Newshoggers.com

Big 3 Bail-out thoughts

By Fester:

In normal times, I would not support a massive bail-out of GM.  However these are not normal economic times as we have entered a liquidity trap.  Unusual and massive interventions are warranted to prevent a Japanification of the US economy.  Salvaging the remains of GM, Ford and Chrysler is most likely justifiable as the alternatives are worse.  It is not desirable, but it is justifiable.

Publius at Obsidian Wings argues that the spin-off and inverse multiplier effects will be massive:

  There are effectively millions of people who could be out of work if Detroit goes down (and bankruptcy doesn’t provide the potential benefits here it normally would). That sort of massive job wipeout would – in addition to literally decimating large regions of our country – trigger massive economic dislocation.

I don’t care how cool the free market seems in the abstract – these are real problems involving real non-sparrow people. And these very real problems would cascade throughout the country. They can’t simply be ignored because the market fairy (“as if guided by an invisible hand” – puke, vomit) will come and fix everything.

Bloomberg reports that the cost of inaction will be more expensive than any intervention:

General Motors Corp., seeking a federal bailout as its cash dwindles, would cost the government $200 billion should the biggest U.S. automaker be forced to liquidate, a forecasting firm estimated.

A GM collapse would mean ``more aid to specific states like Michigan, Ohio, and Indiana, and more money into unemployment and extended benefits,'' Nariman Behravesh, chief economist at IHS Global Insight Inc. in Lexington, Massachusetts, said today in an interview.

If either $25 billion or $50 billion in government loans and bridge financing that effectively acts as debt during re-organization is needed to keep the entire Mid-western industrial economy functioning with its millions of direct jobs and tens of millions indirect jobs dependent on it, then that is worth it.  Remember, each car plant that closes down will destroy three or four times as many secondary jobs as direct jobs.

We do not need to see another three or four million people laid off at once.  We do not need to see regions embark upon a land-talent-opportunity death spiral similar to that which happened in Western Pennsylvania when the steel industry collapsed in the early 80s.  We'll be facing enough problems in the next couple of years that paying a bit to avoid another massive problem is a very good idea. 

Sentiment Indicator

By Fester:

My family has been sending a flurry of e-mails back and forth to figure out the Christmas gift exchange and wish lists.  This is quite unusual as there is more than two weeks before the holidays.  However the most interesting thing happened last night as my little brother is visiting my wife and I.  My mom called him to remind him that he had not submitted his wish list.  She said that they would not be doing gift cards because of the risk of any of the stores going bankrupt. 

Wow, what a sentiment indicator.  This was not a statement I was expecting from my mom. 

Embracing the Loop

By Fester:

In August 2007, I wrote that I believed that the GOP would be engaged in an intermediate term positive feedback loop of stupidity.  This is one of my core analytical assumptions at the moment and one of the posts that I am particularly proud of:

Positive feedback loops usually suck as they produce excesses as previous actions encourage more of the same. In the short term, positive feedback loops produce significant disruptions and opportunities. Politically, being on the receiving side of a positive feedback loop that can resist mean reversion allows for a party, or a set of interests to gain rent-seeking positions.....

Another positive feedback loop looks like it is forming now as the Republican Party is becoming more conservative and institutionally more inward seeking....

Combine these retirements with expected strong challenges in the few remaining Northeast Republican seats, the non-Southern, non-movement conservative caucus in the 2009 Congress looks to be miniscule. The internal dynamics will produce leadership elections of hard liners and bomb throwers for a couple of cycles, marginalizing the party nationally and further increasing the institutional power of resource extraction, social and political reactionaries within their own caucus.

There are a lot of verifiable predictions made in that short post, and so far the feedback loop has been established, the non-Southern or non-movement conservative groupings have taken a beaten and now via Brendan Nyhan, it looks like the GOP is electing an even more hardline leadership in the House of Representatives.  The old leadership was slightly to the right of the 2007-2008 GOP caucus, but not by a whole lot.  The new leadership is to the far right of the 2007-2008 caucus but it may not be that much more of a deviation from the 2009 caucus as the GOP's centrists got creamed in 2008 following up their 2006 ass-kicking. 

 

We have a decent interval

By Fester:

Via the UVA Miller Presidential Recording Program:

More extra-solar photos

By Fester:

USA Today reports that astronomers are taking pictures of extra-solar systems with multiple planets.  That is freaking cool:

Astronomers reported Thursday that they have the first snapshot of another solar system — one with three planets larger than Jupiter — orbiting a nearby star.

Circling the star HR 8799, the three planets "are a scaled-up version of our own solar system," says study leader Christian Marois of the National Research Council Canada. A large star about 128 light years away (a light year is about 6 trillion miles), HR 8799 resides in the constellation Pegasus, according to the online report released Thursday by the journal, Science.

"This is the first image of a multi-planet solar system," says Marois, who headed a U.S.-Canadian team that sifted light measurements from the star in 2004 and 2006 to photograph the planets in infrared light. "Here we are actually seeing the light, temperature and size of these planets."

Who needs accountability

    By Fester:

Forgetting about Watergate and allowing for a rapid rehabitiliation of most of the Nixonian senior leadership worked out well.

Ignoring Iran Contra and allowing a President to remain out of the loop had no longer lasting harm.

Going to war based on either lies, contempt for the truth or amazing idiocy has had no long lasting harm.  Replacing US Attorneys for not pursuing spurious voter fraud cases has increased confidence in our electoral system.  Seeing a city drown has been a net positive for this country.  Burning a CIA asset with alleged sources in Iran has increased our knowledge and decreased uncertainty.

Actually requiring accountability and potential criminal liability for these actions would be completely uncivil and counterproductive.  It is not like the ghosts of Richard Nixon would ever be allowed to haunt another White House (hi Vice President Cheney and Secretary Rumsfeld), our political process is too mature for that.  Who could imagine an ignorant Know Nothing could become President or nominated for Vice President for any party larger than the Constitution Party. 

That would just be uncivil.  Our institutions are too strong to be bothered with accountability. 

Or at least that is what the Wise Old Men of Washington want to argue:

"At a conference in Washington this week, former department criminal division chief Robert S. Litt asked that the new administration avoid fighting old battles that could be perceived as vindictive, such as seeking to prosecute government officials involved in decisions about interrogation and the gathering of domestic intelligence. Human rights groups have called for such investigations, as has House Judiciary CommitteeJohn Conyers Jr. (D-Mich.).

"It would not be beneficial to spend a lot of time calling people up to Congress or in front of grand juries," Litt said. "It would really spend a lot of the bipartisan capital Obama managed to build up."

This is despite the fact that Obama really did not build up a lot of bipartisan capital if you define that in terms of the number of Republicans who self-identify as Republicans who voted for him.  This is despite the fact that we need accountability for a departure from the historical explicit and implicit constitutional norms (six years of self-pants shitting is not a valid defense).  This is despite the fact that there is a consensus that everything that has been done in the past eight years will have to be undone. 

Political considerations affected every crevice of the department during the Bush years, from the summer intern hiring program to the dispensing of legal advice about detainee interrogations, according to reports by the inspector general and testimony from bipartisan former DOJ officials at congressional hearings....

"The infusion of politics into the Justice Department and an abdication of responsibility by its leaders have dealt a severe blow," Senate Judiciary Committee Chairman Patrick J. Leahy (D-Vt.) and Sen. Arlen Specter (Pa.), the panel's ranking Republican, wrote in an opinion piece last month. "Great damage has been done to the credibility and effectiveness of the Justice Department."

No, it is best for this country that Georgetown cocktail parties are enjoyable and open to all. 

Fuck accountability; that is for the plebes.

Rendell to stay in Harrisburg

By Fester:

On hearing the news that Lt. Gov. Knoll (D-PA) passed away this morning, I had the same exact thoughts as the Angry Drunk Bureaucrat:

In a more cold, calculating vein: Ed Rendell will not be accepting a position in the Obama administration until his term is up, lest Republican Joe Scarnati, now Lt. Governor, take his office.

Countercyclical Carbon Taxation

By Fester:

I am a Keynesian --- I believe that government should be a countercyclical force in the economy.  When times are good, the government should build up reserves and repay old debts, and when times are tight as no one else wants to risk borrowing or lending money, government with its near infinite time horizons and ability to recoup large positive externalities should step in to alleviate the pain of a recession.  I believe that the US government should run a structurally balanced budget to a mild structural surplus which is why I think the Bush policies are a massive opportunity as well as a real cost.  Large deficits were justifiable in 2001, 2002 and 2003, but we were theoretically 'booming' in 2004 to 2007 when surpluses should have been run to pay off the past. 

Right now the US government is running at a structural deficit.  Obama's pledge to make his tax policies revenue neutral will be a good thing in the shortest of terms, but a negative over the long run as there is not enough to cut from ongoing operations in Iraq, and the perrenial favorite of 'waste, fraud and abuse' to deal with the rising claims against government resources as Medicare looks to become a budget buster in the next decade.  National healthcare or at least the Baucus plan will help on that front, but more revenue is needed.

Kevin Drum looks at a carbon tax as accomplishing both an environmental goal and a bond market goal:

If a cap-and-trade plan were passed in 2009, it would probably take effect in 2012 or so, and the revenue stream would start small the next year and then grow every year after that. That's perfect timing. We don't want to raise taxes right now, but a program that guaranteed a growing revenue stream starting a few years from now would help convince investors that the current budget deficit won't last forever.

A carbon tax would have an added advantage of being an inherently counter-cyclical tax.  It will bring in more revenue during good times as the value of pollution as a by-product of increased production and distribution of goods and power will increase.  However during tough times such as today, miles driven decrease, industrial production decreases, electricity demand decreases.  The value of an annual permit thus decreases which means there is a little more money floating out in the economy as an automatic stimulus. 

Holding the Gates

By Fester:

American politics can be conceptualized as a competition between reactionaries, conservatives in the traditional small 'c' sense of the word, and liberals.  Two to one wins and if the tag team lasts, it is a dominant governing coalition for a generation as the out group is marginalized to regional strong holds and discredited policies. 

Andrew Sullivan looks at the reactionaries' belle femme and draws out her implications:

Some readers think my continuing attempt to expose all the lies and flim-flam and bizarre behavior of Sarah Palin is now moot....

But even if she is history, she is history that matters....

The impulsive, unvetted selection of a total unknown, with no knowledge of or interest in the wider world, as a replacement president remains one of the most disturbing events in modern American history. That the press felt required to maintain a facade of normalcy for two months - and not to declare the whole thing a farce from start to finish - is a sign of their total loss of nerve. That the Palin absurdity should follow the two-term presidency of another individual utterly out of his depth in national government is particularly troubling. 46 percent of Americans voted for the possibility of this blank slate as president because she somehow echoed their own sense of religious or cultural "identity". Until we figure out how this happened, we will not be able to prevent it from happening again.

The reactionaries are currently insane in a political sense. And it is the obligation to form a coalition of the sane to oppose and marginalize the insane elements of the political discourse.  And we have been seeing that happen over the past couple of years as the Daniel Drezners, Andrew Sullivans, John Coles, William Welds, and others who self-identify as conservatives but also believers in the Enlightenment migrate to support (grudgingly at times) a party that is not insane in its base, views on knowledge, and believes in verifiability of an empirical world. 

I have to disagree with my colleague Ron on the desirability of keeping Gates or other Scowcroft allies on-board and involved in the Obama administration.  They may be scumbags or they may be angels (I'll vote for un-indicted co-conspirators for Iran Contra for a decent number of them) but they represent an element of the sane political spectrum.  And if picking off that group further wedges the rump GOP into the Kristol/Palin/Gingrich/Limbaugh positive feedback loop towards Peak Wingnuttery, that might be a price worth paying. 

Tough choices in tight times

By Fester:

My recent post on the probable desirability of increasing class room size provoked an interesting response.  And it is a response that I will continue to seek to provoke in the next couple of weeks as I believe that we, as a society and a political culture, will be forced to make multiple tough decisions over the next couple of years.  These decisions will be on where do we spend very limited and diminishing public dollars and for what services and desired outcomes. 

Most state and local governments face a hard balanced budget constraint.  There is a little bit of wiggle room, but not a massive amount for non-federal governmental units to avoid this constraint for a couple of years, but it is not a lot.  The major sources of revenues for local governments are some combination of other governmental authority pass-throughs, sales taxes, income taxes and property taxes.  Usage fees and gambling revenues make up another significant chunk of non-federal revenues.  If the recession looks like it will be as severe as it could be, then it is fairly simple to project that sales tax collections will go down as consumer spending crashes and high tax products see the quickest substitution, income taxes will go down as the labor market will not be able to hold onto net wages or hourly wage gains as more people are under or unemployed, and property taxes will fall as more homeowners see significant drops in the assessed taxable value of their homes.

At the same time, local and state government expenses will increase as relief efforts increase and more importantly, the great budget buster of municipal pension obligations will explode.  These obligations are happening because of a combination of older workers getting ready to retire and more importantly in the short run, the massive ass-kicking the market has taken over the past year.  More cash is needed just as the assets that were supposed to provide that cash have dropped twenty to forty percent in value.  Pittsburgh will be facing this problem over the next couple of years. 

So programs that are overwhelmingly funded at the state and local level should anticipate facing severe budget constraints.  We have an active responsibility to make good choices so that we can either maximize our effectiveness and impact for a given level of spending OR find a level of impact that we want and then minimize the costs that are needed to achieve that impact. 

That is why I believe that reversing the trend of class sizes is a viable option as the same level of results can be achieved for much lower costs.  That is why I think drug legalization or decriminalization or lowest prioritization will become more popular.  That is why I think expanded healthcare access will be politically potent.  That is why I think we'll make changes, even if we go into those changes kicking and screaming.  There won't be any other viable options left. 

More on a potential export plunge

By Fester:

Last week, I argued that US exports were likely to cliff dive as heavy industrial capital equipment and raw materials used to make pretty much everything are no longer in high demand.  So prices and quantities demanded at much lower prices are dropping hard and fast. 

Now the international trade system is starting to freeze up as the large bulk carriers that transport the raw materials of the modernized world don't have enough business to make it worthwhile to sail.  It is cheaper for ship owners to keep their vessels in port with a skeleton crew than to carry cargo. 

Via Bloomberg and John Robb:

Capesizes that were attracting rates of $233,988 a day as recently as June are now available for $4,793, according to the Baltic Exchange in London. That's below the cost of paying for crew, insurance, maintenance and lubricants...

At least 20 percent of the vessels most commonly hired to haul coal and ore are sitting empty as steelmakers cut output and dwindling trade credit halts deliveries, ....

``There are simply no cargoes,'' Sjuve said from Oslo. ``It's primarily the steel market but it's even more difficult due to financial markets and letters of credit in particular.''    

ArcelorMittal, the world's biggest steelmaker, on Nov. 5 said its global output will decline by more than 30 percent.

No one is buying low end, raw goods, so I have doubts about people buying high value add processed goods in the intermediate term future. 

      

How to lose a generation in six years

By Fester:

I guess the Republican Party does not want to look at any possibility of winning or at least not getting blown out in the  the 1978 to 1993 birth cohort anytime soon as the prospective House Whip is looking to actively engage and enrage on a core issue --- not-fucking over friends, family members, classmates, colleagues:

"You build those conservative solutions, Chris, on the same time-honored principles of limited government, a belief in free markets, in the sanctity of life, the sanctity of marriage," Pence said. [my emphasis]

Sanctity of marriage to my ears means that people I went to school with, people who I have grown up with, people who I have worked with, and people who I am friends with will have a massive target on their faces and on their backs for being who they are.  I won't vote for a party that actively looks to fuck over my friends or people who are similar to my friends.  This is not profound political science or analysis, it is a fact of life.  And if the GOP continues down the narrowing path of seeking to win ever larger sub-group majorities of its current coalition by escalating its rhetoric on this issue, it will never receive a hearing among my age cohort as it will be perceived as attacking too many people I and everyone else in my cohort know. 

Deep Local Resilience

By Fester:

The Pittsburgh Housing Authority is embarking on an ambitious project to reduce its baseline load demands, increase local resiliency and provide systemic shock absorbers to the Southwestern Pennsylvania power distribution network.  Now if I told my acquaintances there that this is what they are doing, they would look at me very funny and suggest that I get out of my cave more often.  But that is what they are doing without realizing it too much as the Post-Gazette reports on a major capital improvement campaign:

The drilling of geothermal wells is part of the transformation of the 501-apartment Northview, plus its 91-unit high rise, into models of energy efficiency.

Eventually, the Pittsburgh Housing Authority's 3,300 occupied apartments, plus 200 that are now empty, will get an energy overhaul. It's a $25 million project run by Minneapolis-based Honeywell...

In the summer, heat pumps will transfer the warmth from the air into water, which will then flow through underground tubes into the wells. There, the earth's near-constant 55-degree temperature will cool it, and it will flow back to carry off more heat. The resulting cooled air will be pumped through a central air system that will replace the inefficient window units that are now prevalent in public housing.

In winter, the comparative warmth the water carries from the earth will be used to heat the air....

Geo-thermal air conditioning will significantly reduce peak demand for expensive summer time electricity and geo-thermal heating provides a much higher and thus cheaper temperature base for winter heating.  Maintenance will be needed, but ongoing costs for fuel for these base heating/cooling needs will be massively lower.  And it is damn hard for an apartment to lose access to the earth for non-payment of a bill, so it provides for a bit of a fiscal cushion for some tenants.  This is really cool work being done by the Housing Authority as it looks to be cost-efficient, and produces multiple positive externalities that can be consumed by the general public. 

Crowd Sourcing Transit

By Fester:

Via e-mail, the Ad-Hoc Heretic of Broken Big Apple, one of the more interesting young thinkers on operationalizing distributed resiliency and resilient communities is this interesting RFP on how to improve Chicago transit:

the Chicagoland Chamber of Commerce, is looking for innovative and new strategies to dramatically increase the use of public transportation to reduce the environmental impact of the greenhouse gas emissions caused by automobiles. Specifically, the Seeker is looking for innovative approaches and strategies to increase ridership on the region’s public transportation system to 1 billion rides per year. The Chamber estimates that a total of 800,000 new individuals must be convinced to ride public transportation to achieve this level of ridership.

This is from Innocentive, an open source request for proposals and recommendations to improve tough problems.  I don't have any good ideas to start with right now, but this is a very interesting challenge. 

Southwest Pennsylvania Congressional District PVI changes

By Fester:

I am rethinking my initial analysis that Pennsylvania will be the most active Congressional battleground in 2010.  I had not anticipated the size of the Appalachia versus the rest of the state effect that actually occurred in the 2008 general election.  This will significantly change the Partisan Voter Indexes for a couple of Congressional districts which will move them out of the probably competitive zones to the barely competitive absent a mistress choking incident. 

The New York Times published this very interesting chart that depicts the counties where John McCain in 2008 outperformed George W. Bush in 2004.  The obvious conclusion is that the line follows the Appalachian Mountain ranges.  The northern edge of this zone is southwestern Pennsylvania.  This zone includes PA-4, 12, 14 and 18.  PA-4, 12 and 14 are Democratically held districts.  However PA-4 has been a slight Republican lean district, while PA-12 has been a lean Dem district and PA-14 is a heavy base Dem district.  PA-18 is a Republican District with a slight Republican lean and a very conservative Democratic registration advantage. 

Without pulling any precinct level data, I am making a couple of estimates on the Obama-McCain splits by Congressional District in SW PA and this area has become significantly more Republican leaning.  PA-4 which is represented by Dem. Rep Altmire probably went to McCain by five points, which means it is roughly a R+9 or R+10 district for a one year PVI.  This is a significant change from the previous R+3 rating.  It will probably be rated an R+7 district for 2010.  This SHOULD be a natural GOP target seat.  However I am not sure who is on the GOP bench for this district. 

PA-18 saw Obama underperform by 8 points in Washington County, 14 points in Westmoreland County, and overpeformed by 5 points in Allegheny County.  However the portions Allegheny County that are in the district underperformed the Obama margins that are seen in the Mon Valley, the East Hills suburbs and most importantly Pittsburgh.  I am guessing that McCain won the district outright and probably won it by a few points.  So for this cycle, PA-18 is probably an R+9 or so district.  This should be an easy GOP hold despite the large Democratic registration advantage in the district. 

