Kevin Drum

The VAT in the Hat

| Tue Jun. 16, 2009 1:48 PM EDT

The New York Times reports that House Democrats are considering a value added tax as a way of financing healthcare reform. A VAT is one of those things that economists and think tankers all love, but it's also one of those things that's never had any real chance of being adopted in the United States.  So it surprised me that Dems were even seriously talking about it.

But Tyler Cowen has a take on this that I hadn't thought of:

From my distant perch out here in Fairfax (and Arlington), I believe this means health care reform is falling apart.  It means the unions won't let them tax health insurance benefits and the CBO won't let them punt on the issue of finance.

Hmmm. That sounds unduly pessimistic.  But given the fact that congressional approval of a VAT is vanishingly unlikely without years of preparing the ground first, the fact that it's being discussed suggests that pretty much all the likely sources of revenue have already been ruled out.  That's not a heartening thought.

The reference in the Times was made almost in passing, and maybe it doesn't mean anything.  I certainly wouldn't make too big a deal out of it at this point.  But I figure it's worth a brief mention as a possible canary in the coal mine.

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The GOP vs. the Troops

| Tue Jun. 16, 2009 1:09 PM EDT

Via Matt Yglesias, I see that the GOP has decided that supporting the troops is so last week:

House Republicans are preparing to vote en bloc against the $106 billion war-spending bill, a position once unthinkable for the party that characterized the money as support for the troops.

....Republicans say this year is different. Democrats have included a $5 billion increase for the International Monetary Fund (IMF) to help aid nations affected by the global financial crisis. Republicans say that is reason enough to vote against the entire $106 billion spending bill and are certain voters will understand.

“Once the American people learn that the Democrats are using a war-funding bill for a global bailout, they’ll know what to do,” House Republican Conference Chairman Mike Pence (Ind.) told The Hill. “We’ll take the message to the floor and to the American people, and I expect we’ll win this fight.”

Hypocrisy is overrated as a vice, but this is still pretty stunning.  I mean, they're doing this over $5 billion in net IMF contributions to help out with the global financial meltdown?  Seriously?  That's about .1% of the federal budget, and one of these days it might help prevent a collapse that spreads across the ocean and sends Wall Street into yet another tailspin.  That's what Republicans are going to the mat for these days?  Crikey.

Responding to Iran

| Tue Jun. 16, 2009 12:44 PM EDT

Jonah Goldberg on Obama's response to the mass protests in Iran:

Reportedly, you are biding your time, waiting to see what happens, as if it is a great mystery. Your campaign lived and breathed YouTube. Check it now, check it often. You and your team promised "soft power" and "smart power." Well, let's see some of that. Because by not clearly picking a side, it appears you have chosen the wrong side.

Do you fear antagonizing the powers-that-be in Iran? That ship has sailed. Though I am sure they're grateful for your eagerness not to roil the seas around them. Is it because you think "leader of the free world" is just another of those Cold War relics best mothballed in favor of a more cosmopolitan and universal awe at your own story?

"Enough about those people bleeding in the street. What do you think of me?" Is that how it is to be?

Obama really drives conservatives to the loony bin, doesn't he?  I mean, the story here is pretty simple: if the Great Satan forcefully intervenes on Mousavi's side, it gives the clerics just the excuse they need to brand him a foreign stooge and really crack down.  Goldberg can't possibly not know this, can he?  Obama, so far, is doing exactly the right thing: deploring the violence but otherwise staying in the background until and unless Mousavi and the protesters themselves ask for more.  He's doing his best not to make it about him, but about them.

Yet More on Charter Schools

| Tue Jun. 16, 2009 12:11 PM EDT

A new Stanford University study on charter schools was released yesterday.  The LA Times summarizes:

The study of charter schools in 15 states and the District of Columbia found that, nationally, only 17% of charter schools do better academically than their traditional counterparts, and more than a third "deliver learning results that are significantly worse than their student[s] would have realized had they remained in traditional public schools."

