Relevant and even prescient commentary on news, politics and the economy.

The Point at which I stopped giving Barry O the benefit of the doubt

As quoted by Greg Sargent:

I am fierce advocate for equality for gay and — well, let me start by talking about my own views. I think it is no secret that I am a fierce advocate for equality for gay and lesbian Americans. It is something I have been consistent on and something I intend to continue to be consistent on during my presidency.

As Edith Keeler once noted, “A lie is a very poor way to say ‘hello.'”

The next four years will be an improvement. But, as John Aravosis notes:

Great, then where are the racists, Mr. Obama? We don’t see you embracing too many of them in the name of learning to agree to disagree. Or does your desire to create a new “atmosphere,” and reach out to our enemies, stop when it’s your own people, your own children, you’d be betraying? Funny how you only reach across the aisle when it’s someone else’s family, gay families in particular, getting the shaft.

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GOP Senators! Why do you hate NASCAR?

by Bruce Webb
(h/t to Hilzoy commenter nortzax for the idea)

I mean it is bad enough that failure of the Big 3 means the loss of maybe 3 million jobs. Why are you trying to put Dale Earnhardt Jr. out of a job?

Seriously what would the economic impact be to red states if not only NASCAR but all the other car and truck racing circuits collapsed? NASCAR made a run at getting Washington State to build a track here at taxpayer expense with the claim that the positive economic impact would dwarf the expenditure. (The Leg didn’t bite). But you can’t deny the economic impact of having some hundreds of thousands of fans visiting town for a couple of weekends a year.
NASCAR schedule Sure there are some blue states on the list. But this article claims the impact of the Daytona 500 alone is over $1 BILLION Paddocktalk “Well we stuck it right to the Yankees. Ha Ha! Too bad there won’t be any races at Kentucky Speedway this year. Or ever again.” Somehow I am not sure Mitch McConnell really thought this one through. How much is he really willing to put on the line to have GM workers take a $3/hr paycut a couple of years earlier?

Plus I hear football is kind of popular in both red and blue states. Who is going to pay for all the truck commercials? I suppose that as long as Americans don’t give up drinking beer that televised sports will continue. But the economic impact of the Big 3 goes far beyond parts makers and car dealers. The GOP is playing with dynamite here, the political ads practically write themselves.

UPDATE: Skip Sauer of The Sports Economist was also all over this one on Tuesday, though somewhat cautious:

My sense is that brand loyalty — NASCAR is the marketing king of sport — may be the key factor. It is not uncommon in NASCAR country to see window stickers on a Ford truck that show a punkish-looking boy pissing on the Chevy logo. A strong form of negative brand identity, I submit. If the Ford and Chevy brands are irreparably damaged, will those loyalties transfer to Honda and Toyota?

UPDATE TWO: Must have been something in the air. The NYT weighs in: NASCAR sponsors hit by sticker shock

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A Collective "Aw, Gee" is in order

CNN works hard for its money:

Although ex-presidents in Adams’ day quickly descended into obscurity after their years in the Oval Office, today the transition away from serving as the leader of the free world is high-profile, potentially very lucrative and, above all, a difficult job in itself.

This is especially true for Bush, historians and political observers say. He not only must oversee the construction of a presidential library and begin writing his memoirs, but he also must grapple with salvaging a legacy mired in the lowest presidential approval ratings in history.

Despite the Dolphin Lady’s protestations (op. cit. Digby), “lowest presidential approval ratings in history” isn’t really an Exogenous variable.

At least now we know why he’s moving to Dallas; he’s got a job “oversee[ing] the construction of a presidential library.” Maybe he can hire Michael D. “Heckuva Job” Brown to work with him on this one, too.

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Canadian Content

There are three regular AB posters who currently are residents of the Great White North.

So, naturally, it’s a Brooklyn boy who breaks the news that a plurality is not always a majority:

The Liberals and New Democrats signed an agreement on Monday to form an unprecedented coalition government, with a written pledge of support from the Bloc Québécois, if they are successful in ousting the minority Conservative government in a coming confidence vote.

