Kevin Drum

Predicting Chaos

| Fri Apr. 17, 2009 10:10 AM PDT

Joseph Nye recently wrote an op-ed complaining that academic political scientists have become too cloistered.  He'd like them to get out more, work on real-world problems, and take positions in government where they can apply their skills and knowledge.

Over at Dan Drezner's site, Georgetown's Raj M. Desai and James Raymond Vreeland fire back, and among other things they say this:

Nye complains about the methodological rigor in contemporary political science as an impediment to its relevance. This is ironic, given that it is precisely this rigor that has allowed modern political science to improve its forecasting power — something that is presumably vital to policymaking. We now have better statistical tools to predict, for example, the likelihood of state failure, civil conflict, democratic breakdown, and other changes in governments. Game-theoretic models can be used to analyze trade disputes and war, as well as the behavior of international organizations, terrorist movements, and nuclear states with greater precision and clarity than just a few decades before.

Really?  Modern political science has improved its forecasting power?  I didn't have the energy to click on all the links above, but I did click on the first one, which took me to the website of PITF, the Political Instability Task Force.  And sure enough, a 2005 paper titled "A Global Forecasting Model of Political Instability" claimed to be able to predict state failure with a surprisingly simple model:

Because the onset of instability is a complex process with diverse causal pathways, we originally expected that no simple model would have much success in identifying the factors associated with the onset of such crises....It was to our considerable surprise that these expectations turned out to be wrong.

....To give but one example, we found early on that lower-income countries showed a higher risk of instability. This is one of the best-established results in the conflict literature, of course, so we sought to improve on it. We not only tried substituting such other standard of living indicators as infant mortality, calories consumed per capita, nutritional status, percent living in poverty, life expectancy, and others for real per capita income, we also tried using a basket of quality-of-life indicators in a neural model that we hoped would provide a far more sophisticated and accurate specification of how income affected instability. Yet no model, no matter how complex, performed significantly better than models that simply used infant mortality (logged and normalized) as a single indicator of standard of living.

....What did matter?....As we have said, to our surprise, a quite simple model without interaction terms and with few nonlinearities is consistently over 80% accurate in distinguishing countries that experienced instability two years hence from those that remained stable.

The model essentially has only four independent variables: regime type, infant mortality [], a “bad neighborhood” indicator flagging cases with four or more bordering states embroiled in armed civil or ethnic conflict, and the presence or absence of state-led discrimination.

Interesting!  Maybe.  But aside from technical questions about whether this model really works (where's the annual prediction of which countries are going to implode within the next 24 months?), does this demonstrate that Nye was right or wrong?  PITF was government sponsored in the first place, so you'd think its academic results would now be in use at the State Department?  Are they?  And if not, why not?

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Prosecuting Torture

| Fri Apr. 17, 2009 9:30 AM PDT

Several emailers want to know why I support Obama's decision not to prosecute the CIA agents who engaged in torture of prisoners during the Bush administration.  To be honest, I'm not entirely sure that I do, but in case you're interested, here are the arguments against prosecution that have run through my mind:

First: I hate the idea of spending time prosecuting the little guys while the big fish go free.  If there's anyone we should be prosecuting, it's Bush, Cheney, Addington, Bybee, Yoo, and Tenet.  Until that happens, it's hard to justify prosecuting their underlings.

Second: Every agent would be entitled to a vigorous defense, which would almost certainly require them to make extensive use of classified information.  The government would naturally invoke the state secret doctrine in virtually every case, which would make it nearly impossible to conduct trials that are both fair and reasonably public.

Third: This would be a very, very big operation involving hundreds of prosecutions.  It would almost certainly drag on for many years, and although I'm not a lawyer, my sense is that successful prosecution would be extremely difficult.  The result would quite likely be a long, gruesome, process that would mostly disappear from public view except toward the end, when nearly everyone is acquitted.  Frankly, this might be worse than nothing at all.

