Paul Krugman vents via today's op-ed in The New York Times:
When I first began writing for The Times, I was naïve about many things. But my biggest misconception was this: I actually believed that influential people could be moved by evidence, that they would change their views if events completely refuted their beliefs.
And to be fair, it does happen now and then. I’ve been highly critical of Alan Greenspan over the years (since long before it was fashionable), but give the former Fed chairman credit: he has admitted that he was wrong about the ability of financial markets to police themselves.
But he’s a rare case. Just how rare was demonstrated by what happened last Friday in the House of Representatives, when — with the meltdown caused by a runaway financial system still fresh in our minds, and the mass unemployment that meltdown caused still very much in evidence — every single Republican and 27 Democrats voted against a quite modest effort to rein in Wall Street excesses.
Krugman then goes on to tell a short, rational, fact-based story of U.S. financial history and the events leading up to last year's market crash. Well worth the full read.
Bottom line? In all arenas -- health care and financial reform, national security, education, whatever -- Republican's continue to spout their trademark brand of crazy rhetoric. It's the so-called centrist Democrats that I can't stand. The Republicans will say anything to tear down the Dems and get their party back into power. Simple power play. I get it. They believe in themselves and, collectively, in their party. The centrist Dems, on the other hand, claim to stand by values in line with the Democrats yet believe in nothing but getting themselves reelected, by any means necessary. At best they're mercenaries, at worst nihilists. And while that must be exhausting for them, they're ruining the future for the rest of us.
Yesterday, five Democratic United States Senators Max Baucus (D-Mont), Kent Conrad (D-ND), Blanche Lincoln (D-Ark), Bill Nelson (D-Fla) and Tom Carper (D-Del) voted against the a proposal to put a government administered public option in the health reform bill that will come out of the Senate Finance Committee.
Americans support the notion of a government administered health insurance plan by a margin of 65% to 26%. According to the same poll, people who identify themselves as Democrats favor the public option by a margin of 81% to 12%. That’s nearly 7 to 1 in favor of, yet the representatives of the Democrat party in the Senate Finance Committee only voted for the public option at a ratio of 8 to 5. Perhaps the most interesting number revealed by this poll is that Republican voters favor the public option 47% to 42%.
So why can’t the people’s representatives in Washington get behind the public option? Specifically, why can’t these five Democrats get behind it when 81% of people in their party want the option?
Look at the amount of money the health industry has pumped into these five Democrat’s coffers:
- Max Baucus got $7,734,102,
- Blanche Lincoln received $4,190,592,
- Ken Conrad took in $3,287,891,
- Bill Nelson was given $2,414,895
- Tom Carper accepted $1,592,380 from health industry interests.
If money is the reason these five Democrats rejected the public option, then it only took a little over 19 million dollars over 20 years to buy the five votes the health insurance industry needed to kill any meaningful reform to their industry.
While watching the Hawks/Heat playoff game tonight, I saw a commercial that immediately got my attention with nothing but a voiceover. All I heard was: "This Summer..." and I immediately looked up at the TV. The speaker? None other than The Man himself, the voice of Optimus Prime, Peter Cullen.
The product? Coors Light.
I understand that Mr. Cullen works for a living and needs to earn a paycheck, but can't we all agree to limit his work to things that are tech related... or at least things that are so absolutely fantastic that they're worthy of his voice. He's Optimus Prime, and for those who grew up with the old cartoon, he always will be Optimus Prime.
Adult Swim, the home for cutting-edge animation? Perfect. Coors Light? Not so much.
From 2001-2008, the Department of Justice was transformed from a respectable, reasonably-run segment of the executive that operated to prosecute violations of the law into a partisan frat house on the Monday after a weekend-long party. Drunk with power, philosophically opposed to the rule of law, or simply used as a political tool, the DOJ under W followed the fundamental belief that if you are in charge and you win, then justice has been done. Though blind, Justice could still act improperly and at odds with political goals. Better to cover her, lest other goals be compromised. Regardless of the means, the ends were all that mattered.