Now moving over to the other side of the state, PA-13 which is a projected open seat as its current representative, Rep. Allyson Schwartz is rumored to be considering a run for the Senate.  PA-13 is in the Philly Burbs which went heavily Democratic.  PA-11, Kanjorski's district, is still a reliable Democratic tilt district and the scare he received should be sufficient to make sure he works his ass off for the next two years. 

I had initially anticipated eight heavily contested races in 2010.  Now I think we'll see three Republican challenges (PA-3, PA-4, PA-11), two Democratic challenges in PA-15 (Rep. Dent) and PA-6 (Rep. Gerlach) and then token challengers in PA-18, and PA-12.

Increase Class Room Sizes

By Fester:

Increasing class room sizes is most likely good policy. 

We are entering a fiscal cycle of very limited resources as tax revenues look like they are cratering at the local and state level.  Almost all local and state governments have balanced budget requirements.  Most/all of these entities have some space to play with bond issues, rainy day funds and 'accidental' deficits.  However those are temporary fixes which will be quickly exhausted unless there is a massive infusion of federal dollars to the state and local governments.  State and local governments will continue to cut their budgets.  K-12 education, cops and prisons will be the areas that are politically toughest to cut as each has both a significant internal constiuency and significant public support.

However the variable portions of state budgets that are not tied to these three areas only have so much room for cuts.  These areas will be under pressure to either reduce expenditures or freeze growth rates so as to allow inflation to eat into the real value of services.  Ideally, the reductions in services will occur in ways that have minimal impacts on outcomes.  For instance, diverting marijuana possession convicts from prison to intensive probation and counseling may be such an approach.  Another is ending the trend towards smaller class room sizes.

Smaller classroom sizes is an intuitively popular program.  The theory behind it is simple --- teachers are important to educational success, and the more 'teacher experience' that a child receives, the better.  Furthermore, reducing classroom sizes reduces the probability of hard to handle trouble maker networks as three troublemakers are exponentially harder to handle than one or two and a class of 25 kids is more likely to have three or more troublemakers than a class of 17 kids, and the smaller classes reduce the number of unique learning styles so more customization is possible.  Teachers like smaller classes as their jobs become easier and it provides more jobs.  Parents like it for the above intuitive reasons.  Politicians like it because everyone else likes it, and who wants to vote against the children....

Reducing classroom sizes produces statistically significant but small positive academic improvement outcomes.  HOWEVER, it is a very expensive intervention.  Teachers are the largest single short term cost while increased capital spending to build more rooms is a significant long term cost for this intervention. The return on investment is fairly low. 

In a flush budgetary environment paying for effective but inefficient programs and interventions may be defensible, but in tight times, we need to think of something different.  Dr. Yeh at the University of Minnesota, in a talk I attended this week, and in several publications, argues that other interventions have lower initial and sustaining costs while producing similar or greater academic improvement outcomes.  He advocates for a rapid assessment/iterative loop learning system but others such as positive behavioral support also show results that are as effective and more efficient as reducing classroom sizes and student:teacher ratios.  Extending the school year in districts or basins with high levels of disadvantaged youth is another intervention that should produce significant results at lower costs as the killer for academic achievement in disadvantaged areas is the summer slide of knowledge as there are far fewer reinforcing and enriching activites available for these youth. 

Increasing classroom sizes is a policy that we should strongly consider as those resources that are currently devoted to reducing student:teacher ratio have higher and better uses.  In a tight budgetary environment, we need to think creatively on how we can get the best outcomes on a smaller budget.  Low student:teacher ratios is not the preferred system. 

Crimping the right's cash flow

By Fester:

Bloomberg reports that one of the right wing's biggest funders is having some serious cash issues:

billionaire Sheldon Adelson's casino company, fell the most in New York trading since going public after saying it may default on debt and face bankruptcy.           

The casino owner, which had $8.8 billion in long-term debt at the end of June, said in a regulatory filing today that it probably won't meet the requirements of loans arranged by Citigroup Inc., Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. unless it cuts spending on developments, boosts earnings at its Las Vegas Strip casinos and raises more capital.

He was the largest funder of Freedom Watch, the right wing political action group that was supposed to the be the GOP savior this cycle as it could spend unlimited money on 'educational' ads. 

The institutional right is highly dependent on a few very large individual and institutional donors that are highly dependent on the financial industry, heavy industry, and oil.  So what happens if these core foundations see their endowments fall in line with the rest of the market?  Does wingnut welfare get crimped? 

Employment Ass Kicking

By Fester:

That is an ass-kicking.  The Bureau of Labor Statistics October employment release is fugly:

  Nonfarm payroll employment fell by 240,000 in October, and the unemployment rate 
rose from 6.1 to 6.5 percent, the Bureau of Labor Statistics of the U.S. Department 
of Labor reported today.  October's drop in payroll employment followed declines of 
127,000 in August and 284,000 in September, as revised.  Employment has fallen by 
1.2 million in the first 10 months of 2008; over half of the decrease has occurred 
in the past 3 months.  In October, job losses continued in manufacturing, construc-
tion, and several service-providing industries.  Health care and mining continued 
to add jobs.

The consensus guesstimate was roughly 200,000 jobs lost in October, and that number got smashed.  More importantly, were the massive revisions as September's revision makes October look better. 

Expect unemployment benefit extensions in the very near future. 

Transition changes

By Fester:

Most of the people around me look like they have recovered from their hangover and caught up on their sleep since Tuesday night.  And now we wait as we enter a political twilight zone where normal electoral incentives for restrained behavior can not operate.  So we see the silly season of Bush still being in charge despite him being a non-entity and Obama's campaign attempting to convert itself into a governing formation.  Most other nations can handle a transfer of power in a week or two as the outgoing president or premier tells the incoming executive where he leaves the extra key and that the back stairs creak at night. 

I would like to propose two constitutional amendments that would go into effect four years after they are ratified.  This would allow for fairness as the rules would not change in the middle of a campaign or the middle of an administration.  I am writing this in plain language, so please have the lawyers chime in:

The inauguration of the President shall occur on December 15th.  The new term of Congresses shall begin on Dec. 10.  All electoral votes shall be counted and certified by Dec. 12. 

The intent here is to reduce the silly season time of the lame duck session.  Details can be figured out later.  The next amendment is aimed at restoring political counter-balance to the lame duck pardon power.

Any presidential pardons that are issued between two days before the general election and the next inauguration shall be subject to the disapproval of a majority of the Senate.  Inaction by the Senate shall be taken as indication of approval. 

This amendment should be a strong disincentive for Casper Weinberger and Mark Rich type pardons.  It places no other restrictions on Presidential pardon power which is subject to the effective public constraint of political pressure. 

870 Strategy

By Fester:

2010 should be interesting at the Congressional level as there are two large groups that will push for an 870 strategy.  And this should be a good thing for accountability, responsiveness and anti-douchebaggery efforts:

From the Next Right:

I am beginning to think that looking at House and Senate races and doing descending sorts on Bush 2004 percentages has become a seriously crippling way of targeting House seats. The President won 250 or so House districts in 2004. But building a majority solely by picking seats off this target list becomes seriously problematic. To win 218 races from this grouping, you'd need to win 87% of races. To win 200, leaving a handful to come from blue districts, you'd need to win 80%.

These need-to-win percentages are simply too high. First, you have personally popular Democrat incumbents in many of these seats. And second, any district that was within 10 points of the national median at the Presidential level is (at best) only a lean to one party or another for Congress.

We need to expand the map.

We need to get to a place where we only need to win 60% or two thirds of our "winnable" races. And that requires expanding the definition of a winnable race.

This is not a fifty state strategy. It is a 435 district strategy.

Reverse a couple of adjectives, change a few prepositions and this is the same exact argument made in the winter of 2005 for a Democratic 435 Strategy of challenging everywhere.  Most of the challenges in R+6 districts will fail, but this basic strategy has picked off a few surprise seats.  More importantly, it has reinvigorated the Democratic brand, gotten people used to seeing Democrats asking for their votes again, and provides a deeper and more experienced bench. 

National elections with large (50 to 100) numbers of credible challengers on both sides of the partisan divide should produce some very interesting races in 2010 and 2012 as well as discouraging easily discoverable douchebaggery. It will be a strategy that knocks out some Democrats in 2010 as they'll be caught by surprise, but it chips away at the concrete of entrenched interests. 

With Bush Still In Charge, The Right Will Blame Obama

By Cernig

Russian President Dimitri Medvedev chose today of all days to announce that Russia might deploy conventionally-armed short ranged missiles in the Baltic region if the US goes ahead with the Bush administration's planned ABM installations in Eastern Europe. Even though the Bush administration (still in power until January) and its neocon Wormtongues own the ABM boondoggle lock, stock and barrel and are clearly aiming it at Russia - and even though such military shifts are always planned months in advance - somehow today the Right are painting Russia's move as Obama's fault.

Medvedev, you see, mysteriously didn't congratulate Obama on his win in a speech which was scheduled weeks ago as the Russian leader's first "state of the union" address to his nation. Though why he should in such a speech is a mystery even the NY Times, which used the same ridiculous formulation, doesn't explain. The implication is that Medvedev is deliberately testing Obama to see if he has a spine. The truth is that Medvedev is rightly pissed with the Bush administration and Republican rule and Obama (perhaps because during the debates he repeated that dumb conservative talking point that Russia started the conflict in Georgia) is simply getting caught in the fallout.

Of the proposed deployments, Medvedev said:

“These are forced measures,” Mr. Medvedev said. “We have told our partners more than once that we want positive cooperation, we want to act together to combat common threats, that we want to act together. But they, unfortunately, don’t want to listen to us.”

That's all about the Bush/Cheney bluster and stonewalling - not Obama. He continued in the same vein:

Referring to the fighting in Georgia, he said: “The conflict in the Caucasus was used as a pretext for sending NATO warships to the Black Sea and then for the forceful foisting on Europe of America’s anti-missile system, which in its turn will entail retaliatory measures by Russia.”

The fighting in Georgia was “among other things, the result of the arrogant course of the U.S. administration which hates criticism and prefers unilateral decisions,” Medvedev said, according to news reports.

Which is, simply, true. Saakashvili wouldn't have sent his troops into South Ossetia to conduct atrocities if he didn't think Bush's America and NATO had his backs, and he thought that because Bush kept ignoring NATO allies who told him he was out on a limb about Georgia and his neocon pal McCain was whispering in his ear.

Somehow, all this translates into Russia testing the "Moonbat Messiah" instead of what it should be seen as - a situation where the US desperately needs to shake of the failed Republican method and try some old-fashioned diplomacy and sense for a change.

No honeymoon for Obama.

Pittsburgh and Philly

By Fester:

I was just checking the Pennsylvania Secretary of State website for county by county breakdowns of the vote and something surprised me.  Philadelphia and Pittsburgh proportionally underperformed for Obama compared to John Kerry's coalition to win Pennsylvania in 2004. Below is a simple chart of Pennsylvania's state wide performance in 2004 and 2008, as well as Philadelphia County and Allegheny County's performances.

 

As you can see in 2004, John Kerry ran up his margins in Philadelphia and Allegheny Counties while losing the rest of the state.  This is a traditional Democratic strategy and GOTV system of flushing the base precincts and hoping that you don't get crushed in the "T."

Obama's coalition and map is significantly different.  He actually lost votes in Allegheny County while minimally adding margin there.  Fewer people voted in Allegheny County in 2008 than 2004.  He gained margin and votes in Philadelphia but at a slower rate than he gained across the state.  This is a significantly different map, and I need to think about what this means going forward.    

Pennsylvania is 2010 Ground Zero

By Fester:

Wow, what a night --- now it is time to start thinking about 2010, and my initial thought is that Pennsylvania will be the scene of the biggest set of contested House elections as quite a few seats are vulnerable and could be vacating.  Let's get started here on look at the moving parts.

Alyson Schwartz, D-PA-13 (Philly Burbs) is rumored to be one of the favored candidates to run against Republican Senator Arlen Specter.  The Philly Burbs have been trending hard to the Democrats for most of this decade so this should be a lean/tilt Dem hold.  However, I am assuming that the GOP or at least conservative activists will realize that the second easiest seat to win is an open seat (seats where there are mistress related scandals are the easiest it seems).  So I am assuming a strong challenge.

Next we have PA-11 where Rep. Kajorski narrowly held on.  He massively underperformed both his district's natural lean and Barack Obama's statewide margin.  This should be a natural target seat for the Republicans in 2010 as it is a culturally conservative district.

I thought John Murtha in PA-12 would have been in trouble, but it looks like he won by a good fifteen to twenty points.  I had slotted this race as a good GOP target at 5:00pm EST on Election Day but with these results, it is a longer shot race.  I could see this being a suicide seat race as the southwest portion of the state has to give up a Congressional seat in 2011/2012 and this district could be demolished if Murtha indicates he wants to retire. 

Next in PA-3 which is located up in northwestern Pennsylvania with Erie as its population anchor is a traditional swing district that now has a freshman Democrat holding it.  Traditionally the first re-election campaign is the toughest one for a new incumbent. 

Next the Democrats have one traditional first tier offensive significantly  attempt to take PA-6 which is in the Philly burbs. Strong efforts were made in 2004 and 2006 but Rep. Jim Gerlach (R) did not face a first tier challenge in 2008.  Jim Gerlach significantly overpeforms his districts Presidential, Senatorial and Gubanatorial leans.  There are few swing urban/suburban swing districts left that are still held by Republicans.  This is a natural but tough target.  A third tier challenge in the 2006 and 2008 cycle has been PA-18 which is held by Republican Rep. Tim Murphy.  This district is a slightly leaning Republican district with a conservative Democratic registration advantage.  It is a plausible but expensive challenge district and it is also my white whale. 

So with two years to go, Pennsylvania's target list is 6 House seats for one party or the other.  Throw in the Governor's race and a top tier Senate race, and Pennsyvlania politcal junkies will be working constantly from next Friday (hangover recovery time) to November 15, 2010. 

1st Thoughts

By Fester

I'm tired, estactic, jet-lagged, amazed, and still processing.  But Wow, we did this.  I did GOTV planning for America Votes this year for our Pennsylvania efforts, and I am still amazed that it looks like we won the state by 10 points.  I was thinking that we would be looking at a five or six point win in the state.  I am shocked that Democrats held on in PA-11 and PA-12 so the Pennsylvania net margin was +1 House Seat for Democrats in PA-3.  But Wow!

Here are some of my first thoughts:

• WOW!
• John McCain's concession speech was gracious and outperformed Obama's acceptance speech
• The South is solid for the GOP -- seems racial polarization was enough to tighten up North Carolina and Virginia as well as other southern states
• The spread probably looks like +5 or +6 for Obama once California finishes coming in
• Still can not find good information on the House of Representatives on a national level.
• Surprised that Pennsylvania got called so quickly, and Virginia took so long
• The horns are still honking outside the hotel. 

Election Liveblog

7:18 CT by Cernig: Projections show Obama ahead in Florida 53/47% and well ahead in Ohio 65/34%

Obama is up 11% on Kerry's support with Hispanic voters.

Older voters up considerably, and voting McCian 55% of the time.

There are already two seats in the Senate which are being projected to change hands to the Dems.

7:27 CT by Cernig - ABC's Russell Goldman:

Obama's projected victory in Pennsylvania which has 21 electoral votes was a blow to McCain's White House hopes. While it was carried by Democrat John Kerry in 2004, McCain had hoped to turn it into a red state.

"We're going to win Pennsylvania tomorrow and I'm going to be the President of the United States," McCain said at a rally Monday. "Pennsylvania will do it, and Pittsburgh will be the important area."

7:35CT by BJ - I just note that Hagan has beaten Elizabeth Dole for a Dem Senate pick-up

8.01 CT by Cernig: ABC projects Minn. for Obama. Current EC projections - Obama 174/ McCain 61

8.04CT by Cernig Georgia projected for McCain. African Americans only 34% of the turnout but there'd been a massive GOP voter supression push in Georgia.

8.07CT New Mexico, New Hampshire, Virginia, North Carolina all look to be Dem Senate pick ups.

8:15CT by BJ - I was watching Fox at the top of the hour and they accidentally called Ohio for Obama, whichwould have ended McCain's hopes.  They caught it right away, unfortunately, but I was real happy for about 10 seconds.

8:18CT by BJ - Ohio called for President-elect Obama!

8.20CT by Cernig. ABC hasn't called Ohio yet but they're showing 57% Obama/42% MCain. Axelrod is on ABC right now saying the Obama campiagn has out-preformed Bush '04 in all the swing states.

8.23 CT by Cernig. If McCain can only carry Alabama by 53% to 47%, I'm thinking he's got a problem.

8.24CT by Cernig Now we have ABC agreeing Ohio will fall for Obama. He's still ahead in Florida too.

8.36 CT Fox and ABC are calling New Mexico for Obama. EC projections: 200 Obama, 90 McCain. Given Ovbama will take CA, if he takes Florida too then McCain's toast.

But there's less than 300,000 votes separating the two, with 16 million plus in. Wanna bet the Republicans call foul?

8.40: Texas projected for Texas (Duh!) although San Antionio voted for Obama (Yay the Alamo City!). EC now projected as 200/124

8:40 by BJ - I’m very surprised with how close Virginia is.  This appeared to be a lot firmer in Obama’s camp than Ohio was, but Ohio has been called and Virginia is on a razor’s edge, though it appears Obama may win a squeaker.  You have to wonder what happened there.

8:55CT by BJ - I don’t know when the networks will call it officially, but take a look at the map and note that California, Washington, Oregon, and Hawaii are worth 77 electoral votes and all are safe for Obama.  Add to what’s already called, and you can see the election is funtionally over.

9.03 CT by Cernig - Iowa projected to break for Obama, another Bush state turned over.

9.43 CT by Cernig. My friend Nicole at C&L tells me the Rocky Mountain News has called Colorado for Obama. That's bring Obama to 216.

9.53CT K-Lo at the Corner has run out of Kool-Aid, for now.

... this is an opportunity, too, an opportunity for our movement, the conservative movement, to reaccess, to return to its roots, to study and renew. And to whip the Republican party into shape. It's going to be tough. But the Right is up for it.

I'm so sorry we're here. But we appear to be. So we'll buck up, build up, and fight on.

9.58 CT Fox is calling Virginia for Obama too, according to MsJoanne in comments. James Joyner thinks Florida will break for Obama too. If so, McCain can put out the lights.

10.00 CT ABC formally projects Obama will be the 44th President of the United States. They report that AP and all the major news outlets are doing likewise.

I'm signing off for now although I think BJ and Jay are still around and may make some updates to this post. I'll be back if there's any major upsets. There's plenty more at memeorandum for political junkies though, including this story suggesting Republicans may be getting ready to allege electronic voting fraud in favor of the Democratic camp.

10:05CT by BJ – You know, I didn’t think it would matter when the networks finally called it for Obama.  I mean, it was obvious once they called Ohio that he was going to win, but it still made me a bit giddy to actually hear them say it.

BARACK OBAMA ELECTED PRESIDENT!

I'm out

10:40CT By BJ – Well, I though I was gone.  I switched over to CBC coverage and they’re looking at a huge crowd spontaneously gathering outside of the White House yelling for Bush to get out.  Hard to tell if its just people celebrating or if it will turn into something uglier if people get carried away.  Hopefully not the latter.  I don’t want anything to tarnish this victory.

10:50CT by BJ - Seems the demonstration is of the good-natured variety, but very much caught the authorities off-guard.  Looks like they're partying in Toronto as well.  I bet we'll see a lot of happy people across the globe tomorrow.

12:23 EST --- By Fester --- Wow --- I am amazed, but my first thought is that the GOP closed harder than I thought they would have (fewer House losses than I thought).  A couple of unexpected Democrats lost (Boyda in Kansas) but held on in both PA-11 and PA-12.  The Senate massacre does not look like it will happen as the Dems look to max out at Plus 7 (NH, VA, NM, CO, OR, AK, and maybe MN). 

