PeP Links

Colin Powell may endorse Obama on Sunday.

Warren Buffett says "buy, buy" and repeats his mantra: "Be fearful when others are greedy, and be greedy when others are fearful." The one thing about the meltdown is this is something of a windfall for us younger folks, assuming everything doesn't go to complete hell.

Bill Poole, former Fed Chief of the St. Louis Fed, believes the Treasury is exceeding its authority with the new capital infusion project.

James Surowiecki, he of the "Wisdom of the Crowds", has a new blog: "The Balance Sheet".

PeP Links

Brad DeLong has an illuminating column on how the policy responses to the financial meltdown have evolved.

An online betting firm (based in Ireland) has declared the election over and started paying out to those who bet on an Obama victory.

Southwest has just posted its first quarterly loss ever.  File this one under sign of the times.

This article discusses the uproar over an abortion ship.  This reminds me of a bit by Chris Rock involving Pro-Choice rallies and young lads, but this is a family blog, so I will let you fill in the rest.

Greg Mankiw Readers: Welcome

Thanks for dropping by. Since you are probably coming here off a link to a health care post, I took the liberty to provide some links to my prior posts on health care (rest assured, they are all consistently mediocre):

1. The Things Campaigns Do to You (this was probably the piece that got you here in the first place)

2. Here I Moan about the Inadequacy of Democratic Health Care Plans

3. This one isn't so much about health care but my visceral disdain for John Edwards (but I think it comes off as more cerebral than visceral, but trust me, my disdain is visceral first and foremost)

4. This post is on Signapore's health care system (important note, I don't contribute a single unique thought in this post, but you should read it anyhow)

5. In this post I tepidly bite the hand that feeds me more traffic than I typically generate on my own accord.

More on Krugman

Here is an essay on Krugman by Krugman on his career.  The bits on his Washington experience are very interesting.

The National Review Needs to Cease Publication

Chris Buckley has resigned from the National Review.  He was one of the few good writers remaining at the National Review.  Now he is gone.  Outside of Ramesh Ponnuru and Yuval Levin there isn't a single writer at NR that won't make you instantly stupider for having read their work.

A New Era (hopefully not a new depression)

The US is now a Sovereign Wealth Fund with nukes.

More Krugman

Here is an essay by him on how he approaches work/his career.

Paul Krugman Wins the Nobel

I can't wait to see what the reaction is over at the corner (National Review) and Powerline. I am sure they are ginning up conspiracy theories as we speak.

Politics Decoupled from Policy: Howard Stern Edition

Check out this bit from Stern.

Good News: Morbid Version

"On a separate note, one good thing is that there haven’t been any reports of people on Wall Street jumping out of windows. That’s because the windows in modern office buildings don’t open."

- Paul Krugman

Interesting Paragraph

This is from Arnold Kling:

"1. An FDIC document on the risk weights of different bank assets. The higher the weight, the more capital the bank has to hold against that asset. As I read table 1 and table 3, if you originate a loan with a down payment of 20 to 40 percent, the risk weight is 35. But if you buy a AA-rated security, the risk weight is only 20. So if a junk mortgage originator can pool loans with down payments of less than 5 percent, carve them into tranches, and get a rating agency to rate some of the tranches as AA or higher, it can make those more attractive to a bank than originating a relatively safe loan. If you want to know why securitization dominated the mortgage market, this explains it. Regulatory arbitrage, pure and simple."

Franken Leading

It looks like sixty is within reach.

Higher Education Forum

Cato Unbound is having a forum on higher education.  Charles Murray is writing the lead essay and his basic view is that too many, not too few people are going to college.  Many people are tempermentally or intelllectually ill suited to a traditional 4 year college.  A system of national certifications (such as a CPA, CFA, etc.) should be built up to substitute or supplant the signaling function of a BA.  I highly encourage you to read Bryan Caplan's essay (GMU professor, econlog blogger, and author of the Myth of the Rational Voter).  Here's an interesting outline of his on the signalling.

Questions for the Candidates

Here's a good one from Joe Stiglitz:

"More than a million people have lost their homes in the past two years. A million more are expected to lose their homes in the next 12 months or so. Do you support a more direct program of relief for homeowners? The government pays more of the mortgage costs of rich homeowners, through larger tax deductions, than of poorer homeowners. What would you do to correct this injustice?"

In my fantasy world the answer would be to phase out the mortgage interest deduction.  The benefits skew highly towards the rich, encourage people to buy houses that they otherwise could not afford, or buy more house than is necessary which negatively impacts the environment.  However, I don't see this occuring in the immediate future.  I do think in a couple years, if we weather the present storm, tax reform will undoubtedly be on Congress's mind.  A partial phase out of the interest deduction with an unreasonably high cap that is not indexed to inflation ($500k) might be saleable.

Here's Glenn Hubbard:

"The existing capital standards for financial companies helped create the illusion that risky assets were “safe.” A reformed system could mandate more capital, to support incremental risk-taking, during a boom and lower such capital requirements in a bust. By changing capital cushions over credit cycles, banks would be less likely to be forced into asset fire sales. Would you support such a change?"

Arnold Kling has been advocating capital forbearance as a possible solution to the credit crunch, and I like Hubbard's twist on making it counter-cyclical.