Of course, winning is not the same as doing justice. As part of his campaign for President, Obama, an excellent lawyer in his own right, promised major changes to the DOJ. Once elected, our new President started at the top, installing an Attorney General who understands the import of the rule of law and of justice as central to the DOJ's mission.
As one of his first major acts, AG Holder shockingly decided not to contest the appeal of Ted Stevens. Formerly the Republican Senator from Alaska, Stevens had been convicted for corruption under W.
Now you might be saying to yourself "How could this have been a partisan play by W's cronies?" or "Why would the Republicans go after one of their own?" A number of reasons...
- Stevens had run into trouble with the press for pushing for pork projects such as the "bridge to nowhere."
- One of the oldest Senators, he seemed behind the times and out of touch, once famously calling the Internet a "series of tubes."
- Between 1 and 2, he was giving the party a bad name and hurting the party's image. As such, Senator Stevens had made himself expendable.
- With Gov. Palin running for Vice President as an anti-corruption, anti-establishment candidate, it helped her story to say that she got rid of corruption in her state. Who better for her to take down than Alaska's own long-serving, powerful state Senator?
- Ted Stevens represented a highly conservative constituancy. Even were he to be run out of town, it was likely that a different Republican would take his spot. In fact, even though he was facing these corruption charges during his campaign, Stevens was only narrowly defeated by his Democrat opponent.
So if the prosecution of Stevens was a partisan play by Republicans, then shouldn't Holder's decision to drop the case also be seen as partisan?
That argument might have some weight, had Holder not clearly stated his reasons for dropping the charges.
The federal judge presiding over the Stevens decision "said he had never seen such mishandling of a case by prosecutors. He took the extraordinary step of opening an investigation into whether the Justice Department attorneys broke the law by withholding evidence, and he encouraged Holder to increase training for new and experienced prosecutors."
In response, Holder said the following:
There are things that we have to take into account given what has happened recently, with regard to training, with regard to resources, and I expect that we'll have some announcements to make to you all in the not too distant future. . . .
I always want to ensure that the Justice Department acts in a way that is consistent with the long tradition of this great department — that we treat people fairly, that if we make mistakes we admit them and that we then take the appropriate action.
In other words, there's a new Sheriff in town.
What's more, Holder isn't stopping at spouting rhetoric to the press. A friend and federal Public Defender, passed on this quote today:
Your job as assistant US attorneys is not to convict people. Your job is not to win cases. Your job is to do justice. Your job is in every case, every decision that you make, to do the right thing. Anybody who asks you to do something other than that is to be ignored. Any policy that is at tension with that is to be questioned and brought to my attention. And I mean that.
-- Eric Holder, Attorney General of the United States
Notice that Holder wasn't talking to those who work directly for him, or to those in charge of big cases. He was talking to assistant US attorneys. He was talking to the foot soldiers of the department, the grunts, the younger attorneys who might have worked exclusively under the prior administration, the DOJ attorneys most in need of retraining.
And, with that statement, the pursuit of justice and respect for the rule of law returned to their proper places as guiding principles of the DOJ.
Branko Milanovic, lead research economist at the World Bank, argues in The Crisis of Maldistribution that the real driver behind the collapse of the international economic systems is the over-accumulation of wealth in the few which arose as part of the vast inequality in income between the very wealthy and everyone else over the last two or three decades prior to the financial collapse. The super-rich, having no place to invest their money began "throwing money at anyone who would take it" without understanding the risks.
The current financial crisis is generally blamed on feckless bankers, financial deregulation, crony capitalism, and the like. While all of these elements may be true, this purely financial explanation of the crisis overlooks its fundamental reasons. They lie in the real sector, and more exactly in the distribution of income across individuals and social classes. Deregulation, by helping irresponsible behavior, just exacerbated the crisis; it did not create it.
The numbers Milanovic cites -- all before the collapse -- are staggering.
To go to the origins of the crisis, one needs to go to rising income inequality within practically all countries in the world over the last 25 years.
