Finishing My Coffee

Let Reason Guide Financial Reform

A centrist Democrat after extensive poll research and discussion with lobbyists.

A centrist Democrat after extensive poll research and discussion with lobbyists.

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.


Avatar: Revolutionary Cinema?

Navi, the CGI-stars of Avatar.

Navi, the CGI-stars of Avatar.

It's rare that we're treated to a big-budget, big talent film that provides a new way of sharing information, telling a story, or looking at the world.

Citizen Kane took us through windows, cut back-and-forth through time, used impossible angles, and shared the comic-book panel-gestalt with high-brow film critics and the wider, movie-going general public (or, as Michael Chabon suggests, vice versa). Star Wars removed sci-fi films from B-movie status and lit the imaginations of kids the world over. Pulp Fiction and Memento (among others) played with time as Picasso played with visual angles, and The Matrix brought anime's influence to U.S. live-action, melding time-worn effects with new technological advances and a cutting-edge story to give voice to the Internet generation's worldview, dreams and fears.

While Eric Cartman would argue that Cameron stole his story, according to the early reviews James Cameron's Avatar should be, at the very least, a visual spectacle. Through a mix of CGI and live action, most of the movie's setting is computer-generated, as are the main characters for large chunks of the film. Some segments take advantage of new 3-D technology and are so well done that Ridley Scott is rumored to have scrapped some work he'd already completed on Forever War to switch to 3-D as well.

Most telling of all is Roger Ebert's review, edited here so as to remove spoilers:

Watching "Avatar," I felt sort of the same as when I saw "Star Wars" in 1977. That was another movie I walked into with uncertain expectations. James Cameron's film has been the subject of relentlessly dubious advance buzz, just as his "Titanic" was. Once again, he has silenced the doubters by simply delivering an extraordinary film. There is still at least one man in Hollywood who knows how to spend $250 million, or was it $300 million, wisely.

"Avatar" is not simply a sensational entertainment, although it is that. It's a technical breakthrough. . . It is predestined to launch a cult. It contains such visual detailing that it would reward repeating viewings. It invents a new language, Na'vi, as "Lord of the Rings" did, although mercifully I doubt this one can be spoken by humans, even teenage humans. It creates new movie stars. It is an Event, one of those films you feel you must see to keep up with the conversation. . . .

I've complained that many recent films abandon story telling in their third acts and go for wall-to-wall action. Cameron essentially does that here, but has invested well in establishing his characters so that it matters what they do in battle and how they do it. There are issues at stake greater than simply which side wins.

Cameron promised he'd unveil the next generation of 3-D in "Avatar." I'm a notorious skeptic about this process, a needless distraction from the perfect realism of movies in 2-D. Cameron's iteration is the best I've seen -- and more importantly, one of the most carefully-employed. The film never uses 3-D simply because it has it, and doesn't promiscuously violate the fourth wall. He also seems quite aware of 3-D's weakness for dimming the picture, and even with a film set largely in interiors and a rain forest, there's sufficient light. I saw the film in 3-D on a good screen at the AMC River East and was impressed. I might be awesome in True IMAX. Good luck in getting a ticket before February.

It takes a hell of a lot of nerve for a man to stand up at the Oscarcast and proclaim himself King of the World. James Cameron just got re-elected.

At the very least, it'll be better than Titanic. Happy holidays, indeed.


Feature v. Perceived Value-addition

My television has a feature I hadn’t seen before on a television before I bought it: Bluetooth. The television has a Bluetooth receiver, and you can send it photos and display them on the screen. That’s it. Anybody who has used Bluetooth for anything more than hands-free will understand why this is ridiculous. Not only is it absurd to view photos by sending them one-by-one to a television over a medium that has throughput that barely rivals 1990’s ISDN lines, but it’s even more ridiculous once you realize the TV has no storage. The picture is gone when you don’t want to look at it anymore.

This is a feature? No: this is perceived value-addition. For people who don’t know any better, this seems like a wonderful solution. But a solution to what? I know I didn’t have the problem that I wanted to look at crappy-quality photos from my phone’s camera on my television’s non-persistent screen.



Where Bobbleheads Are Born

It’s been 10 years since the first major league baseball bobblehead doll giveaway (SF Giants: Willie Mays) and the gimmick still packs fans into the stadium. The design process for most bobbleheads begins at Bensussen Deutsch & Associates in Woodinville, WA. A detailed sketch is sent to the Chinese manufacturer who ships back a hand-carved and painted proof. A few revisions later a little baseball player with an oversized nodding head is ready for manufacturing and then bobblehead day at a stadium near you.


$1 Million Per Year To Kill The Public Option

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.


Teabaggers Love Government Aid After Flood

As you may have seen in the newspapers, radio and the intertubes, much of the state of Georgia is underwater.  People have lost their homes, cars and other precious things (like children and loved ones, but I know those are not quite as important to you folks…). But foolishly, they are looking to the Government for help. Starting with our Governor Sonny ‘rugged individualist’ Perdue, they are now calling on the Government to help. That’s where we need you John Galts and teabaggers who really, really want the Government out of all our lives.
Daily Kos: Calling All John Galts in Georgia


New Rule For Hollywood

Autobots. Roll out!

Autobots... roll out!

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.


Winning vs. Justice

Our foundation, the rule of law.

Our foundation, the rule of law.

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...

  1. Stevens had run into trouble with the press for pushing for pork projects such as the "bridge to nowhere."
  2. One of the oldest Senators, he seemed behind the times and out of touch, once famously calling the Internet a "series of tubes."
  3. 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.
  4. 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?
  5. 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.


One-Percenters And The System's Collapse

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...


On Looting

Now that we own their sponsor, U.S. taxpayers should get a free Man U jersey with income tax payment. Or we should be able to have Rooney punch a banker. Either way.

Now that we own their sponsor, U.S. taxpayers should get a free Man U jersey with income tax payment. Or we should be able to have Rooney punch a banker. Either way.

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.