That's accurate as far as it goes.  The overall results showed charter schools nationwide delivering slightly poorer results than public schools.  However, there were a couple of significant caveats in the report itself:

Charter students in elementary and middle school grades have significantly higher rates of learning than their peers in traditional public schools, but students in charter high schools and charter multi‐level schools have significantly worse results.

....Students do better in charter schools over time. First year charter students on average experience a decline in learning, which may reflect a combination of mobility effects and the experience of a charter school in its early years. Second and third years in charter schools see a significant reversal to positive gains.

The pair of charts below shows the size of the effect: compared to public schools, charters are moderately better in elementary and middle schools but fall off a cliff in high school.  Likewise, kids tend to do a lot worse in their first year in a charter school — possibly the result of adjusting to a new environment — but are doing considerably better by their third year.

Overall, then, the results are mixed.  And once again we see that the biggest problems are in high school.  Improving test performance in elementary school appears to be quite doable, but the effects usually wash out by the time kids are 17.  It's unclear how to fix this.

However, if the Stanford report is correct, at least it provides a strategy for confused parents: put your kids in a good charter school in first grade so they get past the first year jitters early and then get seven years of higher performance than they'd get in public schools.  Then, after eighth grade, switch them to a public high school, where they'll get higher performance than they would in a charter school.  It's as good a plan as any.

The full report, including state-by-state results, is here.  Note that the methodology employed by the study isn't perfect, but appears to be pretty good.  Their results are probably worth paying attention to.

The Fiery Judge

| Mon Jun. 15, 2009 7:38 PM EDT

Does Sonia Sotomayor have a temperament problem?  Ann Friedman directs us to an NPR piece by Nina Totenberg today:

Judge Guido Calabresi, former Yale Law School dean and Sotomayor's mentor, now says that when Sotomayor first joined the Court of Appeals, he began hearing rumors that she was overly aggressive, and he started keeping track, comparing the substance and tone of her questions with those of his male colleagues and his own questions.

"And I must say I found no difference at all. So I concluded that all that was going on was that there were some male lawyers who couldn't stand being questioned toughly by a woman," Calabresi says. "It was sexism in its most obvious form."

And what if such criticism came from a woman lawyer? Well, says Calabresi, women can be just as sexist as men in their expectations of how a woman judge should act.

NPR played a couple of snippets of Sotomayor in its piece so listeners could judge for themselves.  Ann did: "Listening to the clips, Sotomayor sounds an awful lot like John Roberts — who did not face any concerns about his 'fiery temperament' during his confirmation hearings. Totenberg exposes this talking point for what it is: straight-up sexism, with some racism mixed in for good measure."

The Resurrection of Hillary

| Mon Jun. 15, 2009 4:02 PM EDT

Peter Keating says that in the foreign policy sphere, there's only one ruler of the roost in the Obama administration: Hillary Clinton.

On the inside, Clinton has steadily accumulated power while expending hardly any political capital....She has divided the position of Deputy Secretary of State into two jobs: supersmart Jim Steinberg, who was deputy national security adviser under Bill Clinton but supported Obama in 2008, is her policy maven, while Jack Lew is her management chief. Lew helped Hillary secure a 10 percent increase in the State Department’s budget from Obama while Tim Geithner was still figuring out how to turn the lights on in his office.

....Meanwhile, nobody else has developed an alternative foreign-policy power center within the administration. Obama likes Biden, but the vice-president is no match for Hillary in mano-a-mano bureaucratic combat. For example, Clinton favored sending 21,000 more troops to Afghanistan, while Biden opposed the move. The result: “She crushed him,” according to Republican Mark Kirk of Ilinois. At the same time, National Security Adviser Jim Jones has been an utter cipher; when Time’s Mark Halperin graded the Obama administration, he gave Hillary an A- (“significant, powerful, worldly, respected”), but had to give Jones an “incomplete.” And Obama’s presidential envoys, such as Richard Holbrooke in Afghanistan and Dennis Ross in Iran, are mostly old Clinton hands who aren’t about to usurp any authority from Hillary.

Read the rest.  He makes a persuasive case.

