loud and uncompromising PR campaign against him. That would have been counterproductive. Instead, he did what a Senate leader can do: he worked behind the scenes to keep his caucus united and manipulated parliamentary procedure and the Senate's absurd rulebook to engineer an endless series of filibuster, holds, and delaying tactics. He did a pretty good job of it, too.

The problem is that this has now come back to haunt him. Democrats spent the past year complaining about how McConnell could do all this stuff and stay below the radar with it, not getting beaten up by the press for his tactics because they were so arcane. Back then, that worked well for McConnell. But now, staying below the radar is hurting him. Filibusters are pretty limp affairs these days, which makes them not just boring to reporters, but invisible to your supporters too. In the end, if Harry Reid had forced McConnell and his team to show up on the Senate floor and make a real production out of their filibusters, he might be in better shape with his constituents right now and his endorsement of Trey Grayson might be worth a bit more.

Plus, of course, there's the fact that McConnell lost and Obama won. There's just no excuse for that. But losing in a blaze of glory probably would have done him more good than losing in the Senate cloakroom.

Arguing About Civil Liberties

| Tue May 18, 2010 11:22 AM EDT

The blogosphere sure can be a weird place sometimes. A couple of days ago Matt Yglesias wrote a short post suggesting that, unfortunately, public opinion is broadly in favor of constraining civil liberties if that's what it takes to fight terrorism. Since public opinion underlies a lot of what presidents do, this means that civil libertarians need to work harder to shift public opinion on this subject.

Glenn Greenwald fired back today, calling this the "Public Opinion Excuse" and arguing (among other things) that presidents don't follow public opinon slavishly, they have the ability to mold public opinion themselves if they want to, and civil libertarians ought to be directly pressuring both Obama and the Democratic Party on this issue. Matt responded, "I just wanted to note for the record, officially, that I don’t believe any of the things he’s decided to attributed to me."

WTF? There's not even an argument here. It's like asking whether ice cream is sweet or cold. It's both. Of course public opinion plays an enormous role in shaping public policy in a democracy. It constrains presidents in what they can do, and it especially constrains them when the subject is one that opponents can fearmonger to produce big swings in public attitudes. That describes civil liberties and national security almost perfectly.

But yes, presidents can and do push back against public opinion — up to a point. Obama, for example, pushed back against failing public opinion to get healthcare reform passed earlier this year. Defending civil liberties in an era of terrorism is hard, but Obama could unquestionably have a better record on this regardless. Guantanamo may be a tough nut given public and congressional opposition to closing it, but Glenn is certainly right that, for example, public opinon didn't force Obama to adopt a policy of allowing American citizens overseas to be targeted for assassination.

I dunno. Sometimes it seems like we're all determined to invent arguments where none exist. The real question is: how do you feel about the actual merits of Obama administration's civil liberties record? Do you want it changed? If you do, then you should work both on changing public opinion and on applying direct political pressure. They're symbiotic. Neither one will work without the other. It's crazy to think otherwise.

Sanctions on Iran

| Tue May 18, 2010 10:34 AM EDT

Apparently Hillary Clinton has brokered an agreement for yet more sanctions on Iran:

The Obama administration announced Tuesday morning that it has struck a deal with other major powers, including Russia and China, to impose new sanctions on Iran, a sharp repudiation of the deal Tehran offered just a day before to ship its nuclear fuel out of the country. “We have reached agreement on a strong draft with the cooperation of both Russia and China,” Secretary of State Hillary Rodham Clinton told a Senate committee. “We plan to circulate that draft resolution to the entire Security Council today.”

There isn't much to say about this until we see the text, but I have to say that I have my doubts that China would have agreed to any proposal that's genuinely stringent. If it is, and they do, that will represent something of a sea change in their external relations. Should be an interesting afternoon.

Tight Money in the Eurozone

| Tue May 18, 2010 12:48 AM EDT

As part of its rescue plan for the euro, the European Central Bank has started buying Greek and Portuguese debt. But at least so far, they're plainly unwilling to mount a serious operation: the value of their purchases is small (about €16.5 billion) and they're making sure to "sterilize" their new holdings by selling off other bonds to make up for it, thus keeping the money supply steady. The Telegraph is unimpressed:

The ECB’s strategy of draining liquidity to offset the stimulus from the bond purchases risks making matters worse. "They are using one-week deposits for sterilisation and the effects of this to make short-term funding more expensive. This will force banks to sell assets to shrink their balance sheet and risks causing a credit crunch," said [Hans Redeker, currency chief at BNP Paribas].

Mr Redeker said the ECB is pursuing a contractionary policy to assuage concerns in Germany that Club Med bond purchases will stoke inflation. "They have read the German press and it made their hair stand up on their necks. The reality is that a deflationary cycle is developing in Euroland and the ECB will eventually have to start quantitative easing," he said.

Ewald Nowotny, Austria’s central bank chief, called the German concern over inflation "hysteria." But hysteria or not, it seems to be in control of Europe's destiny. That means a non-expansionary monetary policy and fiscal austerity are going to be their answer to a massive recession. Maybe Europe doesn't have any choice at this point. I don't know. But it sure doesn't bode well for their near-term economic growth prospects.

UPDATE: On the other hand, perhaps the ECB's sterilization efforts are mainly symbolic, designed to appease German public opinion while not having any actual contractionary effect. Tracy Alloway rounds up the arguments at FT Alphaville.