A Distressed Sovereign

Russia might bailout Iceland.  Wild times indeed.

Palin Debate Flow Chart

hat tip: Ezra Klein

The Roots

I went to see the Roots at the Rams Head Live! in Baltimore last night. Massively disappointed. I had seen them live 3 times previously, though the last time was five years ago. Anyhow, they used to be an incredible live act. Anyhow, this time they blew. Literally, they subbed out the beatbox guy for a fucking Tuba player. Don't get me wrong, they immensely talented. But they no longer had the same energy that they once did. They have become a brand not a band. They beatbox guy wasn't touring with them, they ditched their old bassist. The Roots is basically now just Questlove and Blackthought. While they were always the driving force of the Roots, the bassist, beatbox, and keyboardist all fueled the fire. That chemistry is gone. However, the Gymclass Heroes and Estelle opened for the Roots and both acts were brilliant. They alone were worth the money.

The Juice is Going to Jail

OJ has been convicted. The great thing is that this gives me a fresh impetus to make OJ Simpson jokes at work. I work for the government and it is fairly diverse. Even so, the Simpson trial is one of those things that reveals a really interesting dynamic. When I make OJ jokes, my African-American coworkers have a two-fold reaction, they give me shit for "not being right" and at the same time look to get pissed off at any of my white coworkers who laugh. My white co-workers simultaneously find the joke funny, get nervous as shit at the prospect of their African-American coworkers getting pissed at them for believing OJ was guilty. I don't know why this amuses me but it just does.

Bailout Passed

House passed it today.  My guess is this will simply be the first installment on a series of massive industrywide bailouts of the financial industry over the next year.

Wachovia not Going to Citigroup

Apparently Wells Fargo is buying Wachovia now.

My TakeAway From the Debate

I didn't watch the whole thing. Objectively you would have to say Biden destroyed Palin.  However, she came into the debate with such low expectations that even if she were merely atrocious, which she was, as opposed to the ongoing train wreck that we have been witnessing that you would have to deem her performance a success. 

Biden managed to escape any big foot in mouth moments.  When he started choking up when speaking about the safety of his son in the military, which seemed genuine, it was quite endearing. He was very effective in his foreign policy discussions.  

Ifill sucked as a moderator.  There were a couple of follow ups that she plainly blew.  Most glaring among them was the gay marriage question.  She asked Joe Biden a simple yes/no question about gay marriage and his response was a good one, though probably not what most liberals would like to hear.  He said that we should give gay couples the same civil rights that accompany a heterosexual marriage, but that whether it is called marriage is really a matter left to one's faith.  I agree with this formulation and would go one step further and that there should be no such thing as state sanctioned marriage but rather there are civil unions and a civil uinon can take place between two consenting unrelated adults.  Anyhow, Ifill then asked Palin if she agreed with what Biden said. She stated that Joe Biden opposes gay marriage and so does she so they agree.  An obvious followup would be to ask if she believed, like Joe Biden, that gay couples should be accorded the same civil rights as heterosexual couples.  But Ifill didn't make that followup, weak sauce indeed.

Oh, and another great moment from the debate, Ifill asked of both candidates if they agreed with Cheney's view that the Office of the Vice President was a hybrid office that was neither executive nor legislative, fish nor fowl.  Anyhow, Palin agreed!!  Biden did an amazing job in not laughing, or being condescending in his response. 

The other thing, Palin blinked into the camera a number of times.  That was just ridiculously hot. I repeat, Sarah Palin is a stone cold fox.  I want her to stay on the national stage as long as possible, just not as our vice president.

The Debate

Palin is atrocious but she is doing vastly better than I thought she would.

More Thoughts on Palin

Palin has been a monumental train wreck.  My initial reactions to her nomination (found here) were positive because I viewed the election as a throwaway for Republicans and at least this gave an up and coming politician a chance on the national stage that she would probably not have had otherwise (being from Alaska and all).  Anyhow, she has failed miserably on the national stage and I am sure tonight's performance will merely serve cement her status as monumental disaster.  The one upshot is that she seems to have revived SNL.  Tina Fey's impression is brilliant and levity is certainly valuable in times of crisis.

Sarah Palin, the Perfecting of Bush

Here is James Fallows take on the Veep debates:

"Joe Biden will be judged on whether he gets anything wrong; Palin, on whether she gets anything right."

The Republican Party is officially the know nothing party.

Great Article on McCain from the Rolling Stone

This is a must read.  Here's a snippet:

"In its broad strokes, McCain's life story is oddly similar to that of the current occupant of the White House. John Sidney McCain III and George Walker Bush both represent the third generation of American dynasties. Both were born into positions of privilege against which they rebelled into mediocrity. Both developed an uncanny social intelligence that allowed them to skate by with a minimum of mental exertion. Both struggled with booze and loutish behavior. At each step, with the aid of their fathers' powerful friends, both failed upward. And both shed their skins as Episcopalian members of the Washington elite to build political careers as self-styled, ranch-inhabiting Westerners who pray to Jesus in their wives' evangelical churches.

In one vital respect, however, the comparison is deeply unfair to the current president: George W. Bush was a much better pilot."