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The Twitter Revolution

| Mon Jun. 15, 2009 3:43 PM EDT

One of Andrew Sullivan's readers writes:

Ahmadinejad's and Khamenei's websites were taken down yesterday — I saw the latter go down within a couple of minutes because of a DDOS attack organised via Twitter. @StopAhmadi is a good source for tweets on this. The other important use of Twitter has been distribution of proxy addresses via Twitter. This would be how most video and pictures of today's rally have gotten out.

Andrew comments: "I have to say my skepticism about this new medium has now disappeared. Without it, one wonders if all this could have happened."

It's true that however things turn out in Iran, this will probably be forever known as the Twitter Revolution.  And yet, I want to dissent a bit.

I followed the events of the weekend via three basic sources.  The first was cable news, and as everyone in the world has pointed out, it sucked.  Most TV news outlets have no foreign bureaus anymore; they didn't know what was going on; and they were too busy producing their usual weekend inanity to care.  Grade: F.

The second was Twitter, mostly as aggregated by various blogs.  This had the opposite problem: there was just too much of it; it was nearly impossible to know who to trust; and the overwhelming surge of intensely local and intensely personal views made it far too easy to get caught up in events and see things happening that just weren't there.  It was better than cable news, but not exactly the future of news gathering.  Grade: B-.

The third was the small number of traditional news outlets that do still have foreign bureaus and real expertise.  The New York Times.  The BBC.  Al Jazeera.  A few others.  The twitterers were a part of the story that they reported, but they also added real background, real reporting, and real context to everything.  Grade: B+.  Given the extremely difficult reporting circumstances, maybe more like an A-.

Twitter has been a great tool for the Iranian protesters — and for us.  Marc Ambinder rounds up the evidence here.  But protests have happened before without either Twitter or the internet.  And if we westerners had to rely on only a single news source to tell us what what going on, I'd still choose the dwindling band of serious outlets that provide real reporting from dangerous (and expensive) places.  Cable news may not have covered itself with glory this weekend, but there are still a few precincts of the MSM that did.

Eating Their Own Dog Food

| Mon Jun. 15, 2009 2:16 PM EDT

Speaking of bank regulation, here's point #2 (out of five) previewing the administration's plans for regulatory reform from today's Washington Post op-ed by Tim Geithner and Larry Summers:

Second, the structure of the financial system has shifted, with dramatic growth in financial activity outside the traditional banking system, such as in the market for asset-backed securities. In theory, securitization should serve to reduce credit risk by spreading it more widely. But by breaking the direct link between borrowers and lenders, securitization led to an erosion of lending standards, resulting in a market failure that fed the housing boom and deepened the housing bust.

The administration's plan will impose robust reporting requirements on the issuers of asset-backed securities; reduce investors' and regulators' reliance on credit-rating agencies; and, perhaps most significant, require the originator, sponsor or broker of a securitization to retain a financial interest in its performance.

Italics mine.  As far as the mortgage market goes, it strikes me that this plan has two potential targets.  The first is the actual originator of the mortgage.  Lots and lots of crappy mortgages got written because the originators didn't really care how good they were.  They were just going to sell them off within 30 days anyway, so what did it matter if the borrowers were going to default two years from now?  Requiring these folks to keep a piece of their mortgage business on their own books might indeed be helpful, but it doesn't sound like this is the target Geithner and Summers have in mind.  (Technically, I'm also not quite sure how you'd make this work.  But leave that aside for now.)

The second target, and the one that G&S do seem to be talking about, isn't the orginator of the mortgage, but the bank that buys up all the mortgages and originates the mortgage-backed security.  They want these guys to be forced to keep a piece of the security on their own books instead of selling the entire thing to third parties.  The idea is that if they have to eat their own dog food, that should make them a little more careful about quality control.

But the devil is really in the details here, and there are at least two big problems.  First, most MBS originators did keep pieces of their own securities on their books.  It didn't do any good because they were deluded about the quality of the stuff they kept.  Second, even if banks are required to keep pieces of their own MBS that they otherwise wouldn't, what's to stop them from hedging away the risk?  You can't really forbid a bank from buying hedging instruments, and the rocket scientists (once they've dusted themselves off and come out from under their desks, which shouldn't take more than a year or two) will have no trouble creating a blizzard of derivatives that appear to take all the risk out of the snippets of MBS that banks are required to hold onto.  And once they've done that, you're just a tiny jump away from the glory days of 2005.