Fourth: "I was just following orders" is obviously not an acceptable excuse in cases of clearly illegal instructions.  On the other hand, CIA agents should be able to rely on OLC opinions without constant fear that a successor administration will decide on different legal interpretations.  There isn't a hard and fast rule here, but it's legitimately something that needs to be balanced.

Anyway, my mind is still not made up on this.  It's just a really hard problem.  But I will say that I find #1 persuasive almost all by itself.  If we're going to prosecute the top guys, that's one thing.  But if we don't, it would be a massive miscarriage of justice to prosecute the field agents just because that's politically more feasible.  We really don't want to live in a country that does such things.

CDS and Bankruptcy

| Fri Apr. 17, 2009 8:31 AM PDT

Via Megan McArdle, the Financial Times reports that credit default swaps may be responsible for forcing more companies into bankruptcy proceedings.  The problem, apparently, is that normally bondholders have an incentive to negotiate a deal that would stave off Chapter 11, since a judge in a bankruptcy settlement is likely to force them to take big haircuts on their debt.  If they can do a little better in a negotiated settlement, they'll play ball.

But if their debt is insured via CDS, and the U.S. government has made it clear that CDS will be paid off 100% even if the insurer is underwater, they're actually better off if the company defaults.  From the FT on a couple of recent failures:

"We have seen CDS becoming a significant factor" when negotiations on out-of-court restructurings fail, said Alan Kornberg, the partner in charge of the bankruptcy practice at Paul, Weiss, Rifkind, Wharton & Rice, speaking generally. "We used to talk about the practice theoretically but now we see cases where it is hard to get lenders to agree to tender or to compromise and then you find out that these holdouts had significant CDS protection."

....Some creditors, including Citigroup, which held a small exposure to AbitibiBowater, hedged themselves in the CDS market, meaning their economic interest in the deal was different to lenders who had not bought credit insurance, according to people familiar with the matter. Citigroup declined to comment.

Lawyers say CDS holdings were also a factor in the default and filing for Chapter 11 protection of General Growth Properties this week. Restructuring advisers expect many more such cases involving so-called fallen angels, or firms originally investment grade, since CDS was widely sold on such names.

Presumably this happens because CDS buyers get paid off in the event of a Chapter 11 proceeding, but they don't if they've negotiated the haircut themselves.  This makes sense, since doing otherwise would align incentives too far in the other direction (i.e.,  bondholders would have no incentive to negotiate any value at all in a settlement if they're going to be made whole regardless).  Megan suggests that maybe CDS issuers should be allowed to join reorganization negotiations, the same way ordinary insurers are.  Perhaps so, though that doesn't help with the trillions of dollars of existing CDS whose terms are already set in stone.

Sigh.  Yet another problem for CDS fans to address.

A Question for Goldman Sachs

| Thu Apr. 16, 2009 10:31 PM PDT

Back in September, Goldman Sachs received a $5 billion capital investment from Warren Buffett that requires interest payments of 10%.  A month later they received a $10 billion capital injection from the Treasury that requires interest payments of only 5%.  Given that Buffett's terms are far more onerous, Richard Bove wants to know why Goldman is planning to pay back the Treasury's investment:

"If you were thinking of shareholders first, you would get rid of the most onerous amount first, and that would benefit shareholders....However, if you pay off TARP you are eliminating all of the restrictions on paying management," Bove told TheStreet.com. "You shouldn't be diluting existing shareholders to pay off TARP so you can pay management more money."

This should become a case study in principal-agent research.  If Goldman management were primarily concerned with shareholder value, they'd pay off Buffett.  But if they're more concerned with their own personal welfare, they'll pay off Treasury.  Apparently they've made their choice.

Needless to say, though, they're not planning to give up all the other government aid they're getting.  From the Washington Post:

Even as they clamor to exit the most prominent part of the bailout program by repaying government investments, firms continue to rely on other federal programs to raise even larger amounts of money....The Federal Deposit Insurance Corp. has helped companies [] borrow more than $336 billion through the end of March, by guaranteeing to repay investors if the firms defaulted. And financial firms hold more than $1 trillion in emergency loans from the Federal Reserve.