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News Flash: Toxic Waste Still Toxic

| Mon May 17, 2010 8:48 PM EDT

Last year I linked to a Wall Street Journal piece about "re-remics." In a nutshell, banks were taking the sliced-and-diced AAA securities that blew up in the great crash of 2008, reslicing them using only the remaining good bits, and creating a whole new bundle of AAA securities. My comment at the time:

Shiny new AAA securities! Hooray! And there's more! Ratings for re-remics come from the same ratings agencies that bollixed up the original ratings. And investment banks pocket fat fees for performing the financial alchemy. What could possibly go wrong?

So cynical, Kevin! Surely banks had learned their lessons. And ratings agencies too. Except, um, apparently not: "Standard & Poor’s cut to junk the ratings on certain securities, backed by U.S. mortgage bonds, that it granted AAA grades when they were created last year....The reductions were among downgrades to 308 classes of so-called re-remics, or re-securitizations, created from 2005 through 2009."

Created last year! After the great ratings fiasco of the previous decade. Felix Salmon comments:

I consider myself pretty cynical when it comes to structured finance, but this comes as a shock even to me. S&P knew, when it was rating these re-remics, exactly where it had gone wrong in the first round of structured-credit ratings, yet somehow was unable or unwilling to fix the problems in that group.

Tracy Alloway quotes S&P citing significant deterioration” in the performance of the underlying mortgages as the reason for the downgrade — but the whole point of a triple-A-rated mortgage-backed security is that it's robust to such deterioration. If it isn't, then it should never have been rated triple-A in the first place.

If we needed one more reason to strip all official recognition from credit ratings, this is it. S&P and Moody's are clearly completely incompetent, and no one should base any investment decisions on the random series of letters they apply to bonds. If the CDO fiasco wasn't enough to make them change their ways, then nothing will be.

This is the kind of thing that leaves you speechless. But maybe Felix is right: maybe it's time to tear down the whole lot of them, sow the ruins with salt, and figure out some way to start all over again. The whole episode just boggles the mind.

Chart of the Day: Corporate Earnings

| Mon May 17, 2010 4:17 PM EDT

Via Paul Kedrosky, here's a McKinsey chart comparing projections of corporate earnings by Wall Street analyst with the actual results. As you can see, the analysts relentlessly overestimate earnings.

Actually, what I find most interesting about this chart isn't the overestimation — though that's fascinating — but the remarkable steadiness of their earnings projections. For 25 years, with the exception of a few years starting in the late 90s, through good times and bad, consensus earnings for the S&P 500 have been right around 12-13%. No matter what's going on in the broader economy, Wall Street always thinks earning will be at least 12% or higher. Coincidentally, I'm sure, this is also the direction of error most likely to get their clients to churn stocks.

Anyway, it's nice work if you can get it. If any Wall Street firm wants to hire me, I'll be happy to project 13% earnings forever and then make up good stories to justify it. I think I'd be good at it. And my services probably come cheaper than the analysts they're using now. Any takers?

You May Be More Public Than You Think

| Mon May 17, 2010 3:59 PM EDT

Via Kieran Healy, this is perhaps the most graphic illustration ever of Facebook's privacy problems. Making use of a public programming interface that Facebook released a few weeks ago, three programmers in San Francisco wrote Openbook, a website that searches Facebook profiles for — well, for anything you want. Because I'm basically a nice guy, I've illustrated this with a relatively innocuous search for "rectal exam" and then blurred out the results. But other popular searches include "playing hooky," "boss is an asshole," and so forth. You get the idea.

So what's the point of this? Here's what the authors say:

Our goal is to get Facebook to restore the privacy of this information, so that this website and others like it no longer work....This website is a parody, and has no relationship to Facebook.

All the charts and graphs and blog posts in the world don't bring home just how public your Facebook information is the way this does. So show it to your friends! And if you want to make sure that your random musings aren't available to, say, your boss or your teachers, here's a tool that checks your Facebook privacy settings and lets you know if you should think about changing them.

Throwing Away the Key

| Mon May 17, 2010 1:59 PM EDT

Among other things, the Adam Walsh Child Protection and Safety Act authorizes the federal government to keep "sexually dangerous" persons in prison even after their sentences have been completed. The Supreme Court ruled today that this is perfectly constitutional:

Solicitor General Elena Kagan successfully argued the government's case in front of the Supreme Court. Kagan has now been nominated to replace the retiring Justice John Paul Stevens.

Kagan in January compared the government's power to commit sexual predators to its power to quarantine federal inmates whose sentences have expired but have a highly contagious and deadly disease.

"Would anybody say that the federal government would not have Article I power to effect that kind of public safety measure? And the exact same thing is true here. This is exactly what Congress is doing here," she said.

Civil commitment is already common at the state level, but I can't say I'm thrilled about it there either. Kagan's logic, after all, applies to other kinds of criminal behavior too. If federal or state authorities can keep "sexually dangerous" prisoners behind bars forever on the grounds that they're mentally impaired and need to be quarantined, why not "economically dangerous" or "physically dangerous" prisoners too? As near as I can tell, special consideration for sex offenders is largely an effort to use an emotionally charged topic to justify the real heart of these statutes: lowering the standard for civil confinement from "mentally ill" to "mentally impaired." But once that's in place and well accepted, what's left to stop that same standard from being used elsewhere?

POSTSCRIPT: I had a particular point I wanted to make here, so I didn't get into the technical question at issue in this case. It wasn't a question of due process, since previous Supreme Court decisions have already held that civil commitment doesn't violate due process protections. That's why lots of states already have laws like this one. Rather, it was a question of whether the federal government also has the authority to mandate civil commitment, and this turns on an interpretation of the "necessary and proper" clause of the constitution. On narrow grounds, I think I probably support the majority's decision on this. But I'm not sure I support the court's previous decisions on the more fundamental issue of due process.