Kevin Drum

The Battle for the Soul of Conservatism

| Sat May 30, 2009 12:28 PM EDT

The nomination of Sonia Sotomayor to the Supreme Court raises a question: Who will win the battle for the conservative soul?  In the red corner, we have the insane wingnuts:

Newt Gingrich: "White man racist nominee would be forced to withdraw. Latina woman racist should also withdraw."  Rush Limbaugh: "How can a party get behind such a candidate? That's what would be asked if somebody were foolish enough to nominate David Duke or pick somebody even less offensive." Tom Tancredo: "She’s a member! She’s a member of La Raza!" Matthew J. Franck: "Is she still, and how much of La Raza's politics does she make her own?" Michael Goldfarb: "Does anyone dispute that Sotomayor has been the recipient of preferential treatment for most of her life?"  Bill Bennett: "Did she get into Princeton on affirmative action, one wonders." G. Gordon Liddy: "Let's hope that the key conferences aren't when she's menstruating or something, or just before she's going to menstruate."

And in the other red corner, we have an improbable band of rebels trying to urge conservatives to act like grownups:

Peggy Noonan: "Newt Gingrich twitters that Judge Sotomayor is a racist. Does anyone believe that? He should rest his dancing thumbs, stop trying to position himself as the choice and voice of the base in 2012, and think." Jon Cornyn: "This is not the kind of tone that any of us want to set when it comes to performing our constitutional responsibilities of advise and consent." Julian Sanchez: "What we’re seeing here [] is people clinging to the belief that Sotomayor has to be some mediocrity who struck the ethnic jackpot, that whatever benefit she got from affirmative action must be vastly more significant than her own qualities, that she’s got to be a harpy boiling with hatred for whitey, however overwhelming the evidence against all these propositions is.  This is really profoundly ugly." Michael Steele: "I know that a lot of folks want to do the knee jerk you know let's start slammin' and rammin', but I think we really need to take a step back from this." Charles Krauthammer: "What should a principled conservative do?....Nothing ad hominem. The argument should be elevated, respectful and entirely about judicial philosophy."

Who will win?  I guess we won't know until Sarah Palin weighs in, will we?

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Friday Cat Blogging - 29 May 2009

| Fri May 29, 2009 3:09 PM EDT

I don't know how well it shows up in the photo, but when they write the definition of "smug" in the next edition of Webster's, they're going to use this picture of Inkblot.  He was so pleased with himself he could hardly stand it.  On the right, we have an action shot of Domino darting out from behind the quilts to protect the house from an invasion of cat toys.

And here's our latest experiment in feline pyschology.  Last weekend Marian brought home a blue blanket and tossed it down in the entryway.  Inkblot made an immediate beeline for it and claimed it as his new favorite thing.  The next day we put the blanket up on the couch.  He wouldn't go near it.  We put it on the carpet.  Ditto.  We put it on the carpet right next to the sofa, and he not only wouldn't go near it, he actually circled way around it as if it were going to bite him.  So then, out of curiosity, I picked it up and put it back on the hardwood floor in the entryway.  He made an immediate beeline for it and curled right up.  Now what the hell is going on with that?

Yet More on Tough Talk

| Fri May 29, 2009 2:51 PM EDT

Hillary Clinton says the Israeli settlements in the West Bank need to stop.  No outposts, no "natural growth," no nothing.  But even if that's the line coming from the Obama administration, surely Bibi Netanyahu can count on congressional pressure to show Obama who's really boss?  Right?

According to many observers in Washington and Israel, the Israeli prime minister, looking for loopholes and hidden agreements that have often existed in the past with Washington, has been flummoxed by an unusually united line that has come not just from Obama White House and the secretary of state, but also from pro-Israel congressmen and women who have come through Israel for meetings with him over Memorial Day recess. To Netanyahu's dismay, Obama doesn't appear to have a hidden policy. It is what he said it was.

....Whereas in the past Israeli leaders have sometimes eased pressure from Washington on the settlements issue by going to members of Congress, this time, observers in Washington and Israel say, key pro-Israel allies in Congress have been largely reinforcing the Obama team's message to Netanyahu. What changed? "Members of Congress have more willing to follow the leadership of the administration ... because [they] believe it is in our national security interest to move toward ending the conflict and that it is not a zero sum for Israel," the former senior Clinton administration official said.

That's Laura Rozen over at Foreign Policy. Congress has always been a key part of Israel's ability to fight off pressure from American presidents.  If that's changing, it's a big deal.