UPDATE: Apparently, another NYCite (though once and possibly-future Canadian) was on top of this too.

*with Canadian relatives and authors, yes, but still…

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Waiting for the DeLong-Fish Cage Match

While I’m trying to decide whether unmanaged funds are preferrable to mismanaged ones, and wondering whether any discussion of Mark Cuban (I like the picture better than CNN’s) belong here,* the NYT decides to continue its determined destruction of its reputation.

Stanley Fish manages to forget—or, more accurately, ignore, since he mentions it in the first paragraph and then never again—that judging Larry Summers’s ability to be Secretary of the Treasury might be easier by looking at how he did as, say, Secretary of the Treasury, instead of just sliming his time at Harvard,** and then producing this penultimate paragraph:

What has all this to do with Larry Summers as a potential Secretary of the Treasury in the Obama administration? It depends on how much of the job involves what are usually called “people skills,” the skills that bring men and women of diverse views together in a spirit of optimism and co-operation (two words Obama has often invoked). A cabinet secretary must interact with other secretaries, with the White House staff, with the vice president, with congressional committees, with leaders of industry, with the representatives of other sovereign states and with the media.

Gosh. You think maybe Summers can do that?

*Probably not for the specific issue.

**To be clear, since there was some confusion the last time I spoke nicely about Summers, he wouldn’t be my choice for Treasury Secretary. But Jamie Galbraith, while a wonderful person with a good heart, doesn’t seem (from the two times I was in the same space as he at the AEA last year) to be an improvement in the people skills department, and a certain NYT columnist already dislikes him.

Peter Orszag should be a contender, but doesn’t get named so it’s reasonable to assume he’s happy where he is.

Fish’s piece, however, is the People magazine version of Summers’s tenure at Harvard, both in that it obsesses on “personality conflicts” and doesn’t deal with any of the substantive reasons, if any (op cit. David Warsh), for Summers’s dismissal from Harvard.

But, unless you’re going to argue that, because they are later, his five years at Harvard are more related to Treasury than his time at Treasury (which ended when Clinton did) you’re only going to either create sympathy for the man you’re trying to demonize or make yourself look stupid. Whether these are mutually exclusive is left as an exercise to the reader.

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Hey, Big Spender!

by Tom Bozzo

Look who’s into big government now, via TrafficWorld:

“We need to spend an enormous, massive amount of money in rebuilding America’s infrastructure, not only in the short term, but in the long term to underpin the economy once it’s up and growing again,” said R. Bruce Josten, the [U.S. Chamber of Commerce]’s top lobbyist.

Lawmakers are also considering funding other forms of infrastructure projects, an idea that has the support of the Chamber.

The total amount of the stimulus package is still being hammered out, but Josten said a group of economists brought in at Pelosi’s request estimated between $300 billion and $500 billion.

“There is a very strong possibility that even if there is a stimulus in the lame duck [session] it would be followed very quickly in the 111th Congress, under President Obama, with a second stimulus package,” Josten told reporters Thursday.

Funny that this is the same U.S. Chamber of Commerce that intervened heavily in the Minnesota U.S. Senate race to help save the country from the likes of Al Franken.

Officials at the U.S. Chamber of Commerce, fearful of a union-friendly Democratic Senate, have dubbed the race “ground zero” in the effort to stop a 60-seat majority. The chamber and its affiliates have spent more than $3 million on ads designed to scare voters about Franken and Democrats, according to sources on both sides.

While the Chamber was especially keen on keeping enough Republicans in the Senate to forestall passage of the Employee Free Choice Act by filibuster, they also advocated ‘affordable, quality health care’ a la Norm Coleman (stop laughing) and attacked Franken for allegedly wanting to raise taxes to pay for, we can only guess, things like affordable, quality health care and 12-figure infrastructure projects.

I can only imagine that future of the K Street Project will involve a demonstration of lobbyists’ eagerness to kiss ass across the political spectrum.

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Is David Leonhardt pretending Henry Paulson did his job?

Or does he know better?