Medicare to Stop Paying for Errors

This is one of those things that would seem to be an Onion headline but it's not.  Until recently, Medicare and for that matter private insurance pays for medical care even when it's botched.  

I love this part especially:

“Historically, there’s been some acceptance that these things happen,” said Brock D. Nelson, the hospital’s president. “We’ve come to now accept that they’re avoidable. And that’s a sea change.

Some improvements have been technological, like an electronic prescribing system that has helped cut medication errors in half. Others are breathtaking in their obviousness, like diligent hand-washing."

Gwen Ifill

Apparently Gwen Ifill has a book due out on inaugauration on what the Obama presidency means for America and failed to disclose this to the election commission.  This is clearly a conflict of interest and demonstrates an egregious lack of professionalism.  I understand why conservatives will want to pull the bias card out but really this works in Palin's favor.  Ifill, having screwed up will feel forced to put on the kid gloves with Palin.  Frankly, Palin couldn't have a better situation.  Even so, I expect a complete and total train wreck.

Senate Passes Bailout

They put in a bunch of goodies to get it through. It's going to be interesting to see what happens in the house. I think it will ultimately be passed. I have real misgivings about the bill, though, it seems like a majority of people who have an expertise in finance and economics favor passage of the bill. So maybe it is a not so awful thing.

It's Back

It looks like the bailout is back.

Fat is Good

Here is an interview with the Author of Fat, a sorta popular science health/recipe book.  I will probably read it some point and will report back later.  The book is centered on the basic point that animal fat is basically good for you and really tasty.

Thoughts on Paulson

Matt Yglesias has a great post on how Paulson has bungled the bailout among other things.  His basic argument is that the sensible thing for Paulson to have done was quietly go around congress and try to gin up support for a plan before announcing his bailout as opposed to pulling a plan out of his rear and then yelling from the rooftops that all hell would break loose if the plan was not adopted. 

Next Step

Apparently Senator Dodd is proposing expanding the FDIC's authority to deal with insolvent banks.  This is actually something they do quite well so this is an encouraging step.  

hat tip: Marginal Revolution

Retail Banking Sector

The Finance sector has consolidated significantly.  Now with Wachovia being bought by Citigroup (though it appears that Citigroup is going to fold their retail banking business under Wachovia) there are only a handful of players.  JPMorganChase (which has eaten up Bank One and WaMu), Bank of America (Countrywide, though it was basically a thrift without much of a deposit base), Citgroup, and Wells Fargo.  Nat City is surely going to fail and maybe Fifth Third as well.  WalMart has been flirting with the idea of opening up a commercial banking practice for years but has been stymied.  I wonder if regulators will be more receptive to WalMart's entrance into the industry now that there are so few players.

Badass

Light Sabers for the Wii.  I am very pro-Wii conceptually, but anti-Wii in practice.  I prefer games like Grand Theft Auto, actually, that is the only game I like.  But honest to goodness light sabers might be enough to bring me around.

Bailout Failed

I still don't understand why traditional stimulus tools haven't been discussed.   There are roads and bridges to be fixed, mass transit to be built, and local governments to be bailed out.  In the meantime we can pass another stimulus package along the lines of the one passed last year.  I think the goal should be to pump enough money in the economy to soften the blow the contraction of the financial industry, a contraction that should occur.

No to The Bailout

"Any liquidity crisis is caused by the promise of a government bailout. Ken said that his many friends in investment banking said that there is plenty of money to invest in financial services, but right now it is "sitting on the sidelines." Why? Because the financial services industry does not want to pay the terms required to get that money back in circulation (e.g., give up equity). As he put it, why do business with Warren Buffett who will negotiate a tough deal, if you believe that the government will ride in soon with cheaper cash?

Ken also talked about the need to shrink the financial services sector. He thinks it is good that the investment banking houses are failing and many people on Wall Street are losing their jobs because, in his view, we have an oversupply in that sector and our economy just can't support it.

Ken's background with the IMF and on the Board of the Federal Reserve add a certain credibility to his assessment of conditions on Wall Street. If he is right, the $700 bailout is saving some investment bankers' jobs in the short term, but overall it is just making the financial system worse."

Are Fannie and Freddie to Blame

No, but nor are they blameless.  

Another One Bites the Dust

WaMu is gone.  

Bailout Plan Breaks Down

At least I hope this is true.

Mighty McCain

John McCain has just demonstrated the power of preemption.  What a feat!  McCain suspended his campaign to get back to d.c. to take on the task of saving financial markets (of course with a detour to NYC over to the Clinton Global Initiative so that Bill Clinton could himself be a post-partisan figure/exceedingly ungracious loser).  And whaddya know, the mere threat of McCain's participation has compelled Republicans and Democrats, House and Senate to iron out their differences and finalize bailout legislation. I suppose he can attend that debate after all.  Here is the key graf:

"Democrats were hoping to reach a final agreement on the framework of a bill ahead of that meeting, partly to deny any credit to Mr. McCain, who took the bold step on Wednesday of suspending his campaign and announcing that he would return to Washington to help secure a deal. Democrats said they did not need his help."

That's real power right there.

hat tip: Felix Salmon

Android: iPhone Killer?