Dumbest thing I've heard at 4:30 AM

By Fester:

Until this morning, there have been two things that have competed for the distinction of the dumbest things I have heard at 4:30 in the morning.  Both occurred when I was seventeen:

"Let's give the dog some Jello shots"

AND

"Let's go for a run"

I'm two time zones west of Pittsburgh right now so my sleep schedule is off. So I woke up at 4:00 AM local, and turned on the television as my body was convinced it was time to get up for work. I had CNBC on and they were talking politics. The question came up would the projected gains for Democrats in the House and whether it would lead to a more liberal or a more conservative House Caucus. The respectable pundit declared that it would lead to a more conservative House because 'most of the seats Democrats would inherit (his word, not mine) would be Republican seats..." This may be the dumbest thing I have ever heard at 4:30 in the morning. Of course, any seat a Democrat wins will have been a Republican seat. There are no Greens, no NDP, no Constitutional Party, no independent House Reps. So what is the analytical point here? It could be argued that the current median House member will be displaced as the new median House member will be an even more conservative Democrat, but there are not that many Democrats who are more conservative than the median Representative already. Further more, there is ideological coherence to both caucuses as the most liberal Republican is more conservative than the most conservative Democrat, so replacing a median Republican with a conservative Democrat is a significant shift to the aggregate left. A larger House majority allows for different coalitions of the 'willing' so that median voter theorem is significantly weakened due to agenda control and option space restrictions. If there are more Democrats in the House, it will of course be a (slightly) more liberal place unless one projects that all of a sudden we see the bifurcated Democratic Party of 1962 but Johnson, Wallace and Nixon made sure that coalition is no longer viable.

$190 to vote

By Fester:

Ezra Klein is passing along the Rachel Maddow argument that long voting lines are not a healthy sign of a democracy, but instead a systemic poor-person voter suppression method:

voting lines are just another form of poll tax. They are a time tax. How much is four hours worth to the average voter? How many voters can take four hours off from their job, or their family, to stand at a precinct? We tend to frame long voting lines as an inspiring vision of democracy, but they're quite the opposite: They are disenfranchisement in action. A longer line does not simply mean more people are voting. It means more people are not voting, as they could not afford the time tax.

One of the standard and defensible methods of valuing individual time without massive census research is to look at regional average hourly earnings.  The assumption is that average hourly earnings will roughly equal marginal earnings which roughly reflects the work versus other/better things to do with my time trade-offs.  In 2007, the Bureau of Labor Statistics reports that the average hourly earning in the United States was slightly more than nineteen dollars per hour. 

A ten hour wait in line should be roughly calculated as costing an individual $190 in foregone earnings or leisure opportunity cost.  That is a significant implicit cost that is not fairly or equally borne.

Exports to Cliff Dive?

By Fester:

Last quarter's initial GDP fell as personal expenditures collapsed as consumers are out of money and out of credit.  And that collapse happened before the credit markets had a coronary.  So we can expect the 4th quarter PCE component of GDP to continue to fall.  People are either broke or fear that they will be broke, and traditional monetary policy responses won't have a significant impact as we seem to be hanging at the edge of a liquidity trap. 

Econbrowser points out that one of the strengths of the US economy over the past year has been the increase in exports and the decrease in imports.  Improved balance of trade added a significant amount of support to the GDP this quarter. 

Growth in exports and a fall in imports made a positive contribution, as did strong increases in government spending, which together kept the GDP total from being far more disappointing. But a weakening global economy and strained budgets for state governments make me doubt that we'll see as strong numbers for exports and government spending in the fourth quarter.

The US dollar has been weakening until very recently.  The weaker US dollar makes US exports cheaper which means we should sell more after a bit of a lag, and imports more expensive (we saw this a lot with oil) which means we should buy less after a while.  However the US dollar has bounced off its lows and is strengthening against most other currencies as the credit contraction is prompting a flight to safety and liquidity.  So could we see a cliff-dive in exports as global growth reverses itself and macro-factors come into play?

Bloomberg reports that US manufacturers are reporting a horrendous month:

Manufacturing in the U.S. contracted in October at the fastest pace in 26 years as the credit crisis deepened and companies reduced orders.           

The Institute for Supply Management's factory index dropped to 38.9, worse than anticipated by economists surveyed by Bloomberg News and the lowest level since September 1982, the Tempe, Arizona-based group reported today. A reading of 50 is the dividing line between expansion and contraction.

A good chunk of US exports are capital intensive manufactured goods.  A contraction of US industrial production implies a significant decrease in foreign orders. 

Mish at Global Economic Analysis caught this interesting piece of European news ---

Volvo's order book got destroyed to the tune of 99.63 percent, with customers signing up for just 155 vehicles in the three-month period, the Gothenburg, Sweden-based company said last week.

The Volvo division is their heavy truck division.  If there is nothing to ship, there is no need to buy new heavy trucks.  Shipping prices and demand have also collapsed as bulk commodities are not needed at the same rate that they were needed just six months ago.  American coal, steel, corn, soybeans, and other bulk exports are not in demand as nothing is in demand right now.

So will we see exports cliff-dive over the next couple of quarters?

Destroying the GOP Brand

By Fester:

Just saw this over at Barry Ritholtz's new blog, which absolutely looks great:

And by way of full disclosure, I am probably best described as a Liberal Republican – low taxes, balanced budget, strong defense, no unnecessary overseas involvement, and no government involvement in personal matters (birth control, abortion, gay marriage, etc.) Liberal Republicans are now mythical creatures that no longer exist. I do not recognize the abomination that now calls itself the GOP. I guess that makes me an Independent.

Right now that description would put Barry's politics somewhere in the Wall Street/DLC axis of the Democratic Party with plenty of company although his social libertarianism puts him further to the DFH side of the party. 

I'm betting that the coming Republican food fight will be initially won by the 'we were not conservative enough' factions and if that happens, plenty of people who still conceptualize of themselves as 'liberal'/Northeast Republicans will acclimate themselves to voting for Democrats who fit their politcy preferences with far fewer contortions. 

Damn you John McCain...

By Fester:

Damn you John McCain, you and your 'rally' this morning has cost me at least 45 minutes of sleep.  I'm flying out of state for business this week and my flight is scheduled to leave the Pittsburgh International Airport just as McCain is scheduled to start speaking at an aviation company at the edge of the airport property.  I figure since this is the last day of campaigning, in a critical region for McCain, there is a chance that he could attract a crowd similar to that of a good high school football game, and I just can not afford to get stuck behind that traffic.... Damn you McCain for making me get up too early!

At this point, the race is down to Pennsylvania, and even that it is not that far 'down.'   I think Obama wins Pennsylvania by 6 to 7 points, and the national popular vote by 7 or 8 points as third party votes collapse, GOTV takes effect and the organizational edge grinds out the win.  I think that Congressman Murtha barely survives (less than a 5% win) but Kanjorski in PA-11 loses.  That will be one third of the House Congressional losses for Democrats.  I think Democrats pick up a net of 28 to 32 seats for the House, and 'only' 8 in the Senate.  I am still amazed at the expectations of this cycle as 60 was plausible.  And I am expecting one hell of an intra-mural GOP food fight starting on Wednesday.  I bet the 'we were not conservative enough' faction will win the opening round. 

2016's Biden's Cheney Problem

By Fester

Let us assume that Barack Obama and Joe Biden win on Tuesday.  I think that is becoming extraordinarily likely.  This will produce one hell of an interesting Repubilcan primary in 2012 as there are multiple divided power blocs, but also a very divided Democratic primary cycle in 2016 as there will be no natural successor.  Joe Biden will suffer from the Cheney problem.  He'll be too old to credibly run or threaten to run for the 2016 term.  And this has caused several problems for the GOP in this cycle as there was no one to coalesce around and opposition to that coalitin to created an anti-Cheney Republican.  The 2008 Democratic campaign was Clinton v. Anti-Clinton, the 2004 Democratic primary was Dean v. anti-Dean where clear choices were made.  The 2008 GOP campaign was not that guy, hell no to the infidel, stay away from the drag queen, let's go with Abe Simpson....

Just something to think about in a couple of years if there is any specualtion that Biden won't run for VP in 2012 as that would be a natural point for a successor to be annointed.

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Air and Field with Budget constraints

By Fester:

Atrios snarks the following question:

Wasting Money On The Teevee

Doing that instead of focusing on GOTV efforts seems a bit odd to me.  Maybe it's just a maverick thing!

This is in reference to the McCain campaign spending their last marginal dollars on television ads instead of an extensive field push this weekend.

It actually is a fairly rational and reasonable decision for the McCain campaign to make as a field program thrown together in six weeks will be expensive and ineffective.  It takes time to ID hard supporters, it takes time to ID soft supporters, it takes time to persuade the undecided and weak opposition supporters, it takes time to make a good four or five touches on your persuasion and mobilization universes.  And if you don't do all of these things and do them well, your field operations won't be that effective no matter how much money is shoveled at the problem with four days to go. 

Sean Quinn at 538 documented his observations of the Obama and McCain field campaigns over the past couple of months.  Obama's offices were filled and busy in every state.  Most McCain offices did not have enough people to play cribbage. 

I went by the East Liberty Obama office this afternoon and there were twenty five to thirty volunteers prepping for the weekend.  They were cutting turf, building packets, stuffing bags, making phone calls and coloring in signs.  They are building off of eight months worth of work and they'll be able to mobilize a couple hundred volunteers for the GOTV weekend.  Their efforts could see a useful expansion of effectiveness if there is a money dump but that is only because there has been eight months of voter contacts. 

So if the McCain ground campaign was not there in July, not there in August, showed up for a couple of weeks to go moose hunting after Gov. Palin was nominated, and then went back home for October, dumping several million dollars into GOTV won't do shit for him.  It is a waste of money.  TV ads have a miniscule chance of being a game and race changer, so it is rational for McCain to spend his marginal dollars there given past campaign decisions and failures.

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Syrian Blowback

By Fester:

Ha'artz reports on the Syrian response to the US raid on their soil:

Damascus has decided to cut off its diplomatic relations with Iraq in response to a deadly raid carried out by the U.S. on Syrian soil earlier this week, Al-Arabiya reported on Thursday.
 
Syria has also decided to reduce its troops on the border with Iraq, according to a report from Syrian television.
 
The Syrian government has demanded Washington apologize for the strike of the Abu Kamal border community and earlier this weeek threatened to cut off cooperation on Iraqi border security if there are more American raids on Syria territory.

Blowback with plausible deniabiility --- and utterly predictable as it is not a common response for Country A that is attacked by Country B to help out Country B's objectives....

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Bail-out Dividend

By Fester:

I opposed the Paulson plan because I fundamentally do not trust the Bush administration, even the non-incompetent bureaucrats to be able to effectively implement a good idea much less course correct a bad idea.  This distrust has been earned by their successive and massive clusterfucks of the past eight years including the Oracles' slight (and ideological) flaw in reasoning that people are not completely rational at all times.  And some of this distrust is ideological in that I believed Paulson's blinders and constraints would not allow him to take needed actions.  He had to be pressured into a limited recapitalization plan, and even now that is a 'voluntary plan.'  And since it is voluntary, it had to be designed to be attractive to the idiots who have managed to lose a couple trillion dollars and it therefore could not be as effective as it should be:

USA Today:

Some U.S. banks will pay out more than half of the $163 billion they received from the government in dividends, according to The Washington Post.

"The Treasury plans to invest up to $250 billion in a wide swath of U.S. banks in return for ownership stakes, which the government will relinquish when it is repaid. Among other restrictions, participating institutions cannot increase dividend payments without government permission," the paper says.

"The 33 banks signed up so far plan to pay shareholders about $7 billion this quarter," the paper adds. "Companies generally try to pay consistent dividends and, at the present pace, those dividends will consume 52% of the Treasury's investment over the initial three-year term."

The Post says government officials were concerned that any restrictions on the practice would discourage banks from participating in the program.

Screw them --- investors are supposed to bear the risk of their investment --- cut the goddamn dividends if those banks 'voluntarily' request extraordinarily and cheap injections of capital from us. 

Bloomberg via The Big Picture:

"The U.S. government's $160 billion handout to banks from Niagara Falls to Beverly Hills is going mostly to lenders that need it least, putting weaker rivals at risk of being shut down or taken over, analysts say....

"This has the unintended effect of making the strong stronger and the weak weaker,'' said Gray Medlin, founder of Carson Medlin Co., a Raleigh, North Carolina, investment bank focused on banking deals. "Banks that are getting bad exams and are under intense pressure from regulators won't be successful in applying.''

As we have previously discussed, its time for triage -- close the bad banks, recapitalize the good banks, and move forward.

Poorly targeted, and expensive --- sounds like a great program and a great idea!

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Frames, beliefs and opposition groups

By Fester:

I've been keeping an eye on The Next Right because it has a couple of very interesting rights, and over the long-run a Republican Party that is not beholden to anti-Enlightenment zealots is a very good thing.  An effective counterweight should reduce the incentive and opportunity for amazing feats of Democratic douchebaggery. 

However Patrick Ruffini in a post that attempts to spark a discussion on why there is no right wing equivilant to the netroots makes a bit of a blunder that will sink the effectiveness of any group that emerges from this or many other discussions (irregardless of Tuesday's results)

Most conservative blogs are still stuck in 2003 -- both in terms of the overwhelming focus on media criticism and punditry, and the tendency to outsource electoral politics to the Republican Party. This was in some ways legitimate response to what was happening in 2003-4, when media surrender-monkeys were undermining the War on Terror, Republicans had a kick-butt political operation, and Kos was going 0 for 16. [emphasis mine]

The war on terror in his (and I assume, most right wing minds) includes both an authoritarian desire to suppress questioning AND more importantly having Iraq as the Central Front! 

As long as there is a core underpinning, the right wing bloggers will be pissing up hill and into the wind in any district that won't automatically vote for an indicted ham sandwhich with an R next to their name. 

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Lame duck stimulus

By Fester:

Via Dave at the Glittering Eye is Robert Reich's comments on the probable impacts of a lame duck stimulus package:

The coming stimulus package could be even more nonsensical. It will be voted on by a lame-duck Congress, many of whose members will want to reward campaign donors with juicy pieces of pork. Other lawmakers will see it as their last opportunity to include their pet project or tax perk, and some who won't be accountable because they'll be out of office in a few weeks anyway. In other words, it'll be less a stimulus than a Christmas Tree.

Instead of this, Congress should do just one thing when it returns right after Election Day: Extend unemployment benefits.

I would argue that we should extend this to two or three things that Congress should do in the lame duck session.  I would like to see an increase in food stamp allowances and eligibility as this is money that will be very quickly spent by people who are in need of some relief.  Furthermore, and this may only be a good idea in my mind because it was snowing today in Pittsburgh, I would also like to see increased funding for LIHEAP (winter heating assistance).  Again this is very targeted relief and stimulus and playing games and pay-offs for this program is fairly tough to do. 

Oh NOESSSS --- Bob Barr wins Pennsylvania

By Fester:

Now I wonder how many political junkies of all stripes have this picture as part of a nightmare or peyote fueled trip?

Actually, this was just the Pennsylvania Secretary of State's office making sure the website works ... but it made me chuckle when I saw this....

Entering the campaign bubble

By Fester:

One more week, and then I can breathe and sleep again.  I have it easy as I am not a full time campaign staff.  I am just a volunteer.  But I am in the campaign bubble mode where the outside world becomes less and less relevant for the next couple of days.  I'll need to intermediate that experience with the neccessity of doing my real world two jobs, but the bubble's boundaries are not flimsy concoctions of soap and air.

I would advise pretty much everyone to not to pay too much attention to rumors, anectodotes and observations unless there is some pretty hard data.  Every volunteer and paid staffer enters their respective campaign's bubble(s). 

If someone is door knocking this weekend, they are in the bubble.  They believe that they are doing well, and they will be set up to do well.  The doors being selected by Democrats, Republicans and outside groups are highly targetted doors.  Volunteers should report that they are getting great feed back. 

If your door is not knocked, it may be because the modeling and the voter file indicates that you are a 100% voter who is 95% likely to vote in a particular way.  There is no value add to reminding you to vote.  This is even more extreme if you have already voted.  If you don't see canvassers in your neighborhood, it may be because it is unwalkable, unwinnable, landslide winnable or it may not have a high value, multi-race (state rep, Congress, Presidential) precinct. 

Everyone will believe what they see, but what most people will see this weekend and on Monday/Tuesday won't be hard data. 

Until then, back to the salt mines....

Playing Craps for a Senate Seat

By Fester:

The news that Senator Stevens (R-AK) has been convicted on all seven counts of making false statements pretty much guarantees that Democrat Mark Begich will win the Alaska Senate race. It is also an example of a crappy gamble biting the GOP own ass…

Senator Stevens would always face a tough race for re-election as the Democrats recruited a good candidate, Sen. Stevens was known as corrupt as hell, and the political tide is favorable for Democrats. After he was indicted, his re-elect numbers crashed. However over the past couple of weeks, the race has closed to a slight lead for Begich in the public polling. It would be a tough win but it was vaguely plausible. 
 
However Senator Stevens pushed for a quick trial in the hopes of an acquittal. This is despite the fact that 85% of defendants who go to trial for money laundering or related crimes are convicted. If he was acquitted before the election, he stood a good chance at holding the seat. However this is only a 1:7 play which is roughly the same odds as Any Craps. 

This was an optional play for Senator Stevens, he did not have to request a fast trial. It provided the maximal pay-off but it also had the maximum regret in that he could be convicted and if convicted he was guaranteed to turn over a GOP Senate seat to a Democrat. The better strategy from a mini-max perspective would have been to push for a slow trial and discard the maximal opportunity (conviction, win the Senate election) for a mixed strategy of riding the Republican tilt of Alaska for a narrow Senate win with the contingency option after the election of either being acquitted OR being convicted but being replaced by a Republican appointed by a Republican governor.

Instead, the gamble was an all-in, low odds, maximal risk gamble which failed. 

 

Primaries to prevent Idiocy

By Fester: 

Ideally, politicians would not need federal indictments or the threat of losing their seat to be personally non-corrupt, but politicians are people and people are absolutely stunning in their ability to rationalize and self-justify almost any behavior. Furthermore, there is a steady stream of opportunity for personal graft. So it is necessary for counter-vailing forces to push back against the incentives towards corruption and self-dealing.

I am a firm believer in the value of primary elections, especially for Democrats as the Republican Party looks like it will be spending at least a couple electoral cycles in a very nasty circular firing squad as the theo-cons duke it out with the money-cons and the debate is between the beer halls, Sam’s Club and country-club Republicanisms. The GOP will be able to take out the most idiotic and vulnerable House Democrats such as Rep. Tim Mahoney (D-Fl) but the electoral incentive to behave will not be a significant nor credible threat in the general election.

A few weeks ago, I wrote that it will be the job of progressives and open government/good government types of all ideologies to create strong pressures to prevent complete douchebaggery because there will not be a strong internal caucus incentive for self-policing. The Republicans will be shut out of power so they won’t be able to market their access to power while Democrats will be fighting a tug-of-war with significant factions being ensconced and insulated from electoral consequences. We’ll see behaviors as outrageous as the $90,000 block of ‘alleged’ cash found in Rep. Jefferson’s freezer and working down the outrageous list, behaviors similar to Rep. Rangel’s rent deal in Manhatten.

Credible threats of prosecution are severely lagging indicators as a good lawyer and a non-drunk political strategist can drag the motions through for at least one electoral cycle. Competently run primary challenges against a quasi-random sample of the most egregious offenders in 2010 should provide a decent deterrent while producing positive partisan externalities as bad behavior by a small group of Democrats can be used to tar the entire brand, much like the behaviors of Sen. Stevens, Rep. Young and a few other GOP representatives have marginally contributed to the Republican problems over the past two cycles.

 

 

Retribution and Incentives

By Fester:

John Murtha's campaign is in trouble after stating that Western Pennsylvania has a lot of racist voters.  I think he'll pull out a squeaker, but this will be toughest race he has faced in at least the past decade as Political Wire notes a case of dueling polls:

Yesterday, a more public Susquehanna Poll showed Murtha leading by just four points....
A Pennsylvania source leaked a new poll to Michelle Malkin showing Republican challenger Bill Russell (R) leading Rep. John Murtha (D-PA), 48% to 35%.

And then Michelle Bachman (R-MN) is in trouble as her challenger is now up by three according to Survey USA.  She went from a tough race that was highly winnable to becoming an underdog in a deeply Republican district because she channelled her inner McCarthy on national TV. 
Hilzoy at Obsidian Wings looks at Bachman's case and makes a generalizable statement that I think is a hopeful sign ---

if they paid a price for saying genuinely hateful things, their self-interest would line up on the side of basic decency.

We might be getting closer to that world.

Michele Bachmann may yet win. But in her district, she should have won easily. She has paid a serious price for what she said. A few more episodes like this and we might just see politicians thinking twice about vileness as a political tactic.

That would be a wonderful, wonderful thing.