This year’s election coincided with an important moment in the financial crisis. The credit markets have stabilized in the last few weeks and even improved a bit. But the rest of the economy is deteriorating fairly rapidly. It’s now in danger of falling into a vicious spiral, in which spending cuts by consumers and businesses lead to further layoffs and then more spending cuts.

To prevent that from happening, the Obama administration will need to move quickly — before it takes office — to put together some emergency plans for the financial markets and the broader economy.[italics mine; emphasis his]

So Leonhardt’s first solution is “throw more money.” Or maybe—as with the common taters last night who pretended that the Republicans didn’t control the Presidency and both Houses of Congress for six years—he’s forgotten that this one was tried, with the same kleptocrat at the helm of the Treasury then as there is now, and will be until 20 January 2009.

Leonhardt then admits that Barack Obama knows more about economics than he does:

Throughout the campaign, whenever Mr. Obama was asked about the financial crisis, he liked to turn the conversation back to his long-term plans, by saying that they were meant to solve the very problems that had caused the crisis in the first place. Back in January, he predicted to me that the financial troubles would probably get significantly worse in 2008. They had their roots in middle-class income stagnation, which helped cause an explosion in debt, and the mortgage meltdown was likely to be just the beginning, he said then.[italics mine]

We then get the mealy-mouthed conditional that makes the NYT so Authoritative:

His prognosis was right — and the pundits now demanding that he give up major parts of his economic agenda in response to the financial crisis are, for the most part, wrong.[ibid.]

And, just so we’re clear, Leonhardt isn’t talking about much money:

There is at least one obvious area of potential compromise: Mr. Obama’s call for a $1,000 payroll-tax rebate for almost every family. That would cost the government about $65 billion. But a stimulus package should probably be a lot bigger than that — maybe $200 billion or so. And at this point, drafting it well matters more than passing it immediately.

So consumers might get to borrow $2 to pay themselves for every $7 they give to Hank Paulson’s buddies. But of course these monies will be poorly spent. Not the parenthetic:

That means starting work on new construction projects that government agencies have already deemed worthy but that lack financing. It also means sending money to state governments to close their budget shortfalls, in addition to softening the blow of the downturn by extending jobless benefits (as flawed as the unemployment insurance system is).

Meanwhile, giving AIG that money has been a great investment.

Leonhardt finally gets to a positive:

The two leading candidates for Mr. Obama’s Treasury secretary — Timothy Geithner and Lawrence Summers — seem likely to be more aggressive than Henry Paulson, the current secretary. Mr. Geithner, the president of the Federal Reserve Bank of New York, has at times lobbied for a more proactive approach to the current crisis. He favored direct equity injections into banks, for instance, before Mr. Paulson did.

As early as last December (2007), meanwhile, Mr. Summers criticized policy makers for being “behind the curve.”

“More aggressive” translates to “actually know what they are doing.”

What will this mean? Leonhardt glosses the ending:

Whatever he decides, it probably has to involve more money — which will make the government’s budget problems even worse. Some economists think next year’s deficit could potentially exceed $900 billion. Relative to the size of the economy, that would be the largest deficit since the years just after World War II.

A deficit like that will indeed force Mr. Obama to change his approach to the economy’s long-term problems, mainly by coming up with new ways to pay for his solutions. But that is tomorrow’s problem. Today’s are big enough as it is.

What this means is that apparatchiks like EconomistMom* will be whining about “the deficit” and the evil of “having to pay the increasing costs of social programs.” (If you wonder why we question your motives, look at your list of Senators and Conngresssmen who are determined to “do something about the spectre of future deficits”—a large portion of whom are the same people who pushed through the 2001 and 2003 raping and pillaging of the same people whose benefits you want to cut now. We question your motives because, by your own Revealed Preferences, you’re crooked.)

Leonhardt wants to placate them. Dean Baker, for one, knows that’s not possible, and pushes for a more optimal solution.

*If I were being fair to Diane Rogers (who advertises her Clinton Administration credentials whenever she can, so that we can believe she’s one of The Good Ones even as she shills for Pete Peterson and the entitlements-for-me-but-not-for-thee crowd), I would say she was hired to argue that neo-Hooverism is A Good Thing—but she made that bed and chooses to lie in it, so sympathy is not something I’m inclined to. Others here disagree. You can look it up.