Probably not but it is a welcome development for consumer electronics geeks anyhow.  T-Mobile is launching the first Android based phone, the G1, in October.  Android is an open source, linux based operating system and it has been launched by Google. Anyhow, I have demonstrated total incompetence in forecasting consumer trends (see Smart Car, T-Mobile Wifi extender), so I won't venture to do so here.  

A Bailout For Everyone

The big three and their suppliers are getting $25 billion in subsidized loans from the taxpayer.  I don't get why keeping the big three in business is so vital. If one of them goes out of business, Toyota, Hyundai or Nissan will simply open up more plants in the South and build more cars (better cars at lower prices).  In the meantime, the surviving "American" auto companies might try to do things a little differently.  

The New New York

Here is Felix Salmon on what New York will look like now that it is deleveraging.  It sounds like more naughty shops, the met stays, less bottle service at clubs.  Not necessarily a bad trade-off.

Peter Orzag on the Bailout

Here's the money quote:

"However, institutions that gave up equity would presumably expect to receive higher prices for their assets, and an equity stake in the firms might not offer any better upside to taxpayers than direct purchases of the assets on a risk-adjusted basis. Furthermore, healthy institutions might be deterred from participating, which could make it more likely that the federal government would overpay for assets by limiting the potential number of sellers—and the potential dilution for existing shareholders if asset prices declined in the future might make it challenging for financial institutions that issued such equity to the government to raise private capital in the future."

Go read the whole thing.

A Better Alternative

Here is an idea posted by Tyler Cowen:

"True just sending money is not incentive compatible. But there is no reason to bail out homeowners. Just intervene in any mortgage default. Seize the property and continue making the mortgage payments. In the short run rent the property back to the homeowner.
This is what I have been advocating to my colleagues. I don't know why it is not under discussion. Before going with the arbitrary implememtation that Paulson is proposing now there should be some convincing argument that it's more efficient than this alternative. It is clearly the most direct approach and therefore should be the default (so to speak.)"

Here is another post along the same lines from Cowen.

McCain Suspends Campaign

McCain is suspending his campaign ostensibly so he can roll up his sleeves and help solve the credit crisis.  Given that any legislation will be coming from the Senate Finance committee, of which McCain is not a member, this seems daft.

Health and Taxes

One of the obnoxious things about employer provided health care is that if you don't take it you don't get anything in return.  I carry my family's health insurance.  Thus, my wife is not enrolled in her employer's plan.  Does the employer cash out the value of her premium? No.  The only savings are realized in the form of her not having to make the employee contribution to the premium.  That's lame.

More on the Bailout

Read this post by Mark Kleiman.  He essentially breaks down the argument over pricing the assets between Brad DeLong and Paul Krugman.

VP Debates

Word is that the VP debates will be tightly structured and moderated, ostensibly to benefit Sarah Palin.  I agree with Mickey Kaus' take that this is a mistake on the McCain camp's part.  Biden's fatal flaw has always been his mouth.  Give him enough rope and he'll hang himself.   However, when given limited time and a more rigid structure Biden is actually pretty effective, as evidenced in the primary debates. 

George Will on McCain

George Will has never been a McCain fan but in this column he comes just short of endorsing Obama and stating that McCain is unfit for office.

Stop The Presses

Barack Obama has conceded that in light of recent events his spending plans would have to be curtailed.  A dose of reality in a presidential campaign.  What a concept.

I Wish This Were on Ebay

Pieces of the Berlin wall are being auctioned off.  I would totally buy one.  They would be great for my patio.

More Thoughts on the Bailout

I am still having difficulty wrapping my head around the mechanics of the bailout. It will be a reverse auction, thus, instead of having multiple buyers and one seller there will be multiple sellers and one buyer.  My first reaction was that it would be impossible to establish a "fair-market" value for the assets because they are too heterogeneous.  A lot of concern right now centers around the fed overpaying for toxic assets, essentially being gamed.  However, if you have many sellers and you are taking the lowest price it seems that the pricing could skew in the other direction.  Consider the following scenario: Healthy Bank inc. (didn't involve itself much in the subprime frenzy, pays a fat dividend, and as a result is currently doing well relative to other financial firms), Marginal Bank Corp. (they have a significant amount of toxic assets and are under captialized but not grossly so; given a moderate capital infusion they should be able to weather the storm), Slimy Brothers Investments (they are neck deep in toxic shit).   It would seem in such a scenario Slimy Brothers Investments has the greatest incentive to offload their assets onto the Fed, however, they also need a generous price to stay afloat.  Whereas Marginal Bank Corp. and especially Healthy Bank inc. can afford to price their assets at a bargain basement value just to get them off their books.

Mark Cuban's Thoughts on the Meltdown

You can basically boil Cuban's diagnosis of the meltdown to the following phrase "Risk and Reward have been decoupled."  Anyways, check it out, he has a lot of interesting things to say.

New World/New Media

Felix Salmon has a very interesting point about the defense of the Paulson plan and what that means for media relations folks moving forward.  It used to be, and in practice still is, that when the administration (any not just this one) needed to sell a policy it hit up the Sunday morning talk shows and other t.v. venues.  This is definitely effective for reaching a segment of the population but there is a clear generational divide, and for the younger generation this simply doesn't work.  I am guessing that those 10 years older and younger than me are consuming most of their news through the web and especially through blogs.  The only government agency that I can think of that does effectively uses a blog is the Congressional Budget Office with its use of the Director's Blog.  