Generalize this to Rep. Murtha facing the toughest race of my political memory, and the incentive structure to not be a complete douchebag is starting to firm itself up.  There may be plenty of douchebags in Congress, but the smarter ones will learn to keep their mouths shut and not reveal their inner idiocy. Hopefully we can start burying the 60s and work and speak as if most voters are functional adults.

What is it about the hard right.....

By Fester:

What is it with the hard right engaging in behaviors they attack:

From Austria:

The successor of the Austrian far-right leader Jörg Haider was dismissed yesterday after he revealed a “special” relationship “far beyond” friendship with his former mentor.

In emotional interviews with the national broadcaster and a tabloid newspaper Stefan Petzner spoke openly about his affair with Haider, who died at the age of 58 in a high-speed car crash after heavy drinking session at a gay club this month....

“He was the man of my life. Our relationship went far beyond friendship,” Mr Petzner, 27, said after only a week in the job, adding that Haider’s wife, Claudia, 52, “did not object” to their relationship...

Okay, sex clubs --- saw that in Illinois -- are not that unusual... but where are the hookers, wet suit or the diapers....

Quiet --- Matlock's on

By Fester

Somehow this story does not reinforce any theme that John McCain wants to advance:

Republican John McCain is not going to make his election night remarks in the traditional style — at a podium standing in front of a sea of campaign workers jammed into a hotel ballroom. Oh, the throng of supporters will hold the usual election night party at the Biltmore Hotel in Phoenix on the evening of Nov. 4.

But the Republican presidential nominee plans to address another group of supporters and a small group of reporters on the hotel lawn; his remarks will be simultaneously piped electronically to the party inside and other reporters in a media filing center, aides said.

Aides said Thursday that the arrangement was the result of space limitations and that McCain might drop by the election watch party at some other point.

                                                 

When the election comes down to Change v. 'Stay off my Lawn' Grandpa Simpson, this is exactly the image McCain wants....

Palin '12 a rerun of Clinton '08?

By Fester:

These is a new round of analysis by both bloggers I respect and the professionals that the McCain campaign is beginning to see incentive divergence.  As Kyle Moore at Comments from Left Field notes, the probability of a loss means a widely variant future for the different staff members on the McCain team. 

On this last point, what I mean to say is that when a campaign begins, most staffers will agree that a win for the campaign will be good for them. But when it begins to appear that the campaign can no longer win, what is good for them is no longer necessarily good for the campaign. This causes more in-fighting as well as encourages a break down in campaign discipline.

For instance, when we look at the end of the Clinton campaign, we started seeing an awful lot of post mortem articles......

Marc Ambinger outlines the CW argument for Palin 2012 ---

With Republicans completely out of power, and President Obama running what is likely to be a bigger government that spends more on social programs, Republicans are likely to run the most anti-government, anti-Washington campaign this side of Barry Goldwater. Again, Palin is perfectly positioned for this campaign. Republicans tend to pick the next guy in line. Strangely enough, the next guy in line is now Sarah Palin, by virtue of her being the VP nominee this year...

Her main obstacles to the nomination are Mitt Romney and Mike Huckabee....

The Republicans are going to want someone willing to really go for Obama's throat, and be able to do it with a smile. Depending on the outcome of the GOP's War of the Roses, the evangelical community might be a stronger force in 2012 than it was in 2008, at least when it comes to dominating the GOP nominating process. They are a solid bloc of voters and footsoldiers amidst a rapidly splintering coalition.

This is all interesting speculation, but the first analogy that comes to my mind for a hypothetical Palin 2012 run would be Hillary Clinton.  Each will be coming into an election cycle with a divided party split between those who want something different and those who think the same thing can be tweaked.  There is no natural successor, and there is a significant base and elite split.  Each candidate will lock in a fairly significant portion of their respective party's primary electorate at a fairly early point. 

However Gov. Palin probably shares the same basic problem that doomed the Clinton campaign.  Looking at Pollster.com, the problem for the Hillary Clinton campaign during the 2007-2008 primary season was that she had minimal space to grow her coalition.  She started off in the high 30s and never got past 45%.  Pretty much anyone who was willing to vote for her had declared their support very early on.  Everyone else rolled down their preference list to any other surviving candidate until Obama built a slightly larger winning coalition.

Mitt Romney will lock down the money-cons, Newt Gingrich would make a hard play for the neo-cons and Mike Huckabee can play for the Southern theo-cons while Bobby Jindal will attempt to be the hot new thing that is not corrupted by being too close to Washington and power. 

She may start with a decent size base but there is not a whole lot of natural growth areas for her to win.  Much like Hillary Clinton, her best shot would be to face a sustained divided field as she has a good chance of being the top candidate in a contest of five but the anti-Palin cascade buries her in a one on one contest. 

2011 and Pennsylvania Redistricting

By Fester:

I had a few beers last night with a good friend and a very astute observer of Pennsylvania politics.  Our conversations meandered and wandered for a while until we started to talk about redistricting and partisan advantages and leverage points in that process. Western Pennsylvania looks to lose one Congressional seat.  Assuming Democrats control at least one veto point in the Pennsylvania state government in 2011, the Western PA Congressional caucus could transform from the current 1 core Democratic seat (PA-14), 1 lean Democratic seat (PA-12), 3 swing seats that will probably be a 2:1 Dem advantage (PA-3, 4, 18), and 2 core Republican seats (PA-5, 9) to a six seat caucus.   

Within those six seats, aggressive redistricting could probably produce 1 heavy lean and 2 lean Democratic seats (Pittsburgh based, north of Pittsburgh suburbs, south and east of Pittsburgh suburbs), 1 swing seat that will mildly favor a Democrat (the remnants of PA-3) and two more heavily core Republican seats in the central part of the state as PA-12 loses a good chunk of its eastern edge as it migrates west.

The basic premise is that the 4 western most districts (PA-3,4,14 and 18) have an aggregate partisan voter index of roughly D+12.  Right now the map has four districts, three of which are slightly lean Republican with PVIs of R+2 or R+3, and then a super-concentrated Pittsburgh district of D+22.  This pool of voters is where there is an opportunity for unpacking the Democratic coalition. 

PA-18 could be seriously squeezed from Republican Rep. Tim Murphy if Rep. Doyle is willing to make his D+22 district into a D+15 district by absorbing significant portions of Bethel Park, Upper St. Clair and other near Pittsburgh but heavily Republican suburbs.  The North Hills district that is currently PA-4 could be moved from a Republican leaning district to a Democratic leaning district by Doyle taking in Fox Chapel and the Rte 8 corridor while giving up a chunk of McKees Rocks, Stowe and Coroapolis to Altmire.  PA-14 would expand further down the Mon Valley and out the Rte 22 corridor to pick up the population the area has lost.  This will squeeze PA-12 a bit but it can expand by cutting up a good chunk of PA-18's southern and eastern communities. PA-18 would be the seat that is destroyed to balance the population.  The big question would be whether to have Murphy face Doyle or Murtha.  I think my preference would be for Doyle to knock Murphy out.   

Size, scale and structures of power

By Fester:

One of the big undercurrents in Pennsylvania state politics has been an effort to make the state legislature smaller.  This idea is being advanced for numerous reasons.  The soundest is that this will significantly reduce costs.  A bit more dubious one is that this will weaken the influence and power of party leadership and make representatives more responsive to their districts.  I think the kernel behind this argument is that more districts will be more heterogeneous in its population so that there will be fewer overwhelmingly partisan districts. 

However I think this second argument is wrong on the practical side as it neglects the cost of entry into a district.  One of the major methods of party control/discipline is fundraising.  Established incumbents and party leaders are excellent sources of funds either through direct transfers or more often by opening up rolodexes and pushing their networks to donate or not to donate to a given candidate in a given district.  Reducing the number of districts and thus increasing the size of the minimal winning coalition means that all else being equal, the cost of running a competent and competitive race with the requisite field, GOTV, media and advertising components will increase. 

An increased cost to run will deter candidates from running unless they are independently wealthy, or able to access existing party networks (thus incurring substantial political debts) or are able to access independent sources of funds.  Since these races are very low visibility and salience races, the small donor model which is becoming effective on the national level is currently less viable at the state representative level. 

So I don't think that reducing the number of districts while maintaining the basic structure will produce representatives that are more responsive and in-tuned to their constituents. 

I think that changing the electoral system would be a better avenue to approach this goal.  The change that I think would make legislaturers more responsive would be to move from single member, first past the post systems to either the Louisiana open primary or more likely towards multi-member districts with each voter getting a single vote.  For instance, creating a three person district by combining three current districts would dramatically change the incentives for representatives and voters.  Instead of only one winning position, there are multiple winning coalitions and positions.  This allows for more pressure and more shifts within the electorate to credibly threaten incumbents from multiple vectors.  This increases ideological diversity as representatives are more responsive to their districts. 

And since the winning coalition is not N+1 where N is the number of votes received by the 2nd place contestant, but instead, P+1 where P is the number of votes received by the 4th place recipient, the value of money has decreased.  And since the value of money has decreased, party discipline also decreases. 

This change can be implemented with or without changing the size of the legislature.  Either way, it should force representatives to be a bit more responsive to public pressure and opinion. 

Stimulating Stupidity

By Fester:

What should be done to provide stimulus to an economy that is reeling from a credit crisis that is partially caused by bare bone underwriting standards and massive defaults?
Why not encourage and re-legalize one of the behaviors that contributed to mass stupidty?  According to CNN, that is what some Democrats want to do as part of a second stimulus package:

Democrats have also been pushing for a reinstatement of seller-paid down payment assistance, which was prohibited in a housing bill signed into law this summer. The Federal Housing Administration, which backs affordable loans for borrowers with low-income or less-than-stellar credit, has said down payment assistance leads to too many homeowners defaulting.

Republicans are hitting their hobby horses of reducing capital taxes:

Republicans would prefer that stimulus measures include more tax breaks than direct payments. Among them: a temporary reduction or elimination of the capital gains tax on stocks and lower income tax rates for companies that buy distressed assets.
House Republicans are also calling for purchasers of homes that are not primary residences to be entitled to the same capital gains exclusion as owners who sell their primary residences. Currently, a single homeowner can exclude $250,000 of capital gains on a sale, while couples can exclude $500,000.

As we saw just a few weeks ago, cutting capital taxes in a capital intensive economy such as the United States is an amazingly inefficient and ineffective use of money if the intention is to stimulate consumer demand and provide a bit of employment support.  However it is a great way to pay off the ideologues and their funders at the Club for Growth.

A good stimulus package should put money into the hands of people who will spend it quickly because they are broke.  Food stamps, extended unemployment benefits, larger unemployment benefits, expansion of scale and scope of the Earned Income Tax Credit, increased Medicaid assistance are all the types of policies that would actually be effective.  Infrastructure funding is a bit slower but it also has a good multiplier effect.  More importantly, infrastructure built during a recession tends to be cheaper than infrastructure built during a boom as labor, materials and property purchases are all cheaper.  We get a better bang for the long term buck. 

But we are in political-policy silly season, so expect nothing serious until January. 

Problems with the Connectiveness

By Fester

Thomas Barnett made a name for himself by arguing that the overriding geo-strategic imperative for the next two generations would be to create a massively interconnected globe and a common minimal rule set.  He theorized that the new rule set would allow strong members of the Core to coerce and invade the Gap for their own good as well as for positive global externalities. 

He then theorized that mutual interconnectedness would lead to a positive feedback loop of market state creation and Gap areas plugging into the Core via Core based System Administration forces.  Connectiveness is his Holy Grail. 

Daniel Gross over at Slate has a very interesting column on the problems of connectiveness:

In the entire continent of Africa, whose banks don't stray too far, I count just three (in Egypt). We haven't heard much about bailouts in Central America, where Starbucks has no presence. South America's banks may be buckling, but they haven't broken. Argentina, formerly a financial basketcase, and now a pocket of relative strength, has just one store. Brazil, with a population of nearly 200 million, has a mere 14. Italy hasn't suffered any major bank failures, in part because its banking sector isn't very active on the international scene. The number of Starbucks there? Zero. And the small countries of Northern Europe, whose banking systems have been largely spared, are largely Starbucks free (there are two in Denmark, three in the Netherlands, and none in the Scandinavian trio of Sweden, Finland, and Norway).

My tentative theory: having a significant Starbucks' presence is a pretty significant indicator of the degree of connectedness to the form of highly caffeinated, free-spending capitalism that got us into this mess. It's also a sign of a culture's willingness to abandon traditional norms and ways of doing business (virtually all the countries in which Starbucks has established beachheads have their own venerable coffeehouse traditions) in favor of fast-moving American ones.

He goes on for a while that the best predictor of serious financial trouble is the degree of connectedness to the Anglo-American financial systems. The big problem with this theory is Canada has numerous Starbucks, but due to effective regulation, it does not have a significant liquidity or deleveraging problem right now.

The interconnectivity of the financial system allows for far higher degrees of damage from mutually reinforcing and reverbating shocks. Problems from California, Arizona, Nevada, and Florida have taken down Iceland, and is forcing the IMF to consider mass bail-outs of Eastern and Central Europe. Infections can spread very quickly.

One of the better defenses against the financial crisis has been disconnecting. Countries that have not bought significant numbers of mortgage backed securities and derivatives of those securities have gotten out of this round of the crisis far easier.

I Dream Of A Netroots Gini

By Fester

The Gini co-efficient is a monopoly power measuring system used in economics. It is a simple number based on a firm's market share and thus the firm's ability to engage in monopoly pricing. The higher the Gini Coefficient, the more likely a market is a de facto monopoly. The US Justice Department uses a high Gini coefficient as a screening tool when they look at mergers. It is not perfect but it is a quick way to determine whether more extensive and expensive techniques are needed.

We can apply the same type of analysis to political donors and actions. Political donors are competing for candidate and staff attention and actions. Donors want their preferred policy outcomes to be at least discussed if not be the default assumption of the candidate/incumbent and their staff. Candidates and incumbents want to ease their re-election bid and aligning their interests with their funders' interests is a common way of doing so. This explains why every Congress(wo)man and Senator from any state that is part of the Great American Cornfield supports ethanol subsidies.

A candidate following parochial interests over national interests is a good strategy when there are limited number of interests that are invested and active with a candidate. In this case the Gini coefficient for the candidate's interest is very high. However a candidate is more likely to follow broader, public interests when his or her funding and support base is very diffuse and the funding market Gini co-efficient is very low. In this case, there is minimal concentrated power.

Publius at Obisidian Wings frames a very similiar anaylsis in Madisonian terms:

the massive number of contributions makes it less likely (not more) that any one group of donors will have excessive influence on him....

one reason for the Obama model’s success is that it incorporates the lessons of James Madison’s "theory of the big republic" — which is essentially "go big." Remember that, in Madison’s time, the chattering Halperins of the day were skeptical of republics. Too unstable, they said. Too easily corruptible by a powerful faction taking over. To succeed, a republic had to be small and homogeneous. So sayeth the Halperins.

Madison’s great contribution to political theory was that he flipped this view on its head. The way to stabilize republics and prevent factions, Madison reasoned, was not to go short, but to go long. Make the republic bigger — defeat factions not by limiting them, but by multiplying them....

The Gini co-efficient of any single donor to the Obama campaign is effectively zero even if that person donated the maximum allowable donation of $2,300 for the general, or $4,600 for the primary/general combination. Obama's September haul would have required 65,000 max donors. Being 1 in 65,000 is insignificant. The Gini co-efficient for any Ranger size bundler ($250,000) is barely noticable, as the Obama September haul would have required 600 Rangers. His entire campaign would require 2,400 Rangers. There are definate network effects at play, so these raw ratios understate some influence, but the ability to raise big money from high dollar donors looking for access is not as valuable for outside players now than it was in 2000, 2004 or from the 2008 Hillary Clinton campaign model.

So what should groups that seek to significantly influence public policy and politics do if they accept that no matter what they do, their Gini co-efficients at the national level will be miniscule?

Since early 2007, I have advocated that netroots activism abandon Presidential level politics as we are too small to be significant as a fundraising source. Netroots activism is highly valuable for media narrative formation, rapid response and volunteer mobilization but as a funding stream, it is too small to really matter. This analysis excludes any possibility that the Very Serious People who are consistently wrong will listen to Dirty F*cking Hippies, it is an analysis of revealed economic power. Instead, the area that is less impacted by the decline in candidate funding Gini co-efficients is down ballot.

Congressional races are still funded by narrower and more interested parties. The most expensive races in the country seldom top five million dollars per campaign, while the top tier candidates will often spend between two and three million dollars. At these dollar levels, an identifiable and logically coherent funding stream of $500,00 that is supplied by donors who have discrete policy objectives is a significant bloc in the candidate's considerations.

Targetting House candidates will be more effective than targetting most Senate candidates as even the cheapest competive Senate races are at the same price points as expensive House races. Progressive internal caucus strength can be strengthened if the targetting candidates are capable of becoming network nodes. Congressional network power increases at an exponential clip for small and medium size caucuses and not at a linear pace. Adding three or four good voices who are willing and able to assist, and strengthen 20 other colleagues strengthens those colleagues' power and effectiveness by more than 15 or 20%.

This opportunity has passed in 2008 as the last weeks of the campaign is the final read through of a script that was written from January 2007 until the early spring of 2008. Candidates and incumbents know who their supporters are, know who their base is, and will win or lose on what they have already done (unless there is a massive exogenous event). This is a thought piece for 2010 and it is a narrow window of opportunity before the Congressional campaign fundraising Gini co-efficients crash as the diffused donor model spreads down ballot.

Liberal GOTV Urban Legend

By Fester:

I'm going to call bullshit on a story that is starting to float around on the liberal blogosphere about the experience of some Obama canvasser:

First from 538:

So a canvasser goes to a woman's door in Washington, Pennsylvania. Knocks. Woman answers. Knocker asks who she's planning to vote for. She isn't sure, has to ask her husband who she's voting for. Husband is off in another room watching some game. Canvasser hears him yell back, "We're votin' for the n***er!"

Woman turns back to canvasser, and says brightly and matter of factly: "We're voting for the n***er."

Okay, as a canvasser in 2006, I heard all kinds of crazy shit from voters.  My favorite was from the parents of an indicted Republican state representative who said they were going to vote for the Democrats because Repuoblican Senator Rick Santorum, Congresswoman Melissa Hart (then R-PA-4), and Denny Hastert were out to get their son.  So bizarre things are said. 

However I saw this over at Americablog:

An anecdote from one of our regular commenters:

A friend was telling me about calling people in Northern Fla. to ask how they're voting.

ne woman had to ask her husband (first tipoff, ask her husband?)... the response was "We're voting for the ni***r"

That kinda says something about the repugnican ticket. These people still refer to Obama as 'the ni***r', but they're going to vote for him anyway.

Structurally these are the same stories.  An anonymous or a friend of a friend canvasser goes into the 'sticks' and talks to the wife.  The wife asks her husband for whom they are voting for, and it is the surprise answer.  This is a standard inversion of the Archie Bunker frame.  Unless there are names, dates and verifiable facts, I think this is an isomorphic story and an urban legend. 

Just Voted

By Fester:

I handed in my absentee ballot just a few minutes ago.  I'm a banked vote and my name should be scrubbed from any GOTV lists in the next couple of days as I am now officially irrelevant.

I had to vote absentee as I'll be two time zones away from home on election day.  Pennsylvania has a fairly strict good excuse only absentee/early ballot policy, but 1,500 miles is a good excuse. 

Time to get back to work on the GOTV side of the equation. 

Army Recruiting Standards

By Fester:

The US Army has continued to decrease its standards to recruit new soldiers as its primary mission is Iraq and Iraq is not popular.  The Surge brigades dictated to all that the 15 on, 12 off schedule was an aberration, but not much of one.  And when Sheetz gas stations offers $8.75 an hour as a marginal employer, there is significant competition at the high school graduate entry level. 

The Boston Globe reports on the continued decline in standards:

For the third year in a row, the Army fell significantly short of its goal for recruiting high school graduates. It was the latest sign that the military's largest branch is lowering education standards to meet quotas, possibly at the expense of the long-term health of the force.

In the fiscal year that ended Sept. 30, fewer than 83 percent of new active-duty soldiers were high school graduates, according to Army statistics provided to the Globe.

The share was slightly higher than last year - leading some officials to say they have stemmed the drop - but still far below the Army's stated goal of having more than 90 percent earn their diplomas before joining the ranks.