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The BradAltman Effect?

Is gay the New Black? Note this partial list of companies who said No on 8:

Most of the state’s highest-profile political leaders — including both U.S. senators and the mayors of San Francisco, San Diego and Los Angeles — along with the editorial pages of most major newspapers, opposed the measure. PG&E, Apple and other companies contributed money to fight the proposition, and the heads of Silicon Valley companies including Google and Yahoo took out a newspaper ad opposing it.

There is one CA-based company conspicuous by its absence, despite loud declarations of being a gay-friendly place and holding Gay Days in its Florida-based theme park.

Dear Californians, you got f*ck*d by The Mouse.

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Win the Nobel Prize,* they publish you on Sunday instead of Monday

Krugman believes people want someone who is “serious”:

In a way, you can’t blame Mr. McCain for campaigning on trivia—after all, it’s worked in the past. Most notably, President Bush got within hanging-chads-and-butterfly-ballot range of the White House only because much of the news media, rather than focusing on the candidates’ policy proposals, focused on their personas: Mr. Bush was an amiable guy you’d like to have a beer with, Al Gore was a stiff know-it-all, and never mind all that hard stuff about taxes and Social Security. And let’s face it: six weeks ago Mr. McCain’s focus on trivia seemed to be paying off handsomely.

But that was before the prospect of a second Great Depression concentrated the public’s mind….

[T]he Barack Obama voters see now is cool, calm, intellectual and knowledgeable, able to talk coherently about the financial crisis in a way Mr. McCain can’t. And when the world seems to be falling apart, you don’t turn to a guy you’d like to have a beer with, you turn to someone who might actually know how to fix the situation.

UPDATE: Brad DeLong has more on this, with graphics (but without Annoying Videos).

Somewhere, McCain’s uber-handlers are trying to figure out why they didn’t go with Kay Bailey Hutchinson, who would not have been subject to this:

Meanwhile, the video of the night on November 4th should be this one (NSFSanePeople):

*Or its Economics equivalent

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The Original Bailout Bill, or Ms. Smith Goes to Washington*

by Ken Houghton

Prefatory Note: I wrote this several hours ago, but we had enough great posts this morning from Robert, Spencer, cactus, and rdan that I scheduled it instead of posting directly. In the interim, the House approved the second bailout bill, which I am already on record as opposing, for reasons similar to those of YouNotSneaky!:

So after voting “no” before, enough lawmakers might now vote “yes” on the new bailout plan because:

1. Mental health provisions in insurance plans.
2. State and local sales tax deductions.
3. Subsidies to rural counties
4. Relief for victims of natural disasters
5. Business tax breaks
6. Energy subsidies

…[W]hat 1-6 above have in common is that


So, just for the record, I’m not posting this now out of “sour grapes.” Just so that we have a record of why the bailout was a bad idea to begin with.

I was wrong.

There are conditionals I could put around that, but, really, why bother? I read the press releases, and quick-skimmed through the bailout bill itself on Monday, trusted Paul Krugman’s “hold your nose and support it” analysis, and hoped for the best.

I forgot Daniel Davies’s Three Laws. (Well, actually, I didn’t, but I hoped Chris Dodd’s efforts weren’t in vain.) I forgot that the only exception to the “left the Bush Administration with a positive reputation intact” rule was Douglas Holtz-Eakin, (who just waited until he joined the presumptive Next Administration to go into the tank).