Goldman Sachs declared a "duty" to repay the Treasury after posting a first-quarter profit. The chief executives of several large banks at a meeting last month urged President Obama to accept repayments. But no company has similarly pledged to leave the government's other aid programs.

The explanation appears to be simple: Only the capital investments by the Treasury require the companies to make significant sacrifices, such as restricting executive pay.

"The capitalization efforts are actually the most important and are doing the most good, but they come with strings attached, and because they come with substantial strings attached they are getting the most push-back from the banks," said Douglas Elliott, a financial policy expert at the Brookings Institution. The other programs "have no strings attached," he said. "What's not to like about it from the perspective of the banks?"

Perhaps it's time to attach strings to anyone who takes advantage of any extraordinary aid from the government.  If that happened, I wonder how many of these rock-jawed titans of capitalism would still be willing to put their money where their mouths are?

UPDATE: It turns out this is less mysterious than I thought.  Apparently Goldman Sachs paid back the Treasury money first because they were required to under the terms of the TARP agreement.  Details here.

All About Fundraising

| Thu Apr. 16, 2009 7:36 PM PDT

CQ reports:

“Raise money early” is probably the most oft-repeated advice given to the 40 House Democrats singled out by party officials to receive special assistance, as they prepare to defend against potentially serious challenges in the 2010 elections.

A CQ Politics analysis of campaign finance reports filed by the midnight deadline shows that these members are fast learners — they gathered an average of $266,000 in campaign receipts for the first three months of this year.

How depressing.  They've been in town for all of 12 weeks, and instead of spending their time on the million and one real problems we have, they're spending their time raising $20,000 a week.  How many hours a day do you think that takes?

Actually, I read a great piece on exactly this subject once.  I forget where, though.  Washington PostNew Republic?  Not sure.  But it was all about a freshman House member and the endless hours he spent down in the basement of party headquarters (or somewhere), where they have a room full of little booths furnished with nothing but a desk and a telephone.  He'd go down there every day armed with a list of phone numbers of car dealers and bank presidents and assorted other potential donors from his district, and he'd methodically work his way down the list, calling each one and cajoling them for a few hundred or a thousand bucks.  He did this every single day.  For hours.  It gave new meaning to word demeaning.

Anyway, like I said, I don't remember where I saw it.  Which is too bad, because it was a really great piece.  If it rings a bell with anyone, let us know in comments.

Quote of the Day - 4.16.09

| Thu Apr. 16, 2009 4:17 PM PDT

From Megan McArdle, after noting that virtually everyone these days is holding sales allegedly to help us all through the recession:

The one industry not ostentatiously offering to help me save money is the banking industry, which hasn't been trying to entice me into their savings vehicles with high rates and low fees.  We have a long way to go before the American savings culture turns into what it should have been all along.

It's almost as if there isn't any real competition in the banking industry at all.  Funny that.

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Defining Torture Down

| Thu Apr. 16, 2009 4:00 PM PDT

Reading the OLC torture memos is enough to make you ill.  The techniques in question are plainly and instinctively abhorrent by any common sense definition, and the authors of the memos obviously know it.  But somehow they have to conclude otherwise, so they write page after mind-numbing page of sterile legal language designed to justify authorizing it anyway.  It's not torture if the victim survives it intact.  It's not against the law if it takes place outside the United States.  Waterboarding is OK as long as it isn't performed more than twice in a 24-hour period.  Sleep deprivation of shackled prisoners for seven days at a time is permissible as long as the victim's diaper is changed frequently.  And on and on and on.

Do they know this is torture?  Of course they do.  Glenn Greenwald is right when he says the excerpt below is probably all you need to read.  What it says, in a nutshell, is that when other people do this stuff, we naturally call it torture.  But when we do it, it's not.  Sickening.

UPDATE: More here from David Corn.