Congress Members Getting Hosed

Bloomberg has a roundup of which members of congress are getting wiped out from the AIG fallout ("a bailout" but I think the fed's line of credit at the libor + 850 basis points is really a forced, if not immediate, liquidation dressed up as a bailout). Anyhow, it looks like Pelosi and Kerry are getting creamed. But they have crap loads of money so they should be just fine. Not that this would ever happen, but I would love to see a requirement that members of congress put all of their assets in index funds as opposed to individual equities. You avoid conflicts of interest and as a bonus, they wouldn't get wiped out if you bet horribly wrong on a stock. Though, it's interesting to see that they didn't liquidate their positions. Given that congressional members typically have a reputation as some of the best traders (it would be an understatement to say they have insider information), this shows how much congress has been cut out of the loop on the government's response to the market meltdown.

More Thoughts on the 1 Trillion Dollar Bailout

I have a basic problem with the notion of spending upwards to a $1 trillion (I think the proposed number is $700 billion right now) to bail out the top .01 percent of the income distribution. If we are going to piss away a trillion dollars to maintain employment and boost asset prices let's do so from the bottom up: fixing bridges, building transit, job retraining, etc. Yes, more financial institutions would fail; however, I am afraid they should. If we do this bailout this will simply be the biggest bailout of all times till the next one around the corner.

Obama Wins the Beer Test

Or in this case the football watching test.  Sadly, I think this is a metric every bit as important, if not more important in understanding voter preference than policy positions or experience.

1 Trillion Dollar Bailout

The administration is proposing a massive bailout of the entire finance industry.

More Reading

Megan McArdle recommends Liar's Poker by Michael Lewis.  Anyhow, the book details wall street trading culture and the advent of mortgage backed securities.

RTC redux?

Calculated risk speculates on what the new RTC would look like.

This Has to be Something from the Onion

The republican party is putting George Allen front and center here in Fairfax County (VA) to do...minority outreach.  Yes, that George Allen, he of the noose in his office and the odd fetish with all things confederate, oh, and lest we not forget, he of "Macacca."

A Good Explanation of the Market Meltdown

Here is good summary from the Freakanomics blog.

The Cost of Cleaning Up

Former IMF Chief Economist Ken Rogoff speculates the cost of cleaning up the mess in the financial industry will be somewhere between $1-2 trillion.  

Morgan Stanley Is On the Clock

The latest word is that Morgan Stanley might merge with Wachovia. Merrill Lynch is now the property of Bank of America, another commercial bank based in Charlotte. Lehman and Bear Stearns are gone. That leaves Goldman as the only independent investment bank. Megan McCardle has an interesting post on what this means for New York. What happens to the world's financial hub when it's financiers are relocating down South or dissapearing?

More Reading

David Leonhardt has a great column in the times. Check it out. Here is an excerpt:
"The Bush administration, the Fed and Congress, meanwhile, continue to focus on the immediate crises, with little attention to the underlying reasons that the economy has gotten into this mess — a stagnation of incomes, an explosion of debt and a decidedly outdated, and limp, approach to government oversight. Remarkably, the presidential campaign has gotten less serious, while the economy’s problems have become more so."

This Should Be Obama's Next Ad

Meltdown Coverage

If you want to follow the meltdown, the single best person to look to is Felix Salmon of portfolio.com. His blog is excellent. It looks like Washington Mutual and Morgan Stanley are next.

BTW

John McCain invented the blackberry.  Oh, and San Diego is German for a "Whale's Vagina".

Google Chrome

I just downloaded Google Chrome (Google's new browser) at work (I have a Mac at home and they don't have a Mac version yet).  So far I like it.  It's simpler, less cluttered than firefox or internet explorer.

Palin Needs Schooling ASAP

Here is a bit from her interview with Charlie Gibson:

"GIBSON: So let me summarize the three things that you’d change in the Bush economic plans. One, two, three.

PALIN: Reduce taxes, control spending, reform the oversight and the overseeing agencies and committees to make sure that America’s dollars and investments are protected.

GIBSON: So let me break some of those down. You talk about spending. How much smaller would a McCain budget be? Where would you cut?

PALIN: We’re going to find efficiencies in every department. We have got to. There are some things that I think should be off the table. Veterans’ programs, off the table. You know, we owe it to our veterans and that’s the greatest manifestation that we can show in terms of support for our military, those who are in public service fighting for America. …It’s to make sure that our veterans are taken care of and the promises that we’ve made to them are fulfilled.

GIBSON: So you’d take military off the table, the veterans’ benefits. That’s 20 percent of the budget. & Do you talk about entitlement reform? Is there money you can save in Social Security, Medicare and Medicaid?

PALIN: I am sure that there are efficiencies that are going to be found in all of these agencies. I’m confident in that."

Palin is pulling the whole fraud, waste and abuse line. Repeat after me: the government is an insurance company with a side business in defense. If you are going to try to bring the budget into balance on the spending side you will have to tackle a combination of defense, medicare, medicaid, and social security.

