Kevin Drum

Stress Test Finale

| Wed May. 6, 2009 11:04 PM PDT

The Wall Street Journal reports on the results of the stress tests:

The Federal Reserve directed at least seven of the nation's biggest banks to bolster their capital levels by $65 billion while effectively blessing the stability of six others, marking for the first time a bold line between some of the nation's stronger and weaker banks.

All I can say at this point is that I'm baffled.  If Geithner is right, then everything is fine and the banking system was never really in very big trouble.  $65 billion is nothing.  But if the IMF is right, American banks are nearly $300 billion short.  If Nouriel Roubini is right, the shortfall might be even greater.

So who is right?  I have no idea.  "All Americans should be confident that these institutions are going to be viable institutions going forward," Geithner said tonight, and I sure hope that's the straight dope.  But these discrepancies are simply too large to wave away.  Somebody is way, way off base, and I'd sure like to know who it is.

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Too Good to Check

| Wed May. 6, 2009 10:32 PM PDT

In the current issue of the New Yorker, Malcolm Gladwell has an article about how scrappy underdogs using insurgent tactics can beat the big guys, and the whole piece is wrapped around the story of a kids' basketball team that did really well using a full court press against better teams.  So why doesn't every underdog basketball team use a full court press?  Huh?

Reading this, I got sort of interested because I've wondered more or less the same thing from time to time.  It seems to me that the full court press is pretty effective.  On the other hand, I don't know squat about basketball, and I sort of vaguely figured that professional basketball coaches do, which means there's probably a pretty good reason that the press isn't ubiquitous.  Chad Orzel provides the answer:

The press works, as long as the other team isn't ready for it. The idea of a full-court press is to force the opponent into a rushed and frenetic game and get them out of their routine. A team that's ready for it, though, and has skilled and disciplined players, won't get rattled by the press, and can pick the press apart for lots of easy baskets. You can use the full-court press to rattle a superior team that isn't expecting it, but if they know it's coming, there are a lot of ways that pressure defense can fall apart — missed traps in the back court lead to two- or three-on-one breaks, over-aggressive defense leads to fouls, etc. The teams that have won titles using pressure basketball have also had lots of talent, because you need something to fall back on if the press doesn't work.

Like Chad, it's stuff like this that makes me wonder about Gladwell.  He's an engaging writer and he picks interesting subjects, but there are really only two alternatives here.  Either (a) he wrote this piece without bothering to learn enough about basketball to understand why the press isn't used much above the kiddie league level or (b) he knew the answer but chose not to share it with his readers because it would wreck his story.  Unfortunately, I suspect the answer is (b).  He seems like a guy who sometimes decides not to let the facts get in his way once he's settled on a good narrative.

Plus, as Chad says, Gladwell seems oddly insensitive to the criticism that "playing '40 Minutes of Hell' is kind of a dick move in a league of twelve-year-old girls."  But, really, it is.  The coach who did this isn't a brilliant innovator, he's kind of a dick.

Taxing Carbon - Part 2

| Wed May. 6, 2009 6:24 PM PDT

Yesterday, after reviewing the problems with a carbon tax, I asked why anyone would support going down that road vs. supporting a cap-and-trade plan.  Andrew Sullivan responds:

Because we actually believe that a carbon tax will bring green benefits without the kind of crude regulatory scheme that could stigmatize environmentalism for a long time? Because we think it will work better?

This deserves some unpacking.  For starters, you need to think about the kind of regulation and oversight that's required to reduce carbon emissions.  Take power plants, for example.  First you have to have technology in place to monitor carbon emissions from each plant, and then you have to have a regulatory bureaucracy in place to make sure the monitoring takes place properly.  That's a big job.  Once that's done and we know how much carbon is being emitted, plants have to either (a) pay a tax for each ton of carbon or (b) buy a permit for each ton of carbon.

The difference there is tiny.  You can pay the tax or you can buy permits on an electronic carbon exchange.  From the point of view of the plant, they each require about the same amount of work.