This, of course, is the basic problem with all regulatory reform: whether or not it works is enormously dependent on minuscule details written into 1000-pages legislative tomes.  Obama's team has apparently already decided that they need to take a pretty cautious approach to this, and once it gets through the congressional sausage factory we'll be lucky if anything serious is left at all.  This is, needless to say, a process that deserves a ton of attention from a watchful public, but how likely is that?  After all, I hear that Jon and Kate might be splitting up.

Watching the Watchmen

| Mon Jun. 15, 2009 1:31 PM EDT

Via Felix Salmon, John Gapper complains in the Financial Times today that the Obama administration is backing down on regulatory consolidation:

All this is an interesting contrast to the consolidation of regulation by the UK government when it created the Financial Services Authority in 2000 and swept a bunch of self-regulatory organisations and the banking supervision arm of the Bank of England into a single financial regulator.

True, this did not help the UK to regulate large banks any better than the US, given the scale of the financial crisis. On the other hand, fragmentation of regulation caused its own particular difficulties in the US, with financial institutions picking and choosing among regulators.

The US administration has clearly decided that it simply cannot get any large-scale consolidation of regulation through Congress, given the vested interests involved. But that makes its response to the financial crisis seem more like a whimper than a bang.

Britain is not the United States, but there are enough similarities in our financial sectors to make comparisons instructive.  And the bottom line here, as Gapper admits, is that Britain had consolidated regulation, we had fragmented regulation, and it made no difference at all in the outcome.  If anything, in fact, Britain was harder hit than we were.

I'm not opposed to consolidation, but honestly, if you have the same rules and the same kind of people enforcing the rules, and the only thing that changes is the reporting structure — well, that just doesn't change much.  What's needed isn't consolidation per se, but a structure that's politically more likely to point out credit bubbles when they're happening and more likely to have the credibility to make people listen to them when they issue their dire warnings.  There's no special reason why a consolidated regulatory structure would be better at that than what we have now.  In fact, by hiding disagreement within the bowels of a huge bureaucracy, it might even be worse.

(That said, forum shopping among regulators eager to offer lax enforcement in return for increased business does need to be stopped.  But that can be accomplished with a much narrower set of reforms.  You don't have to consolidate everything into one super-regulator to put a halt to this.)

Gapper's concluding paragraph, however, is discouraging.  We should all wait to see the final proposals before passing judgment, but it seems pretty likely that he's right.  Even now, the financial industry pretty much owns Congress, and the likelihood that they'll allow financial reform to go too far seems slim.  Kinda makes you wonder just what they'd have to do to lose their grip on power.

Iran's Opposition

| Mon Jun. 15, 2009 12:34 PM EDT

So what's going to happen in Iran?  I myself have no idea, but Near East expert Wayne White tells David Corn that the jig might already be up:

In the face of harsh repression like this, there may only be one real option for the opposition to effect meaningful short-term change: get rough or stand down; confront a coup with a popular countercoup, or wait and hope for better days. I know it is vastly easier for me to sit back here in the States and comment that either the opposition organizes mass street action in which it is willing to inflict and take substantial casualties or it almost inevitably fails in its clearest near-term objective, but that probably is, I fear, the bottom line in this particular instance.

....I was watching the iPod bit last night in which, what, less than a dozen police on motorcycles with nothing more than batons took on a dense crowd of a thousand or more at close quarters.  Instead of largely heading for the hills, such a crowd could easily have closed in behind the police and taken them all down, not just one.  The tipping point in many of these situations is when the police become either as fearful as the demonstrators, more so, or even grow thoroughly sickened by the violence they have been ordered to carry out.  That crucial moment is far less likely to come if demonstrators stand down or shrink back in the face of the mere threat of violence.

On the other hand, upwards of half a million Mousavi supporter marched silently through Tehran on Monday.  It's not over yet.