In another worrisome trend, the percentage of active-duty recruits who scored in the bottom category on the Army's entrance exam remained among the highest of the decade,

This is an army with more moral and criminal waivers, weaker boot-camps, compressed training and lower quality recruits to begin with.  This is an army that is attempting to wage counter-insurgencies.  Counter-insurgencies require smart and disciplined troops that are able to think and act on their own with minimal guidance. 

Whoops

Fiddling while Wall Street Burns

By Fester

Tom Brady's worth is being proven every Sunday as the Patriots can not score more than 20 points against a competent defense.

Manny Rameriz can hit nasty curves to straight away center and see the ball land several forlongs away.

Sidney Crosby makes the game of hockey look easy.

All of these guys make a lot of money because they do something that is desirable and they do it extraordinarily well. 

It used to be conceivably claimed that the investment banks and bankers were able to do something desirable and difficult and do it extremely well.  That is why they earned the big bucks... Several hundred billion dollars in losses and between a quarter trillion and a two trillion dollar bail-out price tag later, depending on how you want to account for the federal guarantees, that claim has been significantly weakened. 

The Guardian reports that Wall Street does not get this --- it can hire thousands of people who can lose billions of dollars as efficiently as their current staff.  It does not need to give out massive retention bonuses:

Financial workers at Wall Street's top banks are to receive pay deals worth more than $70bn (£40bn), a substantial proportion of which is expected to be paid in discretionary bonuses, for their work so far this year - despite plunging the global financial system into its worst crisis since the 1929 stock market crash, the Guardian has learned....

executives such as former Lehman boss Dick Fuld, who was paid $485m in salary, bonuses and options between 2000 and 2007.Last year Merrill Lynch's chairman Stan O'Neal retired after announcing losses of $8bn, taking a final pay deal worth $161m. Citigroup boss Chuck Prince left last year with a $38m in bonuses, shares and options after multi-billion-dollar write-downs

I offer my services to lose billions of dollars at a far more reasonable rate of 5 million dollars per year, with an option to convert that salary into a basket of foreign currencies.  I can do that job pretty damn well. 

150,000,000 anvils

By Fester:

The BBC reports that Obama's campaign raised roughly $150,000,000 in September.  This is a number that crushes the rumored amounts:

US Democratic presidential candidate Barack Obama raised a record monthly total of more than $150m (£86m) in September, his campaign says.

The figure brought Mr Obama's total fundraising to $605m, dwarfing the total of his Republican rival.

John McCain is limited to $84 million dollars for September, October and the first week of November.  He has access to RNC money and is being supported by 'uncoordinated' outside groups.  But his accumulated braided funding streams are probably no larger than Obama's hard money budget.

I want to speculate for a minute here.  Let us assume that Obama wins in November.  What happens to the American political system when the Democrats have this type of fundraising advantage?  I grew up in a political environment where the GOP could outspend Democrats, so a marginal race really meant a slightly tilt GOP race.  But those advantages were never as pronounced as this advantage could be.  It is conceivable that Obama's campaign will keep his committee openfor 2012 and take in 2 or 3 million dollars a month in recurring donations for two or three years before he starts campaigning again. 

Democratic fundraising will be significantly aided by their control on power.  Lobbyists want to deal with people who can get things done for them.  Democrats will be the ones with power even if Pelosi continues to run a caucus on majority of the whole instead of majority of the majority rules.  So besides the Christian Right and the neo-Birchers, who will fund the GOP, especially after the GOP looks to beat down the Paul supporters who have demonstrated a willingness to open their small donor wallets?

Systems Disruption during slumps...

By Fester:

With oil prices hanging out near , this is putting a significant squeeze on the state capacity of commodity exporting states that have few other options.  This is because recent import bills have risen so that national accounts balance at much higher commodity sales levels today than they did five years ago.  There will be far less reserve accumulation, and far less easily switchable expenditures that can be financed without accessing the chaotic international debt markets.

My question is how will system disruption/global guerrilla groups operate in an environment of lower commodity prices and chaotic international markets? 

MEND in Nigeria has been conducting an aggressive system disruption/global guerrilla campaign to leverage the Nigerian state to both leave their bunkering activities alone AND send more money back into the Delta Region.  Under the previous price environment, there was significant surplus to be distributed and fought over.  However under the combination of lower prices, higher import bills, chaotic international markets and the new normal of significant disruption with attendant higher security costs, there is far less surplus to fight over.  So will continued system disruption work as a strategy to force the Nigerian state to send more money to the Nigerian Delta region?

Continued systems disruption will be successful in creating local hedgehogs against intolerable, centralized and brittle.  System disruption will keep certain rigs and fields from operating, and if a credible promise can be tacitly gained that well behaved groups will be off limits, it may change behavior.

System disruption is also spreading.  BJ noted yesterday, system disruption efforts are spreading.  A second natural gas pipeline was attached in British Columbia,Canada.  But I am still struggling with system disrpution in an already disrupted world --- what can it accomplish, and who benefits from it?

Deflation, COLA and Social Security

By Fester

Mish at Global Economic Analysis is pulling some charts on basic food commodity prices.  They are falling hard and fast:

Judging from a broad basket of commodity prices, we are likely to see declining prices at the grocery stores in the weeks or months ahead. Lower commodity prices will eventually pass through to prices in the grocery stores and thus be reflected in the CPI. Some very favorable year over year comparisons are coming up, especially if prices continue to decline.

The Social Security Administration just approved a 5.8% cost of living increase in their baseline checks.  Seniors are arguing that they need more money as the non-elastic consumptions goods of living have been consistently rising in price.

I'm just speculating here on a massive political fight next year if there is either minimal CPI inflation or CPI deflation on the SSA COLA.  Can any politician survive an attack ad accusing them of cutting Grandma's Social Security check?

Bail out friends

By Fester:

What was that old t-shirt --- Friends help you move, real friends help you move bodies

The new saying is that Friends help you make money, real friends bail out your currency ---
Via Obsidian Wings is the follow-up report on Pakistan’s foreign currency reserve crisis:

China has assured Pakistan it will not allow its south Asian ally to be forced to default on upcoming international debt payments, according to Pakistani officials.
Such a pledge would offer a potentially crucial boost to Pakistan, which faces a $10bn (€7.5bn, £5.8bn) gap in external financing in the financial year to June 2009, amid a falling currency and declining liquid foreign currency reserves.

Iceland is looking for assistance from Scandinavia and Russia.  Norway and Russia have large reserves available because of their hard currency oil exports. 

Hungary is facing a massive run on its foreign reserves.  The IMF and energy exporters are about the only sources of liquid hard currency available to the Hungarian government as the European Union lacks sufficient marginal capacity to worry about anything besides the bank crisis in the core of the EU.  Bailing countries out allows the bailer to buy the bailee’s assets cheaply, strengthen influence and relationships and if done well, realign international interest profiles. 

TED still clenched

By Fester:

The proposal to buy preferred shares at give-away rates in order to build capital in American banks, and partial nationalization to rebuild European bank capital has been announced, but it is still not doing a whole lot.  Bloomberg is showing that the TED spread is still at near record levels.

Bank credit is squeezed tight enough to produce high quality anthracite coal today instead of diamonds last week, but there is absolutely nothing flowing through the system.

What next?

Last Debate 1st Thoughts

By Fester:

This was by far the best debate for John McCain.  However that is like saying this is my most typo-free post this week.  It may be true, but it is not a high bar to clear. 

Just a couple more points:

• Going to Ayers and staying there was classic Rope a Dope --- McCain wallowing there reinforces' Obama's meta theme of the smallness and pettiness of the past's politics. 
• The last 45 minutes was actually a really good contrasting policy conversation on most issues.
• No one does that sophisticated of probablistic non-cooperative strategic cash flow analysis for a plumbing business.  I have severe doubts about Joe the Plumber's argument that the probability of an Obama tax policy kept him from buying a business. 
• Economy, Economy, Economy!
• McCain had moments of sounding like a right wing blogger --- 'Joe you're rich, you're rich, congratulations' and ' bought an overhead projector'
• My wife was looking at the reaction shots and noted that McCain's grimaces depicted him as a 'prick'
• Both candidates pissed me off by suggesting that we govern by the Dow
• Obama reinforced the Villager narrative of the sacronescent balanced budget --- aim for a structurally balanced budget over a business cycle and not a balanced budget near the trough.
• The CNN ass kicking in the snap poll basically suggests that any Republican thought McCain won the debate, any Democrat thought Obama won the debate.  Those results are not surprising.  However almost the same proportion of independents as Democrats thought Obama won the debate. 
• Hillary Clinton was an excellent Obama surrogate on CNN. 

3 more weeks to go, and it can not get here soon enough. 

Obama's Clincher

By Fester

Via Americablog is the best mailing that the Obama campaign could ever count on:

I lost 16% of my retirement in the last quarter

The quarterly statements are in. What does yours say?

McCain in PA

By Fester:

Josh Marshall is asking a good question right now --- what is the status of McCain's campaign in Blue States?

Given the convergence between the polls and the calendar, the next logical move is for John McCain to start pulling out of blue states that John Kerry won in 2004 and make his stand exclusively on trying to hold the states President Bush won in 2004.

We've already seen McCain pull out of Michigan to save resources/time on a long shot state that he wanted but if he did not win, there were other viable minimum winning coalitions.  Seeing McCain pull out of Pennsylvania would be a true indicator of a collapsing map.  And right now I am not seeing that happening in Western Pennsylvania.

Last night during the Monday Night football game, I saw half a dozen McCain-RNC combined ads, and then flipping through cable channels during the Daily Show ad breaks, I saw a couple of more ads. On Saturday,  I  drove past the McCain Monroeville (east Pittsburgh linear strip suburb) headquarters, and the lights were on, cars were in the parking lot, and glancing at the windows, there were people in the building.  I have no idea what they were doing, but people were there. 

I don't think McCain can afford to pull out of PA as the motivation problem that has afflicted the GOP and that Palin was a temporary adreneline boost is back.  Door knockers are not knocking, and phone bankers are not calling.  Pulling out of PA will depress GOP volunteers nationally as it inidicates that McCain is playing for the Bush 2000 map at best.  He won't win the state, or even come particularly close, but the resources spent in PA may be effectively written off as national party support expenditures, which is about all he can do right now besides hope for an Obama implosion. 

Reduce the Idiots

By Fester:

One would think that if one won a tight election against a creep who was implicated with hitting on teenagers that one would not immediately find a mistress and pay her off. 

One would think that, but evidently that is not the case with Rep. Mahoney (D-Fl).  Here is the relevant chunks of the ABC story:

Rep. Tim Mahoney (D-FL), whose predecessor Mark Foley resigned in disgrace, paid his alleged mistress -- a former staffer -- $121,000 in a settlement, according to ABC News, citing Mahoney staffers...

The affair between Mahoney and Allen began, according to the current and former staffers, in 2006 when Mahoney was campaigning for Congress against Foley, promising "a world that is safer, more moral."...

Friends of Allen told ABC News that Allen sought to break off the affair when she learned Mahoney was allegedly involved in other extra-marital relationships at the same time....

Okay, I support sexual privacy between consenting adults, but I am strongly opposed to idiots in power.  Last week, I argued that one of the dividing lines of the progressive activist class in 2009 and beyond will be the different approaches to Democratic douchebaggery --- this is a clear case of it. 

I agree with John Cole, national Democrats should cut him loose and make it clear that being an idiot and a douchebag is expensive behavior. 

Congratulations to Dr. Krugman

By Fester:

Paul Krugman won his Nobel Prize in Economics this morning.  His work on trade and currency drove the prize. His trade work is a basic reconciliation of theory and reality.  Neoclassical trade theory predicts that capital rich countries with expensive labor would trade with capital poor countries with cheap labor.  And that capital rich countries would not have a whole lot of trade with other capital rich countries.  Whoops, how do you explain the massive levels of trade between very similar economies sending each other near substitutes such?  That was the work that won the Nobel.

And speaking as a purely partisan blogger, I'm waiting with great schradenfreude for the right wing cognitive dissonance implosion from the Krugman stalkers... I'm cruel, I know.

Update by BJ

The implosion didn't take long.  Glenn Reybolds starts off with FIRST AL GORE, NOW THIS, but I think my favourite has to be this from Jules Crittenden:

I’m afraid I have zip to offer on that, except to say if the Royal Swedish Academy of Sciences likes it and it isn’t about DNA, it must either support terrorism, hate America or be completely absurd. Extra credit for Bush-bashing

Guessing the Pardon List

By Fester:

The Cunning Realist is raising a good question that we should be focusing on immediately after the election --- who is on the Bush pardon list?

Related, there's going to have to be a raft of high-profile prosecutions of both private and public sector officials, for everything from disclosure issues to the uncanny buying of stock index futures at politically expedient times, especially in 2004 and 2006 (I believe the equity market's manifest backstop was an important part of the larger financial bubble). Watch the pardon list that Bush will sign with a pen he borrows from the movers. There might be some unexpected high-level names on it.

The big questions will be the following: 

• Is there a mutual Nixonian pardon of Bush and Cheney for all acts that may or may not have committed from Jan. 20, 2001 to Jan. 20 2009?
• How many Senate approved political appointees will get get out of torture for free cards?
• How quickly will Scooter Libby receive his pardon?
• Will there be blanket 'truth and reconciliation' pardons for Enron execs?
• How many will be given?

Telling the joke without the punch line

By Fester:

Paul Krugman is one of many bloggers who is looking at the numerous double digit polling leads and fretting about the future of political discourse in this country:

Something very ugly is taking shape on the political scene: as McCain’s chances fade, the crowds at his rallies are, by all accounts, increasingly gripped by insane rage....

We’ve seen this before. One thing that has been sort of written out of the mainstream history of politics is the sheer insanity of the attacks on the Clintons — they were drug smugglers, they murdered Vince Foster (and lots of other people), they were in league with foreign powers....

it came down to was that a significant fraction of the American population, backed by a lot of money and political influence, simply does not consider government by liberals (even very moderate liberals) legitimate

What happens when Obama is elected? It will be even worse than it was in the Clinton years.

Digby is raising this point by tracking talk radio:

I know I'm sounding like a broken record, but what we are really seeing is the beginning of a right wing story line about the next president of the United States --- he is a drug user, a foreigner, a terrorist and a traitor. And the importance of that is that it gives permission to the right wing machine to do anything and everything to destroy him. He will not really be president, you see. He will be illegitimate --  a usurper.

But times are different and the audiences that are receptive to this crap are significantly different than they were in 1992.  The most visible difference is that it is highly likely that the Democrats will control Congress with a non-Boll Weevil marginal coalition.  The nations' watermelon supply will be safe from Congressional 'forensic investigations.'  It means lazy reporters can not go to the Hill, see a ridiculous hearing, 'he said, she said' the article on deadline and grab a pair of bourbons on the rocks. 

More importantly, the right wing is indescent  right now instead of on the upswing.  Moderates, independents and the marginally politically attached individuals are aligning themselves with Democrats and non-conservative viewpoints on high salience issues and assumptions.  The ideological realignment which started with Southern white Democrats voting for Nixon in 1972, Reagan Democrats aligning with Reagan in 1984 and switching to vote for Republicans at the Congressional level in 1994, has played out.  The Republican Party is an ideologically coherent party and its Congressional wing can not consistently win and hold seats that are mildly Democratic favored. 

These attacks will keep the American Spectator, the National Review and plenty of other wingnut welfare publications busy, but there is little cross-over appeal, and far fewer sites of unopposed direct injection into the political-media discourse for this poo to be flung. 

They'll be telling a joke where no one else gets the punchline.  And after a few Dennis Miller routines, the audience loses its train wreck fascination and stops paying attention. 

Stimulus structure and buying off the median voter

By Fester:

Matthew Yglesias links to a Sebastian Mallaby column that attempts to discuss economics and falls flat on its face:

The fastest and fairest way to help ordinary people is via a budget stimulus package. Part of the extra spending should be distributed to state governments, which are having trouble maintaining Medicaid and other programs as recession eats into their tax revenue. Part of the extra spending could go to infrastructure projects, though this tends to be a slow way of getting cash into the economy. But much of the stimulus should be in checks made out directly to citizens.

Last January, Moody's provided an excellent technical report on what types of policy changes could increase short term economic activity. They produced this report to inform the debate on the first stimulus package that eventually included increased unemployment benefits and the  refundable one year elimination of the 10% tax bracket. 

The reason why tax cuts are not that effective is that they are not targeted to people who need to spend money NOW.  Food stamps are highly effective because the marginal dollar of increased food stamp money will be spent on new purchases immediately.  A good stimulus package that is seeking to be a bridge to better times as well as relief, should be focused on people who are severely cash and credit constrained.

So the first two proposals that Mallaby makes are reasonable effective proposals.  Large bloc grants to states and infrastructure spending to take advantage of bargain basement prices are economically justifiable.  However he wants the majority of his pony plan to go towards rebate checks similar to the ones that went out this summer.  And we know those checks are not effective.

Those checks were the centerpiece of the first stimulus package because it was one of the few things that Democrats, House Republicans and George W. Bush could agree upon.  Cutting taxes is always a good thing for Republicans, while the Democrats wanted to get something done.  They abandoned more effective measures such as increased Medicaid reimbursement policies and expanded food stamp coverage to get something done. 

The broadly targeted and inefficient rebate checks were in the package because everyone thought they were getting a good deal.  Everyone likes to see a $600 or $1,200 dollar check show up.  It popped up consumer demand for a few brief months as it was treated by many as windfall cash and not a change in long term liquidity or credit constraints.  It was not particularly effective as the August numbers started to show.  There was a brief burp of activity and then no sustaining substance kick started. 

Another rebate check that is not targeted towards individuals and families facing severe cash flow constraints will be similarly inefficient.  However it be a quick way of making the median voter feel a bit better despite the high costs   

DCCC's Optimistic Pitch

By Fester:

Earlier today, I received my first tele-marketeer political fund-raising pitch from any committee or candidate.  It was an aggressive pitch by the Democratic Congressional Campaign Committee, the national committee that is responsible for electing and re-electing Democrats to the House of Representatives.   I have two problems with the pitch as it was a bit internally contradictory, but here is the relevant portion of the conversation (all paraphrased):

"Hi is this Mr. Fester"
"That's me"
"This is James Doe from the DCCC and I am so glad to talk to you today.  We have an amazing opportunity to win veto-proof majorities in both chambers of Congress.  We need large majorities for the changes that this country needs.  However we won't get those majorities if we don't have the resources needed for our many good candidates.  Can we count on your financial support"
"Right now, my support is my volunteer time but good luck"
"Are you sure that you can not support the many good candidates..."
"Yes, have a good day..."

Okay, this script is a fairly standard structure --- intro, personalization, set the aspiration, sell the roadblock, provide a solution, and personalize the ask with a follow-up to push for the ask again.

My problem is the aspiration as it is internally contradictory.  Yes there is reporting that large majorities are highly plausible.  However, attendant with those majorities would be a Democrat in the White House, so a veto proof majority is not particularly valuable.  Why sell me on that point of 'veto proof majority,' especially when that majority would imply a gain of over fifty net seats.  That would be an amazing night, but the expectation is too damn high.  A veto proof majority is only a good aspiration when you expect the opposition party to control the veto point. 

Quelle Surprise

By Fester:

Steve Benen's writes a simple, direct and what should be a shockingly non-surprising sentence:

Imagine that. Hand over excessive and largely unchecked surveillance powers to the Bush administration, and gross abuses become commonplace. Who could have guessed?

Hand over excessive and largely unchecked [insert subject area of your choice] powers to the [insert name] administration and gross abuses become commonplace.....

The Bush Administration and the Republican Party are the greatest guilty power in this country for executive abuse of power, but this basic incentive structure of no oversight, fierce and unthinking defense, and limited review is an invitation for abuse of power on any subject.  One of the great challenges for liberals, progressive and general good government types over the next couple of years will be to provide a politically potent case for active oversight so that the incentive structure is for people with power to not be complete douchebags.

Pension structure and cyclical influences

By Fester:

This is just a random thought as I have seen my co-workers fret about their 403(b)s.  I am wondering if pension planning and retirement savings account structure will over amplify swings in the labor market.  Right now the labor market from the job-seeker's perspective is rough.  There are more qualified individuals than there are jobs so the numbers game grind is getting worse. We are seeing that with longer durations of unemployment and higher levels of long term unemployment.  And for those with jobs, the large pool of unemployed or underemployed workers means there is absolutely no pressure to increase our wages. 