But I forgot the fundamental rule of economics: mechanism design has to be done well, or the idea will just be economic theory that “depend[s] on assumptions which no one claims are approximately valid.”**

Let’s review the assumptions under which the bill made at least some form of sense:

  1. There was only going to be $250B taken in the first round, which would (by Paulson’s own description) provide financial until the next Congress was in place and could readdress the issue.
  2. There would be oversight so that the Secretary of the Treasury (Paulson [GS], Gramm [UBS], etc.) couldn’t just reward his friends and punish his enemies.
  3. The bill required equity compensation for overpriced securities. (Not a great deal, but a gain from a poke in the eye with a sharp stick.)
  4. The bill included changes to the compensation model that (let’s be nice) encouraged risk-taking where the bill came due on the next watch.
  5. The compensation changes were also supposed to ensure that the current leadership—the people who drove these companies to the point of insolvency, that is—would not receive the monies and just pay themselves bonuses all out of proportion to performance.
  6. There was never going to be a direct $700B economic gain from the stimulus package. That the proposal came out of Treasury told us that. Some of the monies were going to go to “shoring up” firms that didn’t need it.
  7. Even with that, monies that did get allocated optimally would have a multiplier effect, so you should get more than $700B in stimulus from them alone. (Brad DeLong estimated $500B, but that was based on E(loss) around $100B. Even his worst case—$400B loss—would imply an $875B economic gain even in the event of a $700B government loss. It’s not good budgeting, but it is a stimulus)

That was the bill as presented.

Yves Smith discovered the reality, and, while I’m late to the party, I’ll join the piling-on:

1. The tranching is a mere formality, and the Treasury boys as much as said so. They could take the $700 billion max as soon as the bill has passed,

2. However, they do not plan any action immediately, will wait a couple of weeks. They want to focus their efforts on stronger companies but also made noise about protecting the financial system. This, by the way, is the Japanese convoy system all over.

3. There seemed to be a lot of tap dancing about what price they will pay for assets and no straight answer about their policy on warrants. They did say that if the amount sold was greater than $100 million, they would take warrants. FYI, the current draft allows them to pay up to the price at which the assets were initially booked (yikes) . I wonder if this is obfuscation, if they have an idea of what the plan to do but will not admit it in any public forum.

4. As the person who listened to the call stressed, DealBreaker wasn’t clear on the bifurcated process. If you come to the Treasury and you are in trouble, you get reamed. Bear/AIG style treatment, execs probably fired. But if you participate on a voluntary basis, the intent is to make it very user friendly. That is consistent with Paulson’s position during the negotiations.

5. The exec comp provisions sound like a joke, They DO NOT affect existing contracts, they affect only contracts entered into during the two years of the authority of this program and then affect only golden parachutes. More detail on that point, but I don’t need more detail to get the drift of the gist.

and that reform to executive compensation only exists for the official time of the program:

Market mechanism: if sell over $300M into fund, some exec comp limits
come with it. For 2 years, the firm could not enter into NEW contracts
including golden parachute, for involuntary departure. And lose some

Well, that undermines completely assumptions 1-5 above, leaving us with a poorly-targeted bill that does nothing to address the credit crunch (in a positive way, that is; negative implications discussed below the fold).

Ms. Smith later noted that her readers argue, probably correctly, it will make things worse [numbering added to emphasize sequential nature of events]:

  1. Fed as only lender, in an attempt to keep the financial system from imploding;
  2. TARP needed to keep Fed balance sheet intact so that it can continue as only lender;
  3. Treasury will need to significantly increase the amount of Ts (public money) auctioned to fund TARP;
  4. Panic serves to encourage T. buyers, especially for bills;
  5. This represents a liquidity trap: TARP recipients of Ts will hoard cash to buy Ts: rinse and repeat.
  6. This results in drying up of lending to corporations/crowding out private capital – no new credit lines.

And that has become the groundswell opinion, with which the market appears to agree.

So, even initially, we were left with a stimulus package that won’t save any firms, will support those who don’t need it, may well remove liquidity from the market at a time when it is desperately needed, and where none of the reforms that would ensure that this wouldn’t happen again.

There’s nothing left. Follow the DeLong/Phelps recommendation and nationalize the lot.

*Its not, by the way, that I’m not still sick. It’s that when you can’t tell whether the character on the page is a dot, a carat (^), or a tilde (~), it’s time to take a break. Which has mean reading some blogs that didn’t fit the bandwidth a few days ago, with Firefox set to an increased text size.
**I could pick nits here and note that many of the theories can be considered valid if they are trivial, but is that really an argument for theory?

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