The carbon exchange itself, of course, does need to be set up and kept in operation by a government agency.  That's extra work compared to a tax, and it has to be done right.  Still, this is hardly untrod territory.  There are hundreds of electronic commodity exchanges around the world and we know how to set one up.  In fact, we've done it before for other cap-and-trade programs, and the operation of the exchange itself has never been that big a deal.

So far from being a "crude regulatory scheme," it's actually pretty elegant.  Emitters can buy permits depending on their needs while companies that make big cuts and have excess permits can sell them.  In terms of overhead at the corporate level it's hardly different from a tax at all.

As for a tax working better than cap-and-trade, why?  Both approaches put a price on carbon.  That either works or it doesn't.  It's true that there are some theoretical technical advantages to a tax, but there are some technical advantages to cap-and-trade too.  In the real world, they probably wash out.

Overall, the idea that cap-and-trade requires some kind of monstrous bureaucracy that a tax avoids simply doesn't stand up to scrutiny.  Most of the bureaucracy is dedicated to monitoring and enforcement, and you have that no matter what.  And cap-and-trade has the advantage of setting a cap and deriving the permit price from that, rather than letting Congress set a tax rate that will (supposedly) produce a suitable cap.  The former is relatively transparent, since the cap level is right in the legislation and the public knows precisely what it is.  The latter isn't, since the public has to decide which expert is right about the tax level needed to reduce emissions to the desired level.  The scope for fiddling and lying and delaying on this score is obviously immense.

As for vulnerability to loopholes and special interest breaks — well, both plans are about even on that score.  It's simply naive to think that either one will be more immune than the other.  Horsetrading is what politicians do, fine print is what lobbyists specialize in, and eternal vigilance is the only way to keep them under control.

In the real world, cap-and-trade requires Congress to set a transparent cap.  It uses a mechanism that's straightforward and proven.  It puts us in sync with Europe, which is already committed to cap-and-trade and has no interest in the tax approach.  And it's politically feasible.  Simply put, that's why it's the better approach for anyone who's serious about real-world results.

POSTSCRIPT: Mike O'Hare has a longer and more technical defense of a carbon tax here.  For now, let me just say that I disagree profoundly with his political analysis.  He's right that cap-and-trade is no cheaper than a tax (and it would be dishonest to imply otherwise), but I think he's wrong to believe that setting the proper tax level is easier and more efficient than setting the cap level directly.  From the point of view of both politics and public support, I think it's exactly the opposite.

More later on this, perhaps.

Who's Afraid of Social Security?

| Wed May. 6, 2009 1:40 PM PDT

Ezra Klein, after noting that Steny Hoyer is trying to push ahead with Social Security reform, notes that congressional leaders are resisting the idea of naming a special commission to work on a proposal:

What liberals fear on Social Security reform is something like the proposed Conrad-Gregg Commission. A bipartisan commission that creates a set of recommendations and then fast tracks them through Congress. In general, the idea behind these proposals is that Congress can't change the commission's recommendation: It just votes up-or-down.

Well, I don't fear this, and I don't think Pelosi and Reid should fear it either.  It's true that my first choice is to do nothing for now and wait a decade or so to see how our finances shape up.  Trying to project 50 years in the future is dimwitted and we shouldn't pretend we can do it.

But the politics is a little bit different.  Even Republicans agree that privatization is off the table right now, which means that a bipartisan commission might very well come up with an acceptable set of tweaks that would balance Social Security's books.  And there's a genuine upside to this: at a fairly low cost it would take Social Security off the table for good.  No more endless whining from Pete Peterson and the Washington Post editorial board.  No more Republican kvetching about Social Security bankrupting America.  No worrying about yet another privatization plan rearing its zombie head the next time a Republican is in the Oval Office.  No more polls showing that more kids believe in UFOs than believe they'll get a Social Security check when they retire.  And Barack Obama would get a very nice post-partisan fiscal responsibility feather in his cap.

(Look: I don't care about postpartisanship very much, but obviously Obama does.  And he's a pretty smart guy.  I'm willing to let him play the game his way.)