The White Man's Burden

| Fri May 29, 2009 1:34 PM EDT

Michelle Cottle is a racist, sexist hatemonger:

Not to state the obvious, but an upper-middle class white guy reared in the suburbs is shaped by his experiences, carries certain assumptions, and views the world through a particular prism as much as a working-glass Puerto Rican gal from Queens, or, for that matter, the half-black son of a single mom raised in Hawaii. The person belonging to the cultural/ethnic/religious/gender/racial demographic that has traditionally dominated a field (and thus whose perspective has long been the default) may not have given as much thought to his prism as a member of a non-dominant group. But that does not make his prism a neutral one. It simply allows him to more freely indulge his delusions of pure rationality and objectivity.

This is ridiculous.  It's just a coincidence that opposition to affirmative action comes almost exclusively from white men.  Nothing to do with background at all.  Right, Rush?

Risk

| Fri May 29, 2009 12:55 PM EDT

Economist Gary Gorton has written a 20,000 word paper on the subject of "informationally-insensitive debt" — i.e., ultra-safe investments like federally insured bank deposits.  Ezra Klein boils this down to a thousand words.  I boldly push the boundaries even further:

The morons who inhabit Wall Street thought they had removed all risk from inherently risky investments.  They were wrong.

There!  Twenty words.  That's a compression ratio even greater than Ezra's.  Felix Salmon comments:

Gorton's solution to this problem is to involve the government in all manner of regulation — and insurance — of the securitization market, thereby making [asset back commerical paper] behave much like federally-insured bank deposits. I don't like this solution at all, since it would send the contingent liabilities of the government into the stratosphere, and more importantly would ratify the demand for informationally-insensitive assets by creating trillions of dollars of new ones.

In my view of the crisis, it's precisely the demand for informationally-insensitive assets which is the problem. And we need to get individuals, companies, and institutional investors out of the mindset that they can do an elegant little two-step around the inescapable fact that anybody with money to invest perforce must take a certain amount of risk. If you have a world where people are all looking for risk-free assets, you end up shunting all that risk into the tails. And the way to reduce tail risk is to get everybody to accept a small amount of risk on an everyday basis. We don't need more informationally-insensitive assets, we need less of them.

I agree.  There's a common view that investors in the period up until 2006 were practically drunk on risk, pricing it nearly at zero — but now, after the crash, they've become more risk averse than your grandmother.  They're almost completely unwilling to accept any risk at any price.

I think this view is fundamentally wrong.  What really happened is that in the early part of the decade investors became convinced that they could avoid risk entirely via financial engineering.  They were, in fact, immensely risk averse, but this wasn't obvious because they were buying up every security in sight.  The post-crash flight to quality, it turns out, wasn't really a flight at all.  Modern investors have been afraid of risk all along.

So Felix is right.  The last thing we need is for the government to perpetuate the delusion that financial markets are risk free.  For small retail bank depositors, that's fine.  For the big boys it's not.  They need to relearn the art of genuinely analyzing risk and taking it on knowingly, rather than pretending they can hedge it away under all circumstances.  After all, accurate analysis of risk is essential to the efficient allocation of capital, and efficient allocation of capital is one of the keys to economic growth.  It's time for Wall Street to get back to basics.

Quote of the Day

| Fri May 29, 2009 12:19 PM EDT

From Will Wilkinson, who'd like to see a libertarian nominated to the Supreme Court but knows perfectly well that Barack Obama is a liberal who will nominate liberals to the Supreme Court:

So I was hoping for a relatively centrist liberal who sees some merit in libertarian arguments, especially about the protection of economic rights. As far as I can tell, there is nothing especially worrying about Sotomayor. She’s obviously super-qualified. And from what I’ve read, she seems like a highly competent, fairly moderate liberal who sticks pretty close to the law (which nobody really likes when they don’t like the law!) and is perfectly willing to side with Republican-appointed judges when that seems to her the right thing to do. What are people going batshit crazy over? I don’t get it. And I really don’t get why many Republicans have taken this opportunity to reinforce the already widespread impression that they are morally odious morons. God, I hate politics.

I feel your pain, Will.  The craziness is coming so thick and fast that I can't even keep up with it.  It makes my brain hurt.

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Europe and Guantanamo

| Fri May 29, 2009 11:29 AM EDT

Getting European countries to accept resettlement of Guantanamo prisoners was always going to be a hard sell, but the Washington Post reports that it's recently gotten even harder:

Rising opposition in the U.S. Congress to allowing Guantanamo prisoners on American soil has not gone over well in Europe. Officials from countries that previously indicated they were willing to accept inmates now say it may be politically impossible for them to do so if the United States does not reciprocate.