To be fair, this is not necessarily a fair reflection of Palin's knowledge or lack of knowledge. Many on the right have been peddling this bullshit for ages. This has been a pet peeve of mine for awhile.

hat tip: economist mom

Palin About to Get Schooled...

by Douglas Holtz-Eakin, McCain's Economic and Domestic Policy Director. And thank god on two levels. First, it is clear that Palin has a very thin grasp of policy of all types and needs the preparation. This a crucial distinction between Obama and Palin, preparation, not experience (as neither really has any real experience). But it is preparation, getting up to speed on a wide range of issues which can serve as platform to demonstrate your judgment and thus overcome the experience deficit (at least in the minds' of voters). Second, this gets Douglas Holtz-Eakin out of the media spotlight where he has been peddling some serious b.s.

Don't Look at Your 401(k) Anytime Soon

Because it is really hitting the fan this weekend. Lehman Brothers is about to be liquidated and Merrill Lynch is being purchased by Bank of America.

Earmarks, continued

Here is a pie graph courtesy of Mark Thoma that shows the portion of the federal budget that earmarks constitute (it's the barely visible sliver). McCain's plan to bring the budget into balance by eliminating earmarks is simply not credible. Remember, the government is an insurance company with a side business in defense. That is where the money is and thus where any savings will have to come from.

More on Attack Ads

I am surprised that nobody in the Obama camp has made any hay of McCain's involvement in the Keating Five.  One of the central ironies of McCain's personal narrative as a reformer is that he was caught with his pants down in a pretty large scandal.  Though, there is something to be said for keeping the powder dry till people are actually paying attention.

The Beginning of the Fall

This just begs to be a political ad. Apparently the Alaskan legislature had to ban municipalities and townships from charging rape victims for rape kits (kits used to prove the crime/find the criminal). Apparently these kits cost between $300-$1200 and there was only one city in Alaska that actually charged victims for these kits...yes, you guessed it, Wasilla, while Sarah Palin was the mayor.

hat tip: Ezra Klein

Another One Bites the Dust

It looks like Lehman Brothers will cease to exist by this weekend.

Crappy Sports Names

The Oklahoma City Thunder it is, formerly the Seattle Supersonics. I think it is a craptastic name, but then again, my team is the Washington Wizards. I wish teams would make more of an effort to adhere to naming conventions that have something to do with the city they play in: such as, the Seattle Supersonics.

The People's History of the United States

...by Howard Zinn is about to be made into a documentary.  I have it but have never gotten around to reading it and now I don't have to...hahahaha.  Just kidding, I'll get around to it one of these days.

The Social Security Trust Fund

Arnold Kling describes the trouble with the social security trust fund pretty well in responding to Felix Salmon:

"Felix Salmon writes,

'the obligations of the [Social Security] trust fund aren't tangible obligations fungible with other government debt. But at the same time they are obligations: they oblige the government to issue debt in the future, insofar as its tax revenue won't be able to cover its pension promises.'

A trust fund = an obligation to borrow? If your uncle Louie told you he was setting up a trust fund for you, and its assets consisted of his obligation to borrow the money, how secure would you feel?

On the other hand, you may feel confident that Uncle Sam will always be able to borrow. Don't be so sure. A few months ago, one might have thought that Uncle Freddie and Aunt Fannie would always be able to borrow. That ended rather suddenly.

What do you like better about Sam? His balance sheet? His management team?"

This is one of the things I have never understood when those who claim that Social Security is not a problem or even has a strong financial position. The trust fund presently has $5 trillion dollars worth of obligations that we have pissed away. These are funds that will have to be paid out between 2018-2040. To state Social Security's finances are in sound shape presumes faith in the taxpayers willingness to accept higher marginal tax rates to redeem those bonds in the trust fund. I don't share that faith.

Earmarks and the Bridge to Nowhere

Sarah Palin's bit about saying "thanks but no thanks" to the "bridge to nowhere" is an outright lie. This is amazingly arrogant that the McCain team persists in using this line. However, what concerns me more about this is the fetish surrounding earmarks. Simply put, they aren't that big a deal. Earmarks are a miniscule part of the budget. The represent roughly $18 billion in outlays out of a budget of $3 TRILLION. In other words, 0.006 % of the federal budget. This is not to say that minimizing earmarks is not a worthy goal, we shouldn't make such a big deal about them. This was one of the things that drove me batshit crazy about Tim Russert. Russert, the great Daniel Patrick Moynihan's former chief of staff, who surely should have known better, always made earmarks one of his infamous gotcha!s, thereby raising their relative importance of earmark reform in our national discourse. But really, they are just a distraction.

DFL

The RNC says thank you.

What I'm Listening to

Jacqueline du Pre: The Early BBC Recordings 1961-1965. I am a huge fan of Yo-Yo Ma but as far as cellists go he does not come close to Jacqueline du Pre. Here is her wikipedia.

PeP Updates

I have added Greg Mankiw and Ta-Nehisi Coates to the blogroll. Professor Mankiw has one of the bigger econ blogs and is an Economics professor at Harvard. He was previously a chair of the CEA under Bush, he routinely writes economics columns for the NY Times, and writes the best selling economics textbook. He manages to write about complex issues in an accessible manner. I suppose this shouldn't be surpising given that he is a best selling text book author. Oh, and Professor Mankiw was kind enough to quote this very blog in one of his recent posts which has me positively tickled. Yes, I am a dork.