- In the United States, the top 1% of the population doubled its share in national income from around 8 percent in the mid-1970s to almost 16 percent in the early 2000s. (Piketty and Saez, 2006). That replicated the situation that existed just prior to the crash of 1929, when the top 1% share reached its previous high watermark.
- In the UK, the top 1% receives 10% of total income, a share greater than at any point since World War II (Atkinson, 2003, Figure 3).
- In China, inequality, measured by the Gini coefficient (the most common measure of inequality), almost doubled between 1980 and 2005. The top 1% of the population is estimated to garner around 9% of national income.
- Even more egregious were developments in Russia, where the combined total wealth of thirty-three Russian billionaires listed on the Forbes list in 2006 was $180 billion as against total country’s GDP of about $1,000 billion that same year (Guriev and Rachinsky, 2008).
Milanovic then points to a couple of the most egregious anecdotes.
Just before his downfall, the richest oligarch, Michael Khodorovsky had an estimated income equal to average Russia-wide incomes of 250,000 people. (The same number for Bill Gates and the United States in 2005 was 75,000.) Think of it. With his income alone, that is without touching a penny of his wealth, Khodorovsky could create (if need be) an army of quarter million people. No wonder the Kremlin took notice, and Khodorovsky ended up in jail. . . .
Similarly, in Mexico, Carlos Slim’s wealth, prior to the crisis, was estimated at more than $53 billion. Assume a conservative return of 7% on his assets, and that gives an annual income of $3.7 billion with which, given Mexican GDP per capita in the same year, Slim could command even more labor than Khodorovsky: 440,000 people. These are only a few examples. But they were replicated, albeit on a smaller scale, in practically all countries of the world.
Interesting theory. Read on for more...
Does listening to pundits discuss he financial crisis make your head spin, leaving you both angry and confused? Do you know that something in the discussion is just not right... in an Orwellian sense? Do you feel like you're watching the aftermath of the largest theft in the history of the world?
If so, you're not alone... and you're right to feel this way.
In the early nineties, a pair of economists classified the behavior that led to this debacle, described the environment that would make such behavior likely, and suggested that it would happen again as the natural result of that environment.
Sixteen years ago, two economists published a research paper with a delightfully simple title: “Looting.”
The economists were George Akerlof, who would later win a Nobel Prize, and Paul Romer, the renowned expert on economic growth. In the paper, they argued that . . . investors had borrowed huge amounts of money, made big profits when times were good and then left the government holding the bag for their eventual (and predictable) losses.
In a word, the investors looted. Someone trying to make an honest profit, Professors Akerlof and Romer said, would have operated in a completely different manner. The investors displayed a “total disregard for even the most basic principles of lending,” failing to verify standard information about their borrowers or, in some cases, even to ask for that information.
The investors “acted as if future losses were somebody else’s problem,” the economists wrote. “They were right.”
[Emphasis added.] Sound familiar?
On certain low-documentation loan programs, such as stated income/stated asset (SISA) loans, income and assets are simply stated on the loan application. On other loan programs, such as no income/no asset (NINA) loans, no income and assets are given on the loan application form. These loan programs open the door for unethical behavior by unscrupulous borrowers and lenders.These loan programs are designed for borrowers who have a hard time producing income and asset verifying documents, such as prior tax returns, or who have untraditional sources of income, such as tips, or a personal business. These loans are called liar loans because the SISA or NINA features open the door for abuse when borrowers or their mortgage brokers or loan officers overstate income and/or assets in order to qualify the borrower for a larger mortgage.
For more on how these loans were abused by lenders, see this Washington Post article from 2007. (And if you have more time, devote an hour to listen to "The Giant Pool of Money," a fantastic report by This American Life.)
So what about the idea that a lot of smart people just made innocent mistakes, or that this is a systemic problem that no one could have predicted? Looting is not just an error in judgment, but knowing, self-interested behavior.