So I say, give it a try.  If the commission proposal is no good, vote it down.  If it's OK, pass it.  And then we can spend the next eight years working on real long-term issues like healthcare and climate change.  What's the harm in letting Steny give it a try?

Quote of the Day - 5.6.09

| Wed May. 6, 2009 11:38 AM PDT

From Governor John Baldacci of Maine, after signing a law allowing same-sex marriage:

"In the past, I opposed gay marriage while supporting the idea of civil unions.  I have come to believe that this is a question of fairness and of equal protection under the law, and that a civil union is not equal to civil marriage."

Good for him.  But I wonder if this is an example of how gay marriage opponents are going to end up losing this battle entirely when they could have won at least a partial victory if they'd been less strident in their opposition.  If they had actively supported civil unions, that could have become the de facto standard across the country, accepted by courts and legislatures alike.  But the ferocity of their opposition to any form of marriage equality might have been instrumental in convincing a lot of people like Baldacci that half measures are impossible.  And if half measures are impossible, then full marriage rights are the only alternative.

In the long run, maybe none of this matters.  But in the medium term, marriage opponents have adopted an attitude of such extreme intolerance that fewer and fewer people want anything to do with them.  And with that, the cultural battle was lost.

Who Ran the Memory Hole?

| Wed May. 6, 2009 10:56 AM PDT

Back in 2005, when he was counselor to the secretary of state, Philip Zelikow wrote a memo suggesting that the legal basis for torturing terror suspects was pretty shaky.  It didn't go over well: "The White House attempted to collect and destroy all copies of my memo," he wrote a few days ago over at FP's Shadow Government blog.

Fine.  But who tried to send Zelikow's memo down the memory hole?  Can you guess?

Zelikow tells Mother Jones that he doesn't know for sure who in the White House ordered the suppression of his memo, but he says that his "supposition at the time" was that the office of Vice President Dick Cheney was behind the cover-up. In an email exchange with Mother Jones, Zelikow notes that Cheney's office did not have the authority to request that his memo be deep-sixed: "They didn't run the interagency process. Such a request would more likely have come from the White House Counsel's office or from NSC staff." But that request did not reach him in written form. "It was conveyed to me, and I ignored it," Zelikow recalls. But he suspected that Team Cheney was probably behind it.

Democrats in Congress want to try to find a copy of Zelikow's memo, and they also want to try to find any record of who ordered the memo destroyed.  Stay tuned.

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Chart of the Day - 5.6.2009

| Wed May. 6, 2009 10:30 AM PDT

Via Alex Tabarrok, this comes from Catherine Rampell over at Economix.  It's either (a) genuinely fascinating or (b) a horrible abuse of crude chartmaking based on minimal data.

I think I'll vote for (a).  Due to an intestinal ailment in my 20s, I used to have to eat very slowly.  The result was just what you'd expect: I'd feel full pretty quickly and therefore didn't eat very much.

Around age 25, however, some clever doctor finally figured out what was wrong with me, prescribed a proton pump inhibitor (which sounded pretty space agey until my high school chemistry came back to me and I realized that "proton" is just another word for "acid"), and I've been fine ever since.  I can wolf down food as fast as the next guy.  Result: I eat dinner in about 20 minutes and I'm 30 or 40 pounds overweight.

Of course, I'm also 25 years older, and you might think that has something to do with my weight gain too.  Probably so.  But it still makes sense to me that slower eating habits lead to lower food intake.  That doesn't mean I'm eager to adopt the Italian habit of spending four hours over dinner, a practice that drove me nuts whenever I visited Italy on business, but it might not hurt.

Still, what's with the Turks?  They make the French and Italians look like pikers.  Are they just congenitally bored over there, or what?

Sonia Sotomayor

| Wed May. 6, 2009 9:19 AM PDT

For some reason, Sonia Sotomayor has become the early frontrunner to be Obama's nominee to replace Justice David Souter on the Supreme Court.  I'm not quite sure how she became the consensus favorite so quickly, but in any case the all-too-familiar result has been an immediate outpouring of anguish that her choice would be little more than an act of craven obeisance to the PC crowd, who make it all but impossible for white guys to make it to the Supreme Court these days.  Considering that even Democrats have nominated four white guys out of six appointments in the past half century, this is a little rich, but that hasn't stopped the kvetching.