Defined benefit pensions encourage workers to leave the workforce during bad times.  Defined benefit pensions are the classic pension where a worker retires in return for X dollars per month for the rest of their lives.  Most defined benefit pension plans will offer an early retirement option where a worker can retire earlier than normal retirement age and collect a smaller monthly pension for a longer period of time.  During normal times the NPV of those two pension amounts should be roughly similar. 

The incentive to leave the workforce increases during bad times because a worker who is in the window to collect some pension may decide that they are no worse off, all things considered, by leaving their job and receiving a guaranteed income plus more time for either leisure or to find a different job.  This incentive clearest for older workers who are currently unemployed or massively underemployed where the search and waiting costs of finding a new job are high.  This incentive removes someone from looking for a job, marginally making it easier for everyone else to find a job.  The retired individual is still in reserve available for a boom time job, but the guaranteed income is attractive.

Now defined contribution plans such as a 401(K) will have an entity make an initial payment and then wish you luck.   Assuming the same worker profile I discussed in the previous two paragraphs, older worker who may or many not wish to remain in the workforce if they have a good situation, the incentives are very different.  A defined contribution plan will roughly track with the overall market,  If the market is up, the retirement value is up.  If the market is tanking, retirement values tank as well.

So in rough times, more marginally attached workers will see their ability to retire or reduce their hours as they draw down their assets diminish.  Their asset base is not there to support this decision.  So they stay in the workforce.  Additionally, current retirees who had not annuatized their defined contribution plans at retirement will see their standard of living reduced due to the markets tanking.  They will seek to re-enter the labor force at the trough, increasing competitive pressure and driving down wages as they seek to replace or supplement their diminished income streams. 

The converse is also true.  During good times, the marginally attached worker with assets in a defined contribution plan is much more likely to retire/reduce their involvement in the labor market than an individual with a defined benefit plan.  This incentive heightens the pro-seeker labor market and pressures wages up. 

401(K) style defined contribution plans are volatile pro-cyclical plans while defined contribution plans are labor market counter-cyclical stabilizers.   

Social Security's magnitude

By Fester:

The Republican Party does not like Social Security.  They never have.  In 2005, they tried to undermine the concept of both the Social and Security part of the program and had their asses handed to them.  The claim has been that Social Security will run a massive deficit that will cripple our economy.  The best estimate is the gap will be roughly 4 trillion dollars over seventy five years as the intermediate cost estimate. 

Chris Briem raises a couple of very good points on the magnitude of 4 trillion dollars over 75 years or the roughly 53 billion dollar a year average gap. 

the best number I see is that for over the next 75 years the social security system was under funded by something just under $4 trillion dollars. A big number for sure, but in the course of a few weeks there has come from nowhere a near unanimous agreement that we should spend how much? $700 billion on the overall financial system bailout, which would be on top of the hundreds of billions that has been spent on AIG, Lehman, Bear Sterns, and an less-discussed, but larger, amount in the hundreds of $ billions that the Fed has been mass injecting into the world financial system. Whatever that adds up to, it has to be a decent chunk of the entire unfunded liability of the Social Security system now and through all of our lifetimes.. even that of many of our children's lifetimes. Given that the $4 trillion number is something that has to be dealt with over the the bulk of the next century, the rate at which funding the system would require must come out to a expenditure rate many many orders of magnitude slower

The Bush tax cuts have a NPV of roughly half of Social Security's long run gap in the intermediate case when the counterfactual was public policy on January 19, 2001.  The Iraq War has a burn rate that is three or four times the NPV gap of Social Security.   

We as a country have money to spend on priorities.  I think Social Seucurity is such a priority.  Other's don't, but if you accept that Iraq war funding is sacronescent or urgent, or if you accept that doing something ineffective, the original Paulson plan, is needed, then Social Security is not in significant trouble as long as there is a political coalition that is consistently willing to make it a priority. 

When in doubt, drink!

By Fester

Thanks Thoreau --- the damn dirty apes will rule us all once this financial crisis runs its course.  First the rum and then the banks!

Second Primary challenge for Lieberman?

By Fester:

Lieberman loses Connecticut for Lieberman Primary

That could be the headline in four years if Senator Droopy decides to run for re-election as an 'independent' Democrat that no Democrat wants to be within two hundred yards as he is bear hugged by Republicans.

Via

Political Wire

is this great excerpt:

"Two years later, his party not only has five candidates, it also has a new platform: 'The Connecticut for Lieberman Party rejects the fraud perpetrated on the members of this party and the citizens of Connecticut by Joe Lieberman.'"

Said one member: "I wouldn't be surprised to see a Connecticut for Lieberman candidate running against Joe Lieberman in 2012."

This could come about because Senator Droopy got lazy and forgot to follow CT state law on party operations. A couple of third party activists read the law, and grabbed the party name. And now we'll have a good time of seeing one of the last Northeastern Reagan reaction Democrats leave the Senate long after he entered into the realm of irrelevancy. Now what are the odds that he could lose two primaries in a row?

Krugman, credibility and doing something

By Fester: I like reading Paul Krugman. He had a fundamental political insight and a megaphone to voice that insight since 1999 --- the Republican Party is fundamentally untrustworthy without any interest in empirical policy evaluation, analysis or comparison. He came to this insight by looking at the Bush tax 'plan' and realizing that the numbers did not even come close to adding up because multiple trillions were being promised to multiple actions. And those numbers were left unchallenged by the cry of 'fuzzy math.' He was willing and able to call bullshit based on that insight that liars lie alot. He got it right on California electricity, he got it right on Iraq, and he got it right on Social Security.

However it looks like Dr. Krugman is getting it wrong on the bail-out because he forgot the centrality of this basic insight. He agrees that the credit market crisis is really, really, really bad. I trust his judgement on that as he is a fiscal crisis expert and other available evidence points in that same direction. And he agrees that something needs to be done. So he supports the Paulson Plan as SOMETHING TO BE DONE despite 'holding his nose' on it. Today he wrote the following on Great Britain's bank nationalization plan:

Unlike the Paulson plan, this [ed:bank nationalization] sounds as if it makes sense. However, given the strong financial linkages among the world’s economies, I wonder how much Britain can do on its own. Let’s see what the plan actually looks like; if it’s good, it can be a model for US emulation, and for the eurozone too if they can get their act together.

So despite his belief that the Paulson plan does not make sense, that there were available attractive, or at least less ugly alternatives and his insight that the GOP is not a serious negoatiting partner or governing partner, he supported the bail-out plan that is fundamentally the Paulson plan with some marginal tweaking. His support of the plan pushed quite a few liberals from the actively opposed to the passively indifferent or active supporters.

His credibility in getting quite a few of the big picture things right over the past eight years acted as a signifier for the rationally ignorant or underinformed that the bail-out is not a horrendous idea and should be passed. I think he was operating with his economist hat on and not his political hat and that this will be a significant hit to his future credibility as a signifier for the progressive opinion leaders on complex economic issues.

3 Down, 1 to go

By Fester:

I should get smart and just go to bed at a reasonably hour on the next debate night as very little is actually being discussed.  To me, it seems like Obama was playing an eight minute offense, run right tackle, throw a short button hook, run left tackle, and kill the clock.  He was successful at that.  I watched the debate on CNN so I saw the insta-dials track on some things that I was reacting in opposition to group consensus, so that is yet more confirmation that I should not judge the debates objectively for the target audience of persuadable voters.  I'm not one of them.

The biggest thing I saw on the dial groups was that Obama had a much higher baseline of support than McCain.  This was seen whenever the two transitioned. 

Now onto policy --- nothing too new besides McCain trying to out FDR a Democrat with his Home Owners Loan Corportation proposal.  The problem with either attempt to stabilize the housing market where it is today is that it is still historically overpriced.  It might make sense to stabilize the market at where the fundamentals of income, post-tax income, employment, and rent prices would suggest as that would provide a functional market again with protection against a down-side overshoot.  I was unimpressed by Obama on foreign policy as his policy is talk first but get ready for more wars.  Neither candidate was willing to talk constraints or limitiations. 

Overall, I would score it a narrow Obama win, but nothing much was said or done differently last night than had been done in the first debate. 

We are, we are, youth of the nation

By Fester:
I'm at the top end of the youth vote which looks to be the most heavily Democratic age cohort in the country for this election cycle and most likely future election cycles.  My generation follows the most heavily Republican age cohort so that raises the question of why the massive difference in political beliefs in a fairly short time frame. 

Matthew Yglesias looks at this report which concludes that the demographics is destiny argument is incorrect as young white voters show the greatest ideological change compared to all other age cohorts and sub-group comparisons:

Young whites, again, hold markedly more progressive views than older whites on the issue of federal spending on child care, while black Millennials’ views are slightly less progressive than their elders’, and Hispanic Millennials’ views are essentially the same as older Hispanics.32 In 2004, 77.8 percent of 18- to 29-year-old blacks thought that federal spending for child care should be increased, compared to 85.5 percent of blacks aged 30 and older. In the same year, 71.4 percent of young Hispanics and 71.6 percent of older Hispanics felt that this funding should be increased. For whites, however, the picture was different in 2004, with 68.1 percent of 18- to 29-year-olds thinking federal spending for child care should be increased compared to just 50.1 percent of whites aged 30 and older.
Yet again, on the topic of spending for the poor, white Millennials have noticeably more progressive views than older whites, while the views of both black and Hispanic Millennials are relatively in line with those of their elders.

Public Pension landmine

By Fester:

Local tax revenues look to start cliff diving soon as consumer spending is contracting.  Borrowing is down, which implies slower business spending which implies lower future consumption and profits to tax as well.  Municipalities and other local government units will be seeing their revenues decrease while their social service expenditures increase.  This is the standard cyclical fiscal crunch story.

However there are two added steps to this story which could make it even scarier.  First, debt costs could explode as the credit market is freezing up.  Massachusetts and California are having issues with their tax anticipation note issues.  Interest rates are increasing for any available credit, and there is much less available credit than normal right now. 

Secondly, public pension obligations costs are set to explode.  The big driver is the roughly 30% year to date decline for index accounts that are tied to the Dow, or the NASDAQ.  Asset values are decreasing. CNN reports that pensions funds and defined contribution plans have lost roughly $2 trillion dollars over the past fifteen months.  And that was before another round of whackage this afternoon. 

We are also reaching the demographic wave of Baby Boomers who are beginning to hit retirement age.  People will want to retire sooner rather than later, and even if some delay retirement for a few years, the expected draw downs will not give municipal or any other defined benefit pension funds time to recover. 

These problems are more likely to occur in municipal pensions as private sector and union pensions are under much tougher regulation.  It is harder for a non-municipal pension to have the magnitude of shortfalls found in the city of Pittsburgh pension obligations (from Chris Briem in August 2008)

News is that the total city pension fund is now at $330 million, down a remarkable $55 million over just 6 months earlier in the year. At that rate the fund is going down $110 million/year which sounds awful and will not last long. Because of the timing of city and state payments, the current annualized burn rate comes to be more like minus $55mil/year. At that rate we are now exactly 6 years from a zero fund balance in the fund. Hopefully the market does not sustain its downward trend and the city will certainly be forced to increase contributions...

Some may recall my most recent pension manifesto. The punch line was that pension liability in itself for the city of Pittsburgh has for the first time reached over a $Billion. I am told that the city disputes this a bit and that the total pension liability is only $899 million which is what you see reported.

So muncipal budgets that are stretched by decreased tax revenue, increased social service and relief demands will also be whacked by higher pension obligations and higher debt service costs.  Cramming down municipal workers is the classic solution that the airline, steel, auto and many other industries have used, but municipal workers are much better organized and have a more concentrated target to exercise political power for and against officials who will go after their pensions.  This will be a political-economic stalemate for many government units. 

Hot Money and State Instability

By Fester:

The global credit markets are creaking to halt even while the price of oil exports have decreased to under $90/barrel on the spot market.  The industrial world's economies are slowing down and a big wave of unemployment and underemployment is in the pipeline.  This spells trouble for weaker nation states in the developing world, especially Mexico.

The Mexican state is currently fighting multiple narco-smuggling insurgencies that are seeking to hollow out the Mexican state and render it ineffective and incapable of crimping their business activities.  The Mexican state relies on significant revenues from a declining oil export sector, low and medium value add manufacturing that is targeted at the US market, and significant remittance flow from immigrants (legal and illegal) who are working in the United States but sending money back to Mexico.

These three flows are at risk for significant short term decline.  Manufacturing exports and immigrant remittances are highly correlated with the US economy.  The US economy is slowing.  Oil prices are falling so both price charged and quantity of oil exported are decreasing right now.  The Mexican state will see a significant contraction in its capacity and would have seen that in normal times.  However these are not normal times, so temporary measures and palliatives may not be available. 

The Republicans' 2010 Fantasy

By Fester: 

2006 was supposed to be a tough Democratic year in the Senate for a very basic reason --- they were defending more seats than Republicans. Even a 'good year' was supposed to run into a wall of practicality -- not enough truly vulnerable GOP seats to take-over for a slim majority.

Enter Macaca, a Republican fixation on trying to win expensive races in New Jersey, a couple of corruption charges/scandals, a bathroom stall, and the evils of man on dog sex, and Democrats won a stunning six seats on a structurally imbalanced field. Oh yeah --- the Republican brand and policies were in the tank due to a lackluster economy, a drowned city, attempts to throw to the market Social Security (glad we won that fight!), and a strategically pointless war in Iraq.  Democrats won on  their own strengths (finally pushing a broad front fight with decent candidates) and on Republican macro and micro-weaknesses.

 

Evidently the GOP is projecting the same situation will occur for them in 2010 but in reverse as the Politico lists their hopes for the next Senate cycle:

“2010 looks pretty good for us to pick up three or four or five seats pretty easily,” the McCain official said.

 

The problem with power is governing

By Fester:

I'm building off of what BJ wrote this afternoon concerning McCain's plan to cut Medicaid/Medicare:

You almost have to wonder if McCain is just giving up at this point.  As Josh Marshal notes, this announcement isn't going to help McCain make up lost ground in Florida.

John McCain would pay for his health plan with major reductions to Medicare and Medicaid, a top aide said, in a move that independent analysts estimate could result in cuts of $1.3 trillion over 10 years to the government programs.

Douglas Holtz-Eakin, Sen. McCain's senior policy adviser, said Sunday that the campaign has always planned to fund the tax credits, in part, with savings from Medicare and Medicaid. Those government health-care programs serve seniors, poor families and the disabled. Medicare spending for the fiscal year ended Sept. 30 is estimated at $457.5 billion.

This is the campaign equivalent of shooting yourself in the foot.

It is a double barrel shotgun to the foot.  Just on the back of my envelope right now, Republicans currently control the White House, and controlled the House for 12 of the past 14 years, and the Senate for 11 of the past 14 years.  They've been in power and responsible for a while. 

The cuts being proposed are roughly $130 billion dollars per year, probably smaller in the first years, and magically large in the out years.  At the New Republic, the savings are supposed to come from 'waste, fraud, abuse' and cash flow/billing changes.  No services would be reduced according to the McCain campaign. 

So the McCain campaign is basically saying that currently Medicare is wasting 20% of its annual budget on waste/fraud or dumb business practices. 

This is an own goal for the GOP -- the program is inefficient because we're inefficient and don't give a flying spaghetti monster damn about doing anything different. 

Constraints and foreign policy

By Fester:

We're broke, and we are overpromised. 

Fabius Maximus is attempting to start a discussion on defense/security policy in a world where the United States actually faces a significant budget constraint.

The most exceptional aspect of American political behavior is the belief that we need not count the costs of national greatness.... In most of these money is no object in the pursuit of security (or other goals, often quite chimerical). That is an exceptional way of thinking.... That era will close soon, and the United States will return to earth. Like everyone else, we will have to consider what foreign adventures we can afford before starting them — weighing their costs and benefits — and stop wars whose costs spiral out of control.

Neither party is particularly prepared for that conversation. The Republicans have never seen an unconditional defense appropriation that they won't pass. Democrats are only willing to tinker around the margins of defense policy for fear of being seen as weak. Remember our national 'leadership' in the Fall of 2002, or the fights for more MRAPS and body armor.

There were very few questions about the core premise of the invasion and occupation of Iraq at the leadership level, and besides Obama's legitimate judgment argument, there is little core disagreement about the vitality of all other countries bending to our will. The same has been seen in the debate on Iran, Pakistan (the difference is whether we are overt or covert) and who is the better ‘friend’ of Israel when that is such an interestingly massive and understated complex situation papered over with a few platitudes.

We are entering a world where we are not the center of it any more. There are other actors with agency and leading roles in that world. This adjustment will be easier if we as a society and, more importantly, if the political leadership recognizes that times have changed and the fantasy that has dominated our discourse that we can act with only minimal constraints (internal or external) has ended so that the core debate is on the means instead of ends of policies.

We’re not ready for that conversation despite it rapidly approaching us as the numbers won’t add up without significant foreign financing with strings attached to it. And this will be the core foreign policy problem that neither campaign is willing or able to address.  The American freedom to maneuver, to create coalitions through various forms of power, incentives, threats, and appeals, has been and will continue to be curtailed.  We will not see the US Navy laid up at its docks like the Soviet Red Banner Fleet was in 1991, but our ability to support current trends in foreign policy will be sharply curtailed by our economic crisis.

Afghanistan Updates

By Fester:

2 quick excerpts before I have to head to work:

From CNN, some hopeful news on Afghanistan:

Taliban leaders are holding Saudi-brokered talks with the Afghan government to end the country's bloody conflict -- and are severing their ties with al Qaeda, sources close to the historic discussions have told CNN...

According to the source, fugitive Taliban leader Mullah Mohammed Omar -- high on the U.S. military's most-wanted list -- was not present, but his representatives were keen to stress the reclusive cleric is no longer allied to al Qaeda.

Details of the Taliban leader's split with al Qaeda have never been made public before, but the new claims confirm what another source with an intimate knowledge of the militia and Mullah Omar has told CNN in the past.

So there is a possibility that Al-Quaeda in Afghanistan/Pakistan is losing its allies like AQI did --- for being disrespectful douchebags.  It seems that AQ is capable of providing resources, money, technical expertise and organization but it has not and can not transition itself to be able to integrate and adapt to its local cultural mileau.  In business terms, it is a radicalism incubator and not an expansion/accelerator agent. 

And now some bad news from the London Times:

Brigadier Mark Carleton-Smith, the commander of 16 Air Assault Brigade, whose troops have suffered severe casualties after six months of tough fighting, will hand over to 3 Commando Brigade Royal Marines this month.

He told The Times that in his opinion, a military victory over the Taleban was “neither feasible nor supportable”.

“What we need is sufficient troops to contain the insurgency to a level where it is not a strategic threat to the longevity of the elected Government,” he said...

Brigadier Carleton-Smith admitted that it had been “a turbulent summer” but he said that the Taleban were “riven with deep fissures and fractures”.

He added: “However, the Taleban, tactically, is reasonably resilient, certainly quite dangerous and seems relatively impervious to losses. Its potency is as a force for influence.”

He indicated that the only way forward was to find a political solution that would include the Taleban. The Government of President Karzai has launched a reconciliation programme, although the hard core of Taleban commanders is thought to be implacably opposed to any compromise. Efforts are being focused on the so-called “tier-two” and “tier-three” Taleban, who are perceived to be less ideologically intransigent.

Buying out the less hardcore and respecting Pashtun nationalism/tribalism and core vital interests would probably be the way forward there.  Here, the lessons from the Anbar Awakening could be used --- respect the exisisting leadership, meet their needs and turn them against the hardcore could work.  The problem is the same, it destroys any central state legitimacy, but as a tactical/operational move, it is not a bad one. 

 

Governing with a Realignment Speculation

By Fester:

I as at two good friends' wedding last night and had a great time.  The bride was beautiful, the groom was smiling the entire time, the Quaker style self-joining ceremony was really cool, the food was great, and the bar was open.  During the night I was speaking with a very perceptive friend who noted that the big question for the Obama administration would be its relationship with Congress.  How does it govern? 

We both agreed that an Obama administration would come in much more organized and coherent than the Clinton Administration did in 1992.  And it would also have the advantage of coming in with a political tide instead of fighting against it.  Congress will not be looking to cover itself against an Obama White House.

Right now it looks like the generic ballot, the generic Congressional Ballot, and the Obama-McCain topline numbers are converging.  This will lead to an interesting question of Congressional relationships as there will be quite a few Democratic Congress-critters who will be coming from districts that Obama won but are still considered 'Lean GOP' on neutral environments.