The term that’s used to describe this general problem, of course, is moral hazard. When people are protected from the consequences of risky behavior, they behave in a pretty risky fashion. Bankers can make long-shot investments, knowing that they will keep the profits if they succeed, while the taxpayers will cover the losses.
[The distinction between moral hazard and looting is an important one.]
With moral hazard, bankers are making real wagers. If those wagers pay off, the government has no role in the transaction. With looting, the government’s involvement is crucial to the whole enterprise.
Knowing that their financial institutions were too big too fail, bankers made choices that were only rational in an environment where personal gains were all that mattered, and where a government bailout was seen as inevitable. The government was the escape route, the getaway driver... and the thieves got away scot free.
We should be angry. We've been robbed.
C and I have a running dialogue regarding the terrible behavior of everyone involved in MLB's steroids scandal -- owners, players, press, agents (I know, redundant) -- everyone.
These guys are liars and cheats. They've made millions while ticket prices have skyrocketed and municipalities have raised taxes to pay for new ballparks, and even though they've been caught red-handed, all but a couple have refused to admit any wrongdoing. Who'd have thought that only Jose Canseco would be honest and forthright with the public? Disgusting.
Yet it's not a problem that is limited to baseball. Just look at the real estate industry over the last decade. Or at Wall Street. Or at how W and company sold the invasion of Iraq and then defended his decision. Or at how Republicans in Congress spent money they didn't have while they were in power, but now that they're out of power claim that spending is always morally wrong and bad for America. Changing the story, being disingenuous, refusing to take the blame -- all persist and are symptoms of a deeper social problem, a disease that is causing our society to rot from leaf to root.
I guess baseball truly is America's sport.
As always, The Sports Guy kills it in his most recent mailbag...
We always talk about the tangible effects of the Steroids Era (it screwed up the numbers historically, compromised the competitiveness of the games and tainted some of the nicer memories we had as fans from 1990 to 2007), but the underrated effect was the realization that some of our greatest players were scumbags. Should we have realized this after the Pete Rose scandal? Yeah, probably. But look at some of the greats from the past 50 years. Rose lives in Vegas and spends his days betting on horse racing. Barry Bonds seemed like a truly awful person even before he let his buddy rot in jail for him. Clemens was willing to sell everyone out, even his wife and friends, to try to keep his name clean. Mark McGwire doesn't have the decency to admit that he cheated. Neither does Sammy Sosa or Raffy Palmeiro. A-Rod lied in 2008 on national TV, then lied about the lie. There are 103 names from that 2003 random drug-test list still out there, only none have the balls to come out and say, "You know what? I'm probably on there and I'm ashamed of what I did." And when you think about how many All-Stars cheated over the past two decades -- is the number 70 percent? 75 percent? 80 percent? -- the unwillingness of the commissioner's office and the player's union to apologize publicly or admit any culpability whatsoever is really staggering. Why is Bud Selig still the commissioner? THIS HAPPENED ON HIS WATCH! Why is Gene Orza still running the players' union? THIS HAPPENED ON HIS WATCH! Everyone's collective "apology" this winter seemed to be, "Let's move on, it's spring training, the World Baseball Classic will be fun, fantasy baseball is starting up ... no use crying over spilled milk."
Ask yourself this: Do you feel like the players, union leaders, owners and executives even feel bad about what happened? Because I don't feel like they do. And it makes me kind of hate baseball. I will still follow it, and I will still love the Red Sox, and I will still do the League of Dorks ... but at the same time, when the sport flounders because of the economy this summer, part of me will be thinking, "What goes around comes around."
Nobel-laureate Paul Krugman is "perturbed by the state of debate over fiscal stimulus. ... This has not been one of the profession’s finest hours."
There are certainly legitimate arguments against spending-based fiscal stimulus. You can worry about the burden of debt; you can argue that the government will spend money so badly that the jobs created are not worth having; and I’m sure there are other arguments worth taking seriously.
What’s been disturbing, however, is the parade of first-rate economists making totally non-serious arguments against fiscal expansion.