Ta-Nahisi Coates is a blogger for the Atlantic and blogs about anything and everything. I find him fascinating and he discusses race and culture extensively in a manner that is seldom found on the blog0sphere or elsewhere.

The Things Campaigns Do to You

"The most promising way to move forward in all three dimensions – coverage, cost, and
long-run fiscal situation – is to replace the employer exclusion with a tax credit, a step that has been proposed many times before (e.g., Butler 1991 and Pauly and Hoff 2002). Firms would still be allowed to deduct the cost of their contributions to employee premiums, just as they can deduct wages and other expenses today for the purpose of calculating taxable income. But workers would now have to include employer contributions to health insurance in their earnings for the purpose of calculating taxes (precisely which taxes is discussed below). In exchange for, workers who purchased qualifying insurance would get a refundable tax credit. Qualifying insurance would be along the lines proposed by the President in his standard deduction for health insurance, including limits on out-of-pocket payments, coverage of a general range of medical care, and guaranteed renewability by the provider (Treasury 2008)."

This is a pretty fair description of the McCain health care plan. The funny thing is, this is not be found in McCain campaign literature or on his senate website, but rather in a paper written by Jason Furman, Obama's Economic Policy Director, who now is arguing about the perils of this very plan. Now Furman would probably be right to respond that the McCain plan doesn't go far enough to facilitate risk pooling in the individual market and maybe that the tax credits are insufficient. But the general thrust of the McCain plan is one that he championed before he became an Obama staffer, now his job is to criticize that very plan.

Furman's counterpart in the McCain campaign, Douglas Holtz-Eakin, was a real deficit hawk and had a sterling reputation coming from the CEA and a stint as the CBO director. Now Holtz-Eakin's main task is defending the indefensible, McCain's tax policy. He surely knows that he will not bring the budget with the tax cuts McCain has proposed back into balance merely by curtailing earmarks. But that is the company line.

Both are incredibly intelligent men, highly accomplished in their fields, but their current job description is to say stupid and false things. That is politics.

Here is a video of the two going at it on CNBC and in Arnold Kling's words, "squandering their cognitive surplus."

hat tip: Greg Mankiw and Arnold Kling

random note: Mankiw was actually Furman's dissertation adviser.

More Thoughts on Palin

It appears that Palin will be quite capable as an attack dog. The problem for McCain is that this isn't a particular need. What McCain needs is policy credentials and a credible governing narrative. For all of his years in the senate McCain seems remarkably weak when it comes to actual policy. His narrative is summed up in one word: Honor. However, this doesn't really translate into what to do about rising health care costs, the looming entitlement disaster, a decaying public education system, and a safety net with gaping holes when it is needed most.

My Thoughts on Palin

I was initially rather excited by the Palin pick, though for somewhat unconventional reasons. I think her pick is a disaster and simply shows how impulsive McCain is and one would argue on that basis alone ill-suited for the presidency. That said, I view this election as a throwaway for the Republicans. I don't think there is a snowflake's chance in hell that McCain wins. The electoral math just doesn't add up for Republicans. The Republican brand is so tarnished that you could submit a ticket of Jesus and Mother Theresa and it would be walloped. McCain's pick of Palin gives an up and coming politician a chance to get some national exposure that she would not get merely as the governor of Alaska. If Palin's basic defect were that she were inexperienced than all would be peachy in my book, though it looks like she might be a bit loony and ethically challenged.

On the plus side, she is a stone cold fox. I think Michelle Obama is immensely attractive and so is Governor Palin and that makes this election much more palatable.

More Thoughts on Biden

The problem with Biden is not substantive. He seems intelligent, if not exceptionally so. He is quite affable, sensible in his policy prescriptions, and on paper complements Obama nicely. He brings foreign policy gravitas to the campaign, and in general, experience. His sins are his candor and verbosity. The former is refreshing and is actually consonant with the general "change" theme of the Obama campaign. The latter, his verbosity, or really a propensity towards verbal diarrhea, is what is potentially toxic in the modern campaign. In his own campaign for president, which unfortunately never gained traction, he seemed to tame his tendency to put his foot in his mouth.

I hasten to add, my observation and the core of my criticism is exceedingly shallow. But alas, so are presidential campaigns and their media coverage.

Biden as VP

This one surprised me. I like Biden, and on paper, he was the ideal pick. However, I think he is an awful, awful campaigner and this is the one time where I thought McCain has a chance.

Medicare's Efficiency

One of the points that single payer advocates make is the potential cost savings we could reap from low overhead costs, they then point to medicare. This, they conflate with efficiency. However, that Medicare has low administrative costs should not surprise us, all medicare does is process claims. Thus, if medicare were to process ten times the claims it does now while maintaining its staffing concerns, it would be even more efficient by such a metric. Never mind the fact that costs could as well grow ten fold without having a discernible impact on health outcomes. I don't point this out to indicate that private health insurance is the answer, just to note that administrative efficiency shouldn't be considered such a potent talking point.

The Enquirer Sacks John Edwards

I would guess at this point his potential VP nod or Attorney General post is off the table. For those of you who doubt the National Enquirer, I have six words for you: Jesse Jackson, Rush Limbaugh, Gary Hart.