The OLC Memos

| Thu Apr. 16, 2009 12:49 PM PDT

It looks like the Obama administration will be releasing those Bush-era OLC torture memos after all.  Statement here.  Good for them.  Also this:

In releasing these memos, it is our intention to assure those who carried out their duties relying in good faith upon legal advice from the Department of Justice that they will not be subject to prosecution. The men and women of our intelligence community serve courageously on the front lines of a dangerous world. Their accomplishments are unsung and their names unknown, but because of their sacrifices, every single American is safer. We must protect their identities as vigilantly as they protect our security, and we must provide them with the confidence that they can do their jobs.

Generally speaking, I think I agree with this — though there might be specific circumstances where prosecution is called for regardless of legal guidance.  I can't honestly say that I base this on any kind of coherent principle, though, and I'm not entirely happy I feel this way.  It just seems as if tackling the practical issues involved in figuring out who did what, and under what circumstances, is too vast an undertaking for too small a probable return.  So, reluctantly, I think Obama's decision is probably for the best.

But I'm going to think about this some more before I pretend my opinion is set in stone.  In the meantime, feel free to slag away in comments.

UPDATE: The ACLU has all four memos here.

Middle East Update

| Thu Apr. 16, 2009 11:33 AM PDT

M.J. Rosenberg passes along a report from Yedioth Achronoth, Israel's largest circulation daily:

Rahm Emanuel told an (unnamed) Jewish leader; "In the next four years there is going to be a permanent status arrangement between Israel and the Palestinians on the basis of two states for two peoples, and it doesn't matter to us at all who is prime minister."

He also said that the United States will exert pressure to see that deal is put into place. "Any treatment of the Iranian nuclear problem will be contingent upon progress in the negotiations and an Israeli withdrawal from West Bank territory," the paper reports Emanuel as saying.

....So far neither the White House or the Israeli government has commented on the report which, it should be noted, comes from Shimon Shiffer, one of Israel's most highly respected journalists.

Seriously?  Rahm Emanuel said that?  We're going to somehow put in place a two-state solution whether the Israeli government likes it or not?  And to make it happen, we're going to make negotiations on Iran's nukes contingent on Israel playing ball?

That would certainly be a change of policy from the United States, wouldn't it?  But I'll bet it turns out this isn't quite what Emanuel said.  Probably best to hold off on comment until we hear a little more about this.

The Nutcase Right

| Thu Apr. 16, 2009 10:26 AM PDT

Responding to a David Frum column about the recent outbreak of freak-show hysteria among conservatives, Matt Yglesias says:

Now to be fair, during the Bush years more than one person passed me this “14 Characteristics of Fascism” document in order to prove that under George W. Bush the United States had become a fascist regime. Overreaction to policies you don’t like is a pretty understandable human impulse. The difference is that mainstream, prominent outlets usually try to restrain that kind of impulse. But this sort of over-the-top rhetoric isn’t burbling from the grassroots up, it’s being driven the very most prominent figures in conservative media and also by a large number of members of congress.

Never were truer words spoken.  I was never a fan of the whole "Bush is a fascist" line, and over six years of blogging I was able to ignore it almost completely because it never broke out of its niche among the activist left.  You may or may not approve of that, but the simple reality is that aside from occasionally covering lefty protests and marches, mainstream pundits and politicians never took up this theme.  On the contrary, most of them ridiculed it if they ever noticed it at all.

But today's wingers, after Obama has been in office a grand total of 12 weeks, have already decided that we aren't merely on the road to serfdom, we're on the road to confiscation, tyranny, domestic gulags, and jackbooted thugs coming to take their guns away.  This time, though, it's not just fringe nutbaggery.  There's a whole brigade of right-wing pundits and politicians who are not only taking up the theme, but leading the charge.  They've gone completely crackers.

I still can't decide whether this makes the right more dangerous or less.  After all, if they go too far overboard, their crackpotism becomes so apparent that the whole movement becomes a joke.  On the other hand, if they aren't a joke yet, what's it going to take?

Besides, maybe they have a point.  Don't let this get around, but did you know that Barack Obama's Secretary of Defense has taken to quoting Joseph Stalin approvingly?  True story!  Click the link if you don't believe me.  And don't say that Glenn Beck didn't warn us about this.