Everyone he lists in his post is politically conservative, to which he says...
That’s their right: economists are citizens too. But it’s hard to avoid the conclusion that all of them have decided on political grounds that they don’t want a spending-based fiscal stimulus — and that these political considerations have led them to drop their usual quality-control standards when it comes to economic analysis.
Think back to the time between 9/11 and the Mission Accomplished press conference, when anyone who disagreed with President Bush was deemed, at best, a partisan opponent and, at worst, a traitor. Reasoned, honest debate was squashed as disingenuous political maneuvering.
Those were challenging, uncertain times, but the scale of that threat is dwarfed into absurdity by the systemic economic collapse continuing around us today.
When met with a crisis, we look to detached, objective experts to provide leadership and to create a path to safety. Economists who, thanks to their past, excellent work, have emerged as experts and leaders are brought front and center under the spotlight of societal need.
To revel in the spotlight and masquerade political plays as reasoned opinion is an abuse of trust and tarnishes the reputation of these experts. While the personal harm may be great, even worse is the harm to society. Krugman left the gloves on for that post, but should the posturing continue, I hope he ignores restraint and unleashes fury.
I expect that Obama and his team will have the confidence and security to cut to the truth. The real question is how will Congress respond? The last, Democratically-led Congress was weak. Hopefully now the leadership will be hitting their stride and will similarly be able to work for the public good. If, instead, politics trumps objectivity, we're all in trouble.
[Image by Warren Noronha, used under a Creative Commons license.]
60 Minutes tonight delivered a tremendous report on a complicated issue.
The bottom line: strong circumstantial evidence exists showing that bankers and investors -- yes, the same guys that we're bailing out -- were using post-deregulation loopholes in the remaining system of regulations to cause a spike in prices. $4/gallon gas, says the report, wasn't caused by demand in China or collusion from OPEC, but by Wall Street.
In 2000, Enron pushed for and were given a degregulated futures market by President Bush and his Republican-controlled Congress. At the same time, Enron was causing brownouts in California and jacking up prices for energy there, too. Enron soon crashed, but the traders who worked there landed on their feet. Wall Street saw a chance to profit, so scooped up these traders to work for them. Now companies like AIG and the former Lehman Bros. own large supplies of oil and natural gas. Unreal. From the report...
"Who was responsible for deregulating the oil future market?" Kroft asked Michael Greenberger.
"You'd have to say Enron," he replied. "This was something they desperately wanted, and they got."
Greenberger, who wanted more regulation while he was at the Commodity Futures Trading Commission, not less, says it all happened when Enron was the seventh largest corporation in the United States. "This was when Enron was riding high. And what Enron wanted, Enron got."
Asked why they wanted a deregulated market in oil futures, Greenberger said, "Because they wanted to establish their own little energy futures exchange through computerized trading. They knew that if they could get this trading engine established without the controls that had been placed on speculators, they would have the ability to drive the price of energy products in any way they wanted to take it."
"When Enron failed, we learned that Enron, and its conspirators who used their trading engine, were able to drive the price of electricity up, some say, by as much as 300 percent on the West Coast," he added.
"Is the same thing going on right now in the oil business?" Kroft asked.
"Every Enron trader, who knew how to do these manipulations, became the most valuable employee on Wall Street," Greenberger said.
But some of them may now be looking for work. The oil bubble began to deflate early last fall when Congress threatened new regulations and federal agencies announced they were beginning major investigations. It finally popped with the bankruptcy of Lehman Brothers and the near collapse of AIG, who were both heavily invested in the oil markets. With hedge funds and investment houses facing margin calls, the speculators headed for the exits.
"From July 15th until the end of November, roughly $70 billion came out of commodities futures from these index funds," Masters explained. "In fact, gasoline demand went down by roughly five percent over that same period of time. Yet the price of crude oil dropped more than $100 a barrel. It dropped 75 percent."
Asked how he explains that, Masters said, "By looking at investors, that's the only way you can explain it."