This is because the PVI is a calculation of relative success, not absolute electoral success.  It is a measure of whether or not a district does better or worse than the Presidential level.  To use a very crude example, let's say Obama wins the national two party vote share 54-46.  In the 11teenth Congressional District, Obama won the district 51:49.  This district would be considered an R+3 district, which means it is a swing/lean GOP seat. 

So in that case, does a Democratic Rep vote with the Blue Dogs who tend to come from very Republican leaning seats, or does that Rep vote and negotiate like the median Democrat? 

This will be important in this scenario as it is likely that the number of Democrats who come from lean GOP PVI districts will increase due to a change in the PVI calculation as well as new wins in GOP seats.  The PVI metric and the political system in general will not reflect inflection points and changes in trend well.  It is a lagging indicator and if it is followed, the Democrats will lose  a massive opportunity cost. 

Defensive Decriminalization begins

By Fester:

The Mexican government is looking at decriminalizing personal possession of most hard drugs in order to concentrate their resources and more importantly, their legitimacy on the relatively innocuous usage. 

Mexican President Felipe Calderon, locked in a high-stakes battle with drug cartels, wants to legalize the possession of small amounts of cocaine and marijuana, a plan that will likely irk Washington. Calderon, a conservative in power for nearly two years, sent a proposal to Congress that would also scrap penalties on carrying small amounts of heroin, methamphetamine and opium for personal use...

Calderon's bill would mean people carrying up to 2 grams (0.07 ounces) of marijuana or opium, half a gram of cocaine, 50 milligrams of heroin or 40 milligrams of methamphetamine would not face criminal charges.

A few months ago I wrote that prohibition is a luxury that we may not be able to afford:

We also know that prohibition has not been successful in eliminating drug use in the United States or other rich nations.  It is a moral/political posture of luxury that may bite us in our ass as it fuels a visible insurgency in Afghanistan, potentially funds Hezbollah in Lebanon and could potentially lead to a massive failed state in Mexico with the attendant mass migration flows that would entail.

Bringing the drug market into the overt and open white market and away from the black market would be a significant blow to these insurgencies.  Legalizing most narcotics and then taxing them at a high rate is a viable option.  It will strengthen weak states where the United States has a strong interest for stability. This will occur by removing a significant funding stream for the guerrillas and transferring it to the state.    Prohibition is a failed luxury that I am not sure we can afford for that much longer.  

Decriminalizing personal consumption means fewer people have to make a choice to support the cartels as a source of protection.  It widens the civil sphere and the non-black market economy.  It does not move personal consumption drugs to the white market, but it moves some of this activity to at least the winked upon and socially tolerated gray market. 

Bail-out passes and its aftermath

By Fester

I am and have been opposed to the basic structure of the Paulson proposed bail-out because I don't think it will work as it does not look at the basic root causes of the current credit freeze.  Instead it addresses a symptom, horrendously crappy balance sheets instead of the insolvency issues that permeate the global economy.  The last of the cheap land and cheap oil booms created too many promises based on unreasonable premises and backed by wild policies and supported by skewed, perverse short term incentives.  Those promises are failing because there is not enough money or reasonable accessible future income streams to maintain those promises.

This crisis is at its base an insolvency crisis, then a counter-party risk crisis, then a credit crisis and finally a balanec sheet problem.  We are addressing the top layer with crappy incentives. And that plan was put together in panic and haste without viable alternatives such as the Swedish model being advanced.  So I don't think it will work.

Where's Dessert?

Debate Wrap-up

By Fester:

I agree with BJ, this was mostly an anti-climatic debate.  Gov. Palin played to her strength of being a nasty talking point repeated with a kindergarten teacher's voice.  She also managed to string words in forms that resembled sentences and the occassional sentence group into paragraphs. Sen. Biden kept his feet firmly on the ground and out of his mouth while his fire was aimed straight at McCain. 

A couple of points to make.  I am pretty damn happy that Biden did not try to dance (too much) around gay rights.  I still want Democrats to be able to say --- look at Massachusetts, look at California, look at Canada --- marriage has not forced the failure of civilization, let people get married and let's stay out of bedrooms.  Palin had to dance a bit on 'personally tolerant, but religious intolerant.' 

The most annoying thing about the entire debate was that any question that vaguely resembled an economy question or foreign policy question was pivoted to energy and oil for Palin.  She would then go into her shucksy down home policy idiot mode for the rest of the cycle.  Just reminds me of the simple Chicken Lawyer from Futurama --- it may be effective, but it is insulting to our intelligence.

Finally, my wife made a very good point concerning Palin's response to the initial question on where blame/responsibility lays for the credit crisis --- the cheap populism is a remarkable removal of agency and individual capacity for a party that believes in individual responsibility when individual efforts produce negative social results.  She was telling people that they were idiots being led around by everyone. 

Freeping the Political OODA Loop

By Fester:

Kathleen Parker is a movement conservative.  She is a staunch Republican and is willing to blame Nancy Pelosi's oh so partisan speech for the failure of the GOP double cross attempt on the Bail-out in the House.  She is a core member of the base and part of its media/information elite.  She also looked at Palin and is horrified.  And then she got freeped.

Allow me to introduce myself. I am a traitor and an idiot. Also, my mother should have aborted me and left me in a Dumpster, but since she didn't, I should "off" myself.

Those are just a few nuggets randomly selected from thousands of e-mails written in response to my column suggesting that Sarah Palin is out of her league and should step down.....

My mail paints an ugly picture and a bleak future if we do not soon correct ourselves.

The picture is this: Anyone who dares express an opinion that runs counter to the party line will be silenced. That doesn't sound American to me, but Stalin would approve.

My first thought on this was pure schradenfreude -- she got freeped by the dumpster divers, window stalkers, counter-top checkers of the GOP base.  (If you have no idea what I am referring to, lucky you!) But she does raise a good point that gives some more evidence to my belief that the GOP is engaging in a positive feedback loop of party diminishment. 

She is trying to make a fairly reasonable point --- Sarah Palin looks worse the more one sees of her.  Gov. Palin negates McCain's dominant frame, and is becoming a predictably bad punchline as she is also an unintentional gaffe machine. 

The Freep, and the hard core GOP base doesn't want to hear this.  So Ms. Parker gets death threats.  Threats and crude intimidation is such a good way to encourage a healthy WTF and How did we Get Here conversation --- really it is.  The GOP electoral base does not want to observe or orientate themselves to a country that currently is moving away from them at a fast clip. 

So as the moderates and the rational conservatives and the liberterians continue to leave  the GOP and either do their own thing, or become nose holding Democrats, internal GOP party composition changes.  The Freepers and the Christian Right become proportionally more important to the primary process.  They reeive a larger voice, and that voice in its shouting and browbeating drives more loosely affiliated voters out. 

This process will go on for at least a couple of more cycles as the GOP is currently convinced that they need to become more conservative and more day to day tactical in order to win.  As a Democratic partisan, I'm fine with that, but the Democrats need a viable opposition party to keep them honest, so over the intermediate term, this is bad for the country and the political process. 

Western PA Heating Up

By Fester:

Western Pennsylvania Congressional races are heating up.  Three incumbents voted against the bail-out while the two very safe Democratic incumbents voted for the bill.  The Post-Gazette indicates that the No votes were votes to protect electoral prospects by Rep. Altmire (D-PA-4), Rep. Murphy (R-PA-18) and Rep. English (R-PA-3).  Altmire should be in good shape against a rematch, and I expect Rep. Murphy to cruise to a relatively easy single digit re-election. 

However, via Swing State Project, is some big news up in Erie:

SurveyUSA for Roll Call (9/26-28, likely voters):

Kathy Dahlkemper (D): 49
Phil English (R-inc): 45
Undecided: 6
(MoE: ±4%)

Oh yeah. No wonder Philly has been producing so much flop sweat in recent weeks -- the only two polls that have been publicly-released from this race (including a Dahlkemper internal) show the incumbent in brutal shape.

Oh my --- this is getting interesting!

Wolverines

By Fester:

Nate at 538 notes the recent trend towards Obama and makes a very relevant point about McCain's campaign strategy decision points:

The most critical point may be that the McCain campaign now faces something of a Hobson's choice. In terms of states where they had hoped to play offense, Michigan began to break away from them a week or so ago, and now Pennsylvania -- which had initially reacted well to Sarah Palin -- seems to be doing the same. But if all they're doing is playing defense, that gives Obama so many scratch-off tickets -- Colorado, Florida, Ohio, Virginia, North Carolina, and perhaps Indiana, Nevada, and Missouri -- that it's essentially inevitable that he'll get lucky in one or more of those states, several of which he already appears to have the lead in.

My gut instinct if I were the McCain campaign is that it might be time to pick one of Pennsylvania and Michigan -- whichever state my internals liked better -- and consolidate my offense there. 

Go to the Wolverines Senator McCain.  Please, get the damn stupid commercials off of my TV. 

Honestly, the expanding map is the best indicator that this is a good Democratic year, and it is illustrative of the advantages of running a campaign with a flexible budget constraint.  Obama is able to keep a large field and media operation running in states where McCain is forced to pull out.  McCain has a much smaller budget of hard, coordinated dollars that he can play with, so a dollar spent in Pennsylvania means that dollar can not be raised or spent in Michigan.

I think we'll see McCain compress his focus list in a week or so to one or two Blue States (including New Hampshire) and then try to hold onto the 2004 Bush map minus New Mexico and Iowa.  That would give him a threadbare majority in the electoral college. 

Cruddy FUD from Gingrich

By Fester:

Via Atrios is an succinct summary of why the credit markets are freezing up:

the reason why interbank lending rates are so high is because banks don't trust each other. The reason they don't trust each other is they don't know how much and which pieces of big shitpile they own.

One of the reasons why they don't know the value of what they own is that underwriting failed absolutely miserably as no document, and no verification loans were freely approved. These loans were then bundled and resold as securities, and those securities are sitting on balance sheets.  Some of these assets sit in Tier I where they are marked to market, so banks have a decent idea of what any loan is worth.  Most of these assets are sitting in Tier II which is mark to model with respect to market prices, and Tier III which is mark to whatever internal model tells you it is.  Tier III is the depths of the shitpile, and is often referred to as mark to fantasy. 

The problem right now is no one has any trust in any number produced by anything based on mark to model or mark to fantasy numbers.  Who really knows what a security based on no doc 2nd mortgages from Las Vegas is really worth.  One model might say 88 cents on the dollar (if so, I want what the model is smoking), another may say 44 cents on the dollar, and the last one might say 3 cents on the dollar.  Who the hell knows.  This is uncertainty that can not be hedged against. 

What is needed right now is more transparency and more sales so similar assets can be reasonably priced.  Reasonably priced means recent market value.  Assets that are priced near market value allow counter-parties to be able to make a reasonable risk assessment on the probability that a potential deal partner will be able to pay back their short term loans.  Interest rates may vary as stronger balance sheets will get better terms, but good banks will be willing to lend to good banks. 

What is not needed is even more opacity.  Moving more assets from Tier I to Tier II, and from Tier II to Tier III to avoid market write-downs will increase distrust.  However the right wing genius Newt Gingrich is proposing this:

there are two steps that could be taken that would send a needed signal to the world financial markets that America has leaders who recognize the gravity of the crisis and are capable of putting aside narrow partisan self-interest for the good of the country....

The second thing our leaders should do immediately is simple and uncontroversial: Suspend the "mark-to-market" accounting rule that is exacerbating this crisis.

Under this artificial rule, the value of assets of banks moves up and down with economic conditions, regardless of their underlying worth. So in a time of economic crisis - such as the current subprime mortgage crisis - the value of bank assets gets caught in a downward spiral, causing investor panic and a drying up of credit.

So Gingrich's plan is to create more systemic uncertainty and distrust.  Brilliant --- push everything off the balance sheet and let the wiz kid models tell us that everything is fine and those Las Vegas 2nd Mortgage No Doc MBS are really, really, really going to pay off at near par value! 

 

Monolines at risk due to slowdown

By Fester:

The monoline bond insurance companies used to have a sweet business model.  They would charge a modest fee to give municipal borrowers a better credit rating and interest rate on bond offerings, and then guarantee the payment of principal and interest.  This arrangement was sweet because municipal debt was often far safer than their background rating implied so the insurers seldom had to pay out.  A decent year could see an operating profit of more than 30% of revenue. 

And then they got greedy and started to insure all sorts of things that were past their expertise.  The MBS meltdown due to massive non-payment of ridiculous loans that were barely underwritten has led to most bond insurance companies to implode.  However the hopeful pillar had been that the basic business of insuring muncipal debt was still sound and a source of reliable positive cash flow.

Well, at least that has been the story for the past year or so.  It may be wrong as municipal bonds may become a bit more risky. 

First we saw, early in September, the city of Vallejo California successfully petition for Chapter 9 bankruptcy.  The city's finances have been rough, but there are plenty of municipalities in Pennsylvania and the Rust Belt that wished they had Vallejo's balance sheet and income statement.  Being able to declare bankruptcy greatly increases the probability that Vallejo will default on some portion of its insured debt.  And since there are plenty of other cities and other taxing bodies that are in worse shape than Vallejo, be ready to see other bond issuers consider this option.

Secondly, as I noted last night, sales tax revenue is starting to fall.  Quite a few convention centers, stadiums, hotels, and other large prestige public projects are financed by dedicated sales tax revenues.  There are questions of moral obligations if sales tax revenues fall beneath projections, but the backing of numerous bonds is weakening.

Finally, via Chris Briem, we are seeing a doozy of a default in progress in Alabama:

Jefferson County is planning on defaulting on it's bonds which will then have bond payments made up by bond insurer FGIC and FSA's woes are bringing down it's parent Dexia. I have mentioned the potential impact on some of the big loans in town if FSA follows some of the other big bond insurers of late.

Jefferson County's basic story is they needed a new sewer system, floated bonds to pay for it, and entered into a series of interest rate swaps that kicked them in the ass.  The solution was to either default, engage in a comical workthrough of the bonds, or massively raise taxes and insure that the incumbent party in local politics is not a viable force for the next generation.  They tried the work through, and now it looks like they will default. 

The previously no problem side of the monoline insurance business is starting to have problems.  And due to the cascading failures of the asset backed security guarantees, most of the insurers have minimal capital cushion AND limited access to raise new cash.  They burned that ability by last spring.

GOP Infighting Accelerates

By Fester:

One of the many comment-worthy results of the failure of the bail-out on Monday has been the public implosion of Republican Party unity.  It has been every man for himself while screwing the leadership.  This is a marked departure from the unify and brazen it out approach of most of this Congress.  Instead vulnerable incumbents voted against the leadership, safe-seat back-benchers lobbed verbal bombs at their leaders, a potential 2012 candidate sabotaged the caucus leadership even as President Bush and Senator McCain revealed how limited their power and influence truly is. 

Coming from a Democrat, I am impressed at the quality of this circular firing squad. It has been predictable for quite some time as the political incentives and environment are aligned to fracture the current Bush coalition.

Dday @ Digby's notes how this dynamic will play out and Democrats just need to stay out of the way of chain-saw armed political lunatics at the end of a PCP/meth bender to benefit:

Actually, they might just be jockeying for power and headed toward a purifying self-destruction, without acting solely with the Democrats in mind. I think you're going to see new leadership elections on the Republican side after the elections, as more moderates retire or lose their races, and the conservative wackjobs consolidate their power with a smaller base. Expect more backstabbing and treachery between now and November. This is the picture of a political party in crisis.

During the summer of 2007, I predicted a nasty positive-feedback loop that is similar to what Dday is predicting, as the internal shock-absorbers for the GOP will fail, be primaried or retire. 

Combine these retirements with expected strong challenges in the few remaining Northeast Republican seats, the non-Southern, non-movement conservative caucus in the 2009 Congress looks to be minuscule. The internal dynamics will produce leadership elections of hard liners and bomb throwers for a couple of cycles, marginalizing the party nationally and further increasing the institutional power of resource extraction, social and political reactionaries within their own caucus. The Democrats don't have to do much for this short to intermediate term mechanism to play out; run non-corrupt candidates in the Northeast, resist the urge for meaningless and toothless compromise for compromise's sake (compromise when there is a good idea to grab of course)

The GOP is engaged in a race to find where their natural floor is in the House.  It is extremely likely that they'll lose a significant number of seats in both the House and the Senate this cycle, and the Senate map does not look to improve for them until 2012 when the freshmen Democrats of 2006 face their first re-election fight. 

The GOP survivors will be those who have either demonstrated remarkable political skill, amazing ideological flexibility, or come from districts that are so Republican that they'll vote for an indicted ham sandwich with an (R) next to their name before they'll vote for a Blue Dog Democrat.  The vast majority of the survivors will represent deeply Red districts so they are buffered from national negative political feedback loops.  They get to play to the peanut gallery because the peanut gallery is an overwhelming majority in their district. 

Losses at the net national level will strengthen this feedback loop.  And we are seeing it already.  Rep. Wayne Gilchrist (R-MD) lost in a primary to a Club for Growth extremist.  Rep. Gilchrist is now campaigning for the Democratic challenger.  In Michigan, former GOP Rep. Schwarz is endorsing a Democrat against Rep. Tim Walberg (who beat Rep. Scharwz in a Club for Growth primary challenge) is getting too extreme.  Kansas has become competitive local and Congressional ground because the state GOP has split between the crazy and non-crazy wing.  The non-crazy wing is either allying itself with Democrats or becoming Democrats. 

These patterns will become more common as the positive feedback loop of enhanced stupidity and short-sighted self-interest will dominate the GOP House caucus for at least a couple of cycles before House Republicans decide that they want to try to win again.  And at that point, Brad Delong might get his wish of seeing an effective and post-Enlightenment counter-balance to resurgent Democrats.  But until then, pass the popcorn....

Edited for clarity in language

And I thought I was a Pessimist!

By Fester:

I had to go through some of my archives for another post that I am working on.  While I was doing that, I found this 'pessimistic' scenario post concerning the first wave of the Credit Crunch from August 2007.  I was painting a rather dark picture at that time, and it looks like I was a bit too optimistic.

Stupid me, I was only worried about quantifiable risk premiums increasing and an inflation excluding inflation stagnant income problem.  I was not too worried about uncertainty brick shitting, freezing up the overnight lending markets, and a nasty employment recession.  I may have hinted at it, but I did not think it was highly likely.  And I was a 'pessimist' back then as we just had to wait a few months for prices to rebound and mortgages to cure. 

The old post on the flip:

Municipal Spending Slowdown

By Fester:

The Allegheny County Regional Asset District is a special tax district that collects and distributes the add-on 1% to the state general sales tax.  All covered purchases in Allegheny County has a 7% tax compared to the statewide 6% tax.  The additional money is split between the county & municipal budgets as well as 'regional assets' such as parks, theatres, arts groups, libraries, and the Sports and Exhibition Authority.  The RAD Board is acting reasonably responsibly today by reducing its budget for next year as it is projecting a significant decline in sales tax revenue, as reported by the Post-Gazette:

A preliminary $80.3 million budget released yesterday is $3.7 million lower than the record $84 million spending plan adopted this year, in large part because of a cut in capital grants...

Dan Griffin, an allocation committee member, said the state is predicting a 2 percent drop in sales tax revenue. As a result, the district is budgeting $76.6 million in sales tax revenue next year, a $1.6 million, or 2 percent, decrease. For 2009, the district is projecting that overall revenue, sales tax and interest, will drop 2.5 percent.

"I'm crossing my fingers that it's only 2¹/₂ percent," said Rick Pierchalski, another member of the allocation committee.

This is a rational move as it is extremely likely that covered expenditures will decreaes in Pittsburgh as the recession bites deeper into people's wallets and reserves.  However it is a pro-cyclical move in that it reduces spending when aggregate demand is lower.  This, in and of itself, is inconsequential as the RAD expenditures are not even a rounding error in the Pittsburgh Gross MSA Product.  However the same incentive structure and requirements will be in play for thousands of municipalities and taxing districts and aggregating those cut-backs will lead to a further drag on aggregate demand that could lead to a further vicious cycle. 

Elite Failure on the Bail-out

By Fester:

The basic argument for the bail-out bill has been 'OOOHHH, SCARY... MUST GRANT UNLIMITED POWERS NOW! (maybe with window dressing.)  And yes, the TED spread and other credit market measures have been extremely scary, but this is not just an economics question, it is a political question.  And the failure of the bail-out package to get out of the House is a massive failure and decrease in elite legitimacy. 