More Fannie and Freddie

One of the other disturbing aspects of the housing bill is that on top of raising the cap for conforming loans that fannie and freddie can buy (essentially rewarding their insolvency), Congress seems to think it can wipe away all of Fannie and Freddie's ills with a new regulator. In the recent housing bill Congress abolished OFHEO (FM/FM's prior regulator) and created a new one with a new fancy name. I don't see what this will accomplish other than delaying eventual regulatory capture. If Congress was worried about systemic risk it would tide Fannie and Freddie over and then wipe out its shareholders, potentially nationalize the whole affordable housing part, and sell of the rest of Fannie and Freddie in pieces.

Housing Crisis

I think one of the elements missing in the discussion of the housing crisis is whether or not the government should be subsidizing home ownership to the extent it does or at all. Home ownership is generously subsidized through the tax code in the form of the mortgage interest deduction and additionally in the form of the implicit now made explicit guarentee of Freddie and Fannie's debts. Home ownership is something of a fetish in American political discourse and thus has long been untouchable. Maybe we can use this moment to move towards a more rational approach on home ownership rather than doubling down.

Fannie and Freddie

It appears that Fannie and Freddie are about to be rewarded for their failure. While it is understandable that the government would want to bail out the GSEs because they are "too big to fail", it is not understandable that Congress seeks to reward the GSEs by lifting the cap on conforming loans from $417k to an excess of $600k that Fannie and Freddie can buy. I think the discussion of what to do with Fannie and Freddie should focus on whether to nationalize or privatize (and by privatize, I mean no implicit nor explicit guarentee) Fannie and Freddie. And in either scenario the shareholders should be wiped out.

Brilliant Blog Post on GSE's by Larry Summers

Courtesy of Creative Capitalism:

Here is a really good creative capitalism idea. All Americans benefit from increases in home ownership because of the values like hard work, community, and respect for property that ownership instills. Families want desperately to own their own homes and accumulate equity. Yet it is very hard for conventional banks that borrow money over the short term to lend over the kind of 30-year horizons that best help families buy houses.

How can the objective of ownership be best supported and how can the most adequate financing be assured? Voila, creative capitalism! How about chartering private companies as government sponsored enterprises with the mission of promoting home ownership affordability? Give them boards with some private representatives and some public representatives. Make clear that government stands behind their capital market innovations so they can borrow more cheaply and pass the savings on. Exempt them from the state local taxes that others pay. Give them specific objectives on affordability that they must meet. Rely on a special government regulator to assure that they balance their social responsibility with their drive to profit. Harness the profit motive to meet a social objective.

This is roughly the rationale behind Fannie Mae and Freddie Mac. I would submit that it is about as good or as bad as most creative capitalism ideas involving joint profit making and social objectives. But one hopes that ee are now witnessing the end of this particular experiment in creative capitalism: the government is moving to pick up the pieces of the mess the GSEs have made and their shareholders are losing most of their money.

What went wrong? The illusion that the companies were doing virtuous work made it impossible to build a political case for serious regulation. When there were social failures the companies always blamed their need to perform for the shareholders. When there were business failures it was always the result of their social obligations. Government budget discipline was not appropriate because it was always emphasized that they were "private companies.” But market discipline was nearly nonexistent given the general perception -- now validated -- that their debt was government backed. Little wonder with gains privatized and losses socialized that the enterprises have gambled their way into financial catastrophe.

I wonder how general the lesson here might be. My fear is fairly general. Inherent in the multiple objectives urged for creative capitalists is a loss of accountability with respect to performance. The sense that the mission is virtuous is always a great club for beating down skeptics. When institutions have special responsibilities it is necessary that they be supported in competition to the detriment of market efficiency.

It is hard in this world to do well. It is hard to do good. When I hear a claim that an institution is going to do both, I reach for my wallet. You should too.

Twitter

What the hell is it?

Should We Stay or Should We Go?

That's the central question regarding our policy in Iraq and should be one of the main questions dominating the news cycle. In my view, the Iraqis have answered it for us, they have asked to sit down and establish a timeline for withdrawal. If in fact the objective is to establish a sovereign state, then we should respect that state's sovereignty. Time to go home.

Tyler Cowen on Climate Engineering

"I don't know much about the technologies but my worries are mainly political. Won't the Russians benefit greatly from a warming world, both because they are a bit cold and because they will access a warmer Arctic? Would the UN Security Council approve climate engineering? Probably not. If the United States did it on its own, could that be perceived as an act of war? If geo-engineering is cheap (which is part of its very promise), and unilateral action is acceptable, don't other countries also get to take their shot at influencing the environment and moving us toward an optimal climate? What does the resulting equilibrium look like? Who moves last? How would we feel if someone changed the U.S. climate to make many parts of the country colder?"

Good Riddance

Jesse Helms is dead and thank goodness for that. He was an insufferable bigot.

Throwing Wes Clark Under the Bus

If you distill Wes Clark's comment to its essence it was that McCain's service and sacrifice do not make him qualified to be the president. Clark's comment in now way discounted McCain's sacrifice, he simply said that which is both obvious and true. It's unfortunate that Obama felt he had to throw Clark under the bus. I understand why he did it, but it is unfortunate and distasteful nonetheless.