"If the U.S. refuses to take these people, why should we?" said Thomas Silberhorn, a member of the German Parliament from Bavaria, where the White House wants to relocate nine Chinese Uighur prisoners. "If all 50 states in America say, 'Sorry, we can't take them,' this is not very convincing."

....More trouble emerged when Washington stipulated that the Uighurs would be barred from traveling to the United States.

"If the U.S. says they should come here, but they cannot travel to the U.S., we would have to ask why not?" said a German Interior Ministry official, speaking on the condition of anonymity because of the sensitivity of the negotiations. "Does that mean they are dangerous?"

Good question!  When the time came to actually accept Guantanamo detainees, European countries were always bound to run into more trouble with domestic politics than they anticipated.  But with the American talk radio contingent making it virtually impossible for the U.S. to accept even a small number of the safest detainees ourselves, it's now inevitable that Europeans are going to back off.  You'd have to be politically suicidal to resettle prisoners that the United States has all but tattooed "terrorist."

So now what happens to them? Stay tuned.

Regulating Derivatives

| Fri May 29, 2009 1:41 AM EDT

The Wall Street Journal reports that big banks aren't happy with the Obama administration's plans to make trading of credit derivatives more transparent by putting them on a public exchange:

Wall Street banks with large derivative-trading businesses have been outwardly supportive of greater regulatory oversight of the $684 trillion market. But behind the scenes, there has been hand-wringing over the details of certain proposals and discussions about how the industry can help shape the rules.

Potentially billions of dollars in revenue is at stake. An effort earlier this decade to improve transparency in the corporate-bond market ended up cutting bank fees by more than $1 billion in a year, according to some studies.

....For credit-default swaps, information about intraday trades and prices has long been controlled by a handful of large banks that handle most trades and earn bigger profits from every transaction they facilitate if prices aren't easily accessible.

For example, credit-default swaps tied to bonds of companies such as General Electric Capital and Goldman Sachs typically have a pricing gap of 0.1 percentage point between the bid and offer price. That translates into a $40,000 margin for every $10 million in debt insured for five years. Greater price transparency could narrow that gap, lowering costs for buyers and sellers but reducing fees for banks.

That's a sad story, isn't it?  When you make trades public, suddenly banks find that they can't rob their clients blind anymore.  Break out your violins, boys and girls.

Paying for College - Part 2

| Fri May 29, 2009 12:28 AM EDT

A few days ago I linked to a Robert Reich post in which he suggested that the skyrocketing cost of student loans was forcing too many grads to take high-paying private sector jobs instead of lower-paying but more socially beneficial positions.  As a solution, he recommended limiting loan repayments to 10% of income for ten years, and I sort of agreed.

Well, that hasn't happened yet, but this morning Mike Kruger of the House Committee on Education and Labor emailed to tell me about some of the provisions of the recently passed College Cost Reduction and Access Act:

The biggest thing is the Income-Based Repayment Program that will cap a monthly payments based on income.

Under the income-based repayment program, such borrowers will never have to spend more than 15% of their discretionary income — an amount based on federal poverty guidelines — on student loan payments. Those whose income falls below 150% of the poverty level won't be required to make any payments.

Here's how it could work: Suppose a student has the average $22,000 in student loans, and gets a job making $25,000/year. Assuming the loans have a fixed interest rate of 5.6%, the monthly payment under the income-based repayment program would be $110, vs. $240 under a standard 10-year repayment plan. Obviously, when the student’s income rises in the future, so will the payments.

For some students, the reduced payments won't cover the interest on their loans. For those with subsidized Stafford loans — which are provided to students who demonstrate economic hardship — the government will pay the interest for the first three years of the program.

For unsubsidized loans, the interest will be added to the balance, so a student could come out of the program with a larger loan balance. However, any amount owed after 25 years of qualifying payments will be forgiven. This is significant, because in the past, it was nearly impossible for borrowers to get out from under their student loan debts.

Now, this isn't what Reich was proposing.  You still have to pay back the full amount of the loan eventually (or make payments for 25 years, whichever comes first) regardless of your income.  But it's sort of a nudge in the right direction, so I thought I'd pass it along.

Nice Try, Terry

| Thu May 28, 2009 6:39 PM EDT

From the Washington Post:

Consumer activist Ralph Nader accused Terry McAuliffe Thursday of orchestrating an effort to remove him from the presidential ballot in 2004 when McAuliffe was chairman of the Democratic National Committee.

Nader said that McAuliffe offered him an unspecified amount of money to campaign in 31 states if Nader would agree to pull his campaign in 19 battleground states.

I sort of hope this is true.  I've never been a big McAuliffe fan before, but this would certainly raise my opinion of him.