Over at TNR the other day, Jeffery Rosen piled on, pointing out that New York's senators, "in a burst of demographic enthusiasm," favored her appointment, and then retailing a long list of complaints from anonymous law clerks about how she wasn't really very bright and had a bad temper.  Just your typical affirmative action hire, in other words.

Now, unlike most of Rosen's critics, I didn't have a big problem with the fact that most of his sources were anonymous.  This is actually one of those cases where it's probably the only way to write the story, since former law clerks aren't likely to risk their careers by dishing publicly about their former colleagues, especially ones who might be sitting on the Supreme Court a couple of months from now.

No, the problem with Rosen's piece is that it was so relentlessly unfair: a long string of complaints despite the fact that Sotomayor's own clerks, who presumably know her best, had nothing but praise for her.  And they were speaking anonymously too.  Mark Kleiman, after noting that Sotomayor won the Pyne Prize as the top undergraduate in her senior year at Princeton and then reading a persuasive bit of praise for Sotomayor by one of her former clerks, Robin Kar, tries to push back:

I find Kar's piece utterly convincing. Not every judge attracts this sort of passion from her clerks. And Kar does more than gush: he makes a strongly-argued case that Sotomayor has exactly the sort of intelligence you'd like to see on the Supreme Bench. Better yet, in response to a question, he identifies two pieces of Sotomayor's legal writing as exemplifying her talents of analysis and legal writing her dissents (thus reflecting her views alone, not aided or burdened by those of her colleagues) in Croll v. Croll and Hankins v. Lyght.

I read the Croll case first....I'd give it very high marks; having read first the controlling opinion and then the dissent, I found the dissent compelling.

....Hankyns v. Light involves a bit of law I know something about: the Religious Freedom Restoration Act....My first-blush analysis was to liken a forced retirement to a job-site injury, something that involved secular questions only. But Sotomayor's argument made it clear to me that clergy hiring (as distinguished from the hiring of a math teacher in a religious school involved in one of the precedent cases) was inextricably a religious matter.

....So, insofar as a non-expert can judge, Kar's two examples are both on point: Sotomayor writes much more clearly and persuasively than the average appellate judge.

As plenty of people have already pointed out, for a job like Supreme Court justice there's no such thing as a "best qualified person."  There are, rather, maybe a hundred equally highly qualified people, and it's silly to pretend that white guys have a hard time getting considered.  Just the opposite, in fact, since every time a non-white guy gets nominated, they have to put up with a barrage of innuendo that they're not really very bright, not the best pick, just a sop to identity politics (unlike the Catholic white guys), and would basically be a taint to the good name of the court.  It's disgraceful.

BAC Watch

| Wed May. 6, 2009 8:09 AM PDT

I give up.  Apparently Bank of America's need for $34 billion in new capital is somehow being spun as good news, and as of 11 am BAC is actually up a point or so.  WTF?

King Corn

| Tue May. 5, 2009 10:31 PM PDT

Via the LA Times, this is the best news I've heard all day:

The Obama administration on Tuesday proposed renewable fuel standards that could reduce the $3 billion a year in federal tax breaks given to producers of corn-based ethanol. The move sets the stage for a major battle between Midwest grain producers and environmentalists who say the gasoline additive actually worsens global warming.

....While biofuels as a whole — including grasses and even algae — are considered promising alternatives to petroleum, some researchers have begun challenging the use of corn for this purpose.

In particular, they point to the "indirect land-use" effects of pulling corn out of the world food supply, which could force farmers in developing nations to clear rain forests — and release massive amounts of carbon dioxide in the process — in order to plant corn.

Please dump the corn ethanol subsidies.  Please, please, please.  Dollar for dollar, it might well be the stupidest use of taxpayer cash in the entire federal budget.