There were three Congressional Groups that opposed the bail-out.  The first two were primarily ideological with some political impact as conservative Republicans and liberal and liberalish Democrats voted against the bill.  The third group of Congress-critters who voted against the bail-out were those who are most responsive to public pressure, the incumbents in tough races (via 538).  Congress was getting bombarded with people who opposed the bail-out and getting very little push back from any voter who supported it. 

 

There was never an elite and credible consensus on what needed to be done.  Some of the economic thinkers who are both credible with liberals and who have gotten far more right than wrong both economically and politically over the past eight years have been split.  Hilzoy outlines the opposing camps:

The problem, of course, is that the experts are divided. For instance: Paul Krugman (and again), Brad DeLong (as of Saturday, but the outlines were clear then, and he has not taken it back), Lawrence Summers (ditto), and Mark Thoma think it should be passed, though none of them seems particularly enthusiastic. Nouriel Roubini is against it, and while Dean Baker hasn't expressed an opinion on this particular draft, if his earlier comments are any guide, I imagine he'll oppose it.

Publius at Obsidian Wings notes his incentive structure on why he is a reluctant supporter of the plan, and it is a damning indictment of the elite conversation and power structure in this country:

count me as a reluctant supporter of the once and future bailout plan. I’m not crazy about helping scumbags who play dice with our universe. But I’m not crazy about a financial meltdown either. So scumbags it is.

So the elite argument has been "Trust Us".  That argument failed and failed miserably because the political and financial elite have not earned that trust from the public for a complex, expensive with highly probable upside cost overruns, difficult to understand, mystical program. 

We tried that with Iraq and whoops -- $650 billion dollars, 4,000+ US lives, 500,000 to 1,000,000 Iraqi lives, 4 million refugees, and $60 more per barrel of oil later, that has not worked out.  We tried that with deregulation and we saw the California electricity manipulation crisis.  We almost tried it with Social Security privatization.  We tried that with killing Glass-Steagall and gutting the regulatory capacity of the Federal Government and we are now talking about a three quarter of a trillion dollar bail-out. 

Finally, the trust reserves in the political-economic elite has been exhausted.  Just Trust Us does not work becuase there is a proven history of failure.  It was not well explained, it was not transparent, and the concessions to make it better were a farce.  It looked and felt like a handout to the well connected while everyone else gets screwed.  (Ben Bernacke will ensure that everyone else gets screwed with the inflation tax with today's actions)   

And the phones, e-mails and faxes lit up Congress to exert some influence.  The vulnerable members acted according to basic democratic principles and listened to their constituents and voted against the bail-out in their own self interest.  They could not argue with a straight face that the bail-out was a good option with positive outcomes.  The way it is designed it seems designed to fail on its stated metrics.  They could not argue with a straight face to trust the wise old men and women of Washington.  That trust disappeared a long time before the political establishment blessed an impeachment over a blow-job.  The elites of this country currently are operating with minimal legitimacy and entrenched rent collection positions.  And they earned that position. 

Monkey Money business in London?

By Fester:

Kat passed along this Financial Times article that states the banks are looking to legally switch the rules on their loan agreements due to the credit market turmoil:

A growing number of banks are concerned that Libor – a benchmark for interbank borrowing costs and the base for calculating the interest rate for many corporate loans – is no longer accurate in reflecting their actual funding costs.

Some are now considering whether they can invoke a “Market Disruption Clause” in loan agreements on certain undrawn credit facilities, allowing to charge higher interest rates to borrowers...

A potential headache for banks is that many such facilities will have been agreed before the recent worsening in credit conditions at a fixed rate over Libor that may now be lower than a bank’s all-in cost of funding that facility.

LIBOR, or the Londin Interbank Offered Rate is the weighted average interest rate for unsecured short term loans offered to member banks.  It is an anchor rate that is used to assess risk.  Most commerical variable rate loans are based on LIBOR + X points. For instance, the AIG federal loan/bail-out is priced at LIBOR +850 basis points. 

However LIBOR has been acting funky as I noted last May. 

The numbers were looking to be junk as banks were lying about their costs by understating the rates they were paying.  And this would lead to several significant problems.  The most apparent would be an increase in adjustable rate mortgage costs as half of American ARMs are tied to the LIBOR rate, but more systemically, it was a symptom of a fouled up credit market....

Bloomberg reports that the garbage truck is arriving and is picking up the crap information through the form sanctions and banning of access to cheap credit:

The BBA, an unregulated London-based trade group, sets Libor by polling 16 banks each day on the rates they pay for loans in dollars, British pounds, euros and eight other currencies. The association is under pressure to show the rates are reliable following complaints by investors that financial institutions weren't telling the truth....

Libor rates jumped after the BBA said April 16 that any member banks found to be misquoting rates will be banned. The cost of borrowing in dollars for three months rose 18 basis points to 2.91 percent in the following two days, the biggest increase since the start of the credit squeeze last August.

By definition, the LIBOR rate should be roughly the rate of capital, so a loan premised on LIBOR + X should be the cost of capital plus a risk premium.  I can understand banks wanting to rejigger their risk premium asks as risk is becoming more apparant.  However, the piece that the cost of capital is not being reflected by LIBOR rates seems to suggest that there is still massive uncertainity and/or fraud floating in the system as different banks may or may not be putting lipstick on their fiscal pigs. 

National City :

By Fester:

A few weeks ago, I posted some personal observations from my retail banking with National City.  I thought it looked like National City was attempting to legally game their cash flow to increase their float.  This would, if I was correct, reduce their day to day exposure to the inter-bank lending market.  Playing cash flow games is often a sign of an entity in trouble.  I did not think much of this post until today.  It is driving a significant amount of search engine traffic our way.

I think this traffic is coming our way because the company's is becoming extraordinarily volatile as investors believe that National City may be the next bank that experiences a significant run on its reserve.  For instance, Bloomberg's chart for today saw a 50% drop and then a 50% rise off the daily lows for a 25% loss today.  WaMu's demise is being blamed on a conventional bank run, so is National City next?  I would think the traffic spike on a minor post by a blogger who does not have any stock-tip history would suggest a depth of worry and concern.  That worry/concern is a neccessary precondition for a run.... 

Suspension of Suspension

By Fester:

Time Magazine's media blog is looking at the activities of the McCain campaign during its 'suspension' and notes that something odd is going on:

In other words: what is "suspending" a campaign anyway? It means skipping out on a debate. It means pulling campaign ads, which can run later anyway.

But it doesn't preclude getting yourself (and your running mate) on the CBS Evening News that same night. It doesn't mean keeping your surrogates—and, let's be fair, the other guy's—off the news shows to argue the valor of your Entirely Nonpolitical Decision. It doesn't mean your viral web ads go away. As far as I've read, it doesn't mean suspending polling or political messaging generally.

None of these free-media aspects are exactly small, in this campaign age.

So 'Suspension' means a freeze of spending on the biggest budget item in a campaign (TV advertising) and nothing else while loudly proclaiming one's virtue.  I wonder why this is the case? 

Could it be a response to this TPM Election Central report from earlier in the week?

Obama's overall spending on TV ads has jumped 50% in the last two weeks, while McCain's has held steady -- and Obama is now outspending his rival even as he's up on the air in more states. In the week ending Sept. 21, Obama spent $9.4 million on TV ads in roughly 15 states.... McCain's outlay has held steady at around $7.5 million in roughly a dozen states

Recent polling out of Indiana has pushed that state into a contestable swing state where McCain or his allies have to spend money.  McCain's defensive map is expanding as Obama is very likely to pick off New Mexico and Iowa and likely to pick off Colorado which is his minimal winning coalition.  At the same time alternative Obama victory routes run through Virginia, Ohio, Florida and North Carolina.  McCain's best offensive flip attempt is New Hampshire.  And now Indiana is in play. 

McCain's campaign is on a fixed budget so a dollar spent this week can not be raised or spent for the last week of the campaign.  Obama does not face a budget constraint that is anywhere near as binding. 

So is this an attempt for the McCain campaign to make a 'virtue' or at least a 'mavericky' stand out of the neccessity of being financially outgunned -- bet that the 'suspension' is such an oddball move that it will dominate the limited free political coverage while both candidates are buried under economic crisis news? 

20 Second Political Economy

By Fester:

Chris Briem at NullSpace compresses several years of political economy studies into 20 seconds:

So this is just me, but my own framework for understanding American political economy goes like this:

    * If you believe market failures happen on at least a semi-regular basis, you are probably a liberal.
    * If you believe market failures happen, but are extremely rare and isolated, you are probably a conservative.
    * If you believe 'market failure' is a an oxymoron, you are probably libertarian.
    * If you think markets are always failures, you are probably a communist.

And if you believe that giving more money to the idiots who blew through a couple of Trillion dollars in a race for the greater fool, you are either an idiot or in Congress. 

Should this be news

By Fester:

On CNN.com right now is this headline:

Palin takes questions from press corps for first time

Okay, this is most of a month since her nomination for the second highest office in the country, and this is news. 

Disgusting that it has taken this long.  It is not like there is any need to know what her views, opinions and attitudes are. 

TED's unimpressed

By Fester:

The rumors are flying fast and furious that a bail-out package is about ready to be introduced and passed with clenched teeth bi-partisanship.  However the credit markets are unimpressed;  the TED spread is at 3.02.  It is not quite at the record close it had reached last week, but it is a significant bounce-up from 2.30/2.40 range it fell to earlier this week.  Right now any bail-out plan looks like it is primarily going to be a mainlining of cash to the stock market.  Distrust and fear will still dominate the credit markets, so this looks like it will be an easy way to piss away $250 to $700 billion in one whack. 

Bush in the background

By Fester:

Tonight I'm finishing up the nursery floor and working on my corner of the Great Left Wing Conspiracy.  I have the Bush speech on the fiscal crisis on background and there is only one thought in my head as I listen to him.

He sounds exactly like a 10th grader giving an oral report on the impact of the French Indian War on the American Revolution --- he knows it is important, but he is not sure why. 

Just another 118 days till the only people who have to listen to him are those who fund wingnut welfare.   

When in doubt, loot!

By Fester:

TPM has the Republican Study Committee 'proposal' to 'bail-out' the stock market.  And it is a doozy as it is a complimation of supply sider masteurbatory fantasies that have no connection to any reality that is not the result of illegal chemical ingestion.

The highlight of this 'plan' is to immediately suspend for 2 years the capital gains tax and then reinstitute the tax but make it inflation adjusted. 

Here is the largest problem with this 'proposal'.  Capital gains are taxed when there are GAINS.  It is a tax on profits.  However the credit crisis is a crisis because of massive losses.  The size of those losses are not quite known (yet) but they are massive.  No one is going to get their purchase price back for any mortgage backed security, much less make a profit on one.

It does not matter if you are using marked to market accounting or some hold to maturity pricing model.  The basic problem is that the default assumptions underlying all of those bonds were way too optimistic.  No one will be booking original capital gains on those securities.   

About the only purchasers who would contemplate capital gains treatment in their decision tree would be the current vulture holders who think they can make a future profit. Warren Buffett is making the decision that his cash investment into Goldman Sach's portion of Big Shitpile will turn a massive profit on the rebound; anyways his downside risk is minimized as he is effectively charging credit card rates to GS for fresh cash.  In this scenario, a capital gains tax holiday would theoretically increase the price that he is willing to pay for the same amount of control.  So the capital gains tax holiday would be an indirect subsidy to current holders of MBS who think that they are worth a whole lot more than current market prices.  And it would be a massive give-away to the top 5% in general.

Typical Republican prioritities --- find a crisis and screw 95% of the country and tell them it is for their own good.

Bin Laden's goals are closer to being achieved

By Fester:

Bin Laden and the senior leadership of Al-Queada had a specific scenario in mind when they approved the 9-11 attacks.  They believed that the United States would invade Afghanistan, and become embroiled in a long-standing guerrilla war.  That war would lead to imperial overstretch and force a retrenchment of American power projection capacity over the intermediate term.  That retrenchment would lead to the United States being unable to cover all of its strategic priorities and thus weaken the critical 'far enemy' support for 'near enemy' autocratic regimes. 

That was the strategic vision behind the 9-11 attacks.  And it initially failed as the US went in light to Afghanistan and had a window of opportunity to systemically defuse the underpinnings of the Taliban resurgance.  And then we went to Iraq and as soon as you strike Afghanistan and replace it with Iraq in the first paragraph, reality starts to approach the original strategic intent. 

Ron, in a post from last night, passes this tidbit along concerning Afghanistan:

ABC reports

"We are now at a tipping point, with about half of the country now penetrated by a range of Sunni militant groups including the Taliban and al Queida," Jones said. Jones said there is growing concern that Dutch and Canadian forces in Afghanistan would "call it quits."

"The US military would then need six, eight, maybe ten brigades but we just don't have that money," Jones said.

Those brigades are in the rotation cycle for Iraq and have been in the rotation cycle for the past six years.  Those brigades would still be in Iraq if the US pulls down to half its current force level in the next three months (and that is not happening.)  Bin Laden's objective of tying the US down and bleeding its strategic flexibility by a thousand cuts is being achieved. 

Maritime TAZ

By Fester:

The Horn of Africa, and the Gulf of Aden are currently the world's piracy hotbed.  There are some non-regional naval forces in the area.  The French are conducting active and highly visible anti-piracy operations, the European Union is starting to think about shifting forces to the region, and Malaysia is sending a decent size force for an out of area deployment.   

Duncan Kinder in John Robb's comments points out  the following article concerning the US naval response:

So far this year, 57 ships have been attacked in the area, mostly in the Gulf of Aden...

The international shipping industry must take on more responsibility to protect vessels against pirate attacks and kidnappings in the dangerous waters of Somalia rather than rely on the U.S. Navy, the commander of the 5th Fleet warned on Monday.

Vice Adm. Bill Gortney said the U.S.-led coalition patrolling the Gulf of Aden simply doesn't "have the resources to provide 24-hour protection" for hundreds of commercial vessels passing daily through these dangerous waters between Somalia and Yemen.

So despite a decent size international naval deployment, local non-state actors are able to create high risk of transit areas for critical international trade and shipping.  Attacks have been occurring further out ot sea, and the coastal waters and channels are effectively no-go areas.  Piracy and other armed attacks are isolating the nominal and failed Somali state from outside aid. 

The coastal waters of Somalia are already a temporary autonomous zone of local pirate gangs who can effectively project force into the littoral.  Now it looks like the contested boundaries of the maritime TAZ are being pushed outward despite Western naval presence.  The deep water regions of the world, even in natural chokepoints such as the approaches to the Gulf of Aden should play heavily to the comparative advantages of advanced nation states.  Yet these advantages are being challenged by sub billion dollar a year enterprises.... interesting & scary. 

Good Faith and Bad Decisions

By Fester:

Let me repost a critical post on decision analysis and how to be right more often than not by Daniel Davies:

The One Minute MBA:

Anyway, the secret to every analysis I've ever done of contemporary politics has been, more or less, my expensive business school education....

Good ideas do not need lots of lies told about them in order to gain public acceptance. I was first made aware of this during an accounting class. We were discussing the subject of accounting for stock options at technology companies. There was a live debate on this subject at the time. One side (mainly technology companies and their lobbyists) held that stock option grants should not be treated as an expense on public policy grounds; treating them as an expense would discourage companies from granting them, and stock options were a vital compensation tool that incentivised performance, rewarded dynamism and innovation and created vast amounts of value for America and the world. The other side (mainly people like Warren Buffet) held that stock options looked awfully like a massive blag carried out my management at the expense of shareholders, and that the proper place to record such blags was the P&L account.

Our lecturer, in summing up the debate, made the not unreasonable point that if stock options really were a fantastic tool which unleashed the creative power in every employee, everyone would want to expense as many of them as possible, the better to boast about how innovative, empowered and fantastic they were. Since the tech companies' point of view appeared to be that if they were ever forced to account honestly for their option grants, they would quickly stop making them, this offered decent prima facie evidence that they weren't, really, all that fantastic......

Fibbers' forecasts are worthless. Case after miserable case after bloody case we went through, I tell you, all of which had this moral. Not only that people who want a project will tend to make innacurate projections about the possible outcomes of that project, but about the futility of attempts to "shade" downward a fundamentally dishonest set of predictions. If you have doubts about the integrity of a forecaster, you can't use their forecasts at all. Not even as a "starting point". By the way, I would just love to get hold of a few of the quantitative numbers from documents prepared to support the war and give them a quick run through Benford's Law....

The Vital Importance of Audit. Emphasised over and over again. Brealey and Myers has a section on this, in which they remind callow students that like backing-up one's computer files, this is a lesson that everyone seems to have to learn the hard way. Basically, it's been shown time and again and again; companies which do not audit completed projects in order to see how accurate the original projections were, tend to get exactly the forecasts and projects that they deserve. Companies which have a culture where there are no consequences for making dishonest forecasts, get the projects they deserve. Companies which allocate blank cheques to management teams with a proven record of failure and mendacity, get what they deserve.

Regulation on Tuesday for a Hamburger Today

By Fester:

Ben Bernacke wants his bail-out and then he'll talk regulation.  That is his conclusion from this morning's testimony to the Senate (via the Wall Street Journal)

At this juncture, in light of the fast-moving developments in financial markets, it is essential to deal with the crisis at hand. Certainly, the shortcomings and weaknesses of our financial markets and regulatory system must be addressed if we are to avoid a repetition of what has transpired in our financial markets over the past year. However, the development of a comprehensive proposal for reform would require careful and extensive analysis that would be difficult to compress into a short legislative timeframe now available.

We can't wait for the smoking gun that justifies a massive bail-out with no oversight to be a mushroom cloud of fiscal armegaddon seems to be the sales pitch for a bail-out that looks like it has been in the works for months. 

“It shouldn’t take much analysis to remember what happened last week, which was a very serious freeze-up in our credit markets,” Fratto said. “Our financial markets right now do not need uncertainty, they need increased certainty as to how this rescue plan is going to go forward — and that they can be sure that there is a plan to go forward — and that will begin the correction in our financial markets.”

Fratto insisted that the plan was not slapped together and had been drawn up as a contingency over previous months and weeks by administration officials. He acknowledged lawmakers were getting only days to peruse it, but he said this should be enough. (my emphasis)

This is a shocker, the Bush administration have a contigency plan.  However it is not a shocker that they are attempting to use a system shock to get a shitty idea passed through brass balls and fear. 

Just trust us does not work.  That credibility was lost no later than mid-October 2002.  If they want a bail-out the first principal should be good faith negotiations on all relevant items with sufficient time to actually digest the news.  Dropping a pre-established plan into a crisis and creating artificial deadlines is not good faith.  It is standard Bushian operating procedures.

Hair of the Dog Economics

By Fester:

One of my great insights from my junior of high school was that I could not get hungover if I was still drunk.  I discovered the Hair of the Dog principle on the mornings when my buddies and I responded to the no-storage incentives of teenage drinking.  We all had a half a gallon of water and a shot or two of whiskey.  One of us would throw some bacon and pancakes on, and by mid-afternoon most of us could go to work and function half decently in a quiet area. 

This is basically the 'solution' that liberterian economist Arnold Kling is proposing:

My alternative is to encourage new lending by lowering capital requirements at the margin. Tell banks that loans issued after September 1, 2008, require half the capital of similar loans issued before September 1. Some banks are in such bad shape that even with those lower capital standards they will not be able to make new loans. Fine. You don't want those banks to grow. But other banks have room to grow, and you want them to grow more than they would under the existing regulations.

Okay, Mr. Kling wants to increase the leverage in the system when the problem has been too much damn leverage. 

From the Wall Street Journal:

The “overall leverage ratio” - a measure of total assets to shareholder equity - of the average European bank is 35, compared with less than 20 for the largest U.S. banks, the economists say, and relatively small writedowns on their assets could have a devastating impact on a bank’s capital.

“If ever they were forced into a firesale, they could go very quickly into insolvency,” said Gros, who is director of the Centre for European Policy Studies.

Fannie and Freddie were leveraged at over 30:1 for a while.  The investment banks were leveraged at 30:1 for a while.  Everyone was leveraged and the excessive of leverage means by definition capital reserves/capital cushions were very small. Capital cushions are what banks and bank like entities use to insulate themselves from bad investments/bad loans.  There is very little cushion left in the system.

So the proposal by Mr. Kling is to reduce the mandated reserves even more.  Wow!

 

Problem with flat fee bail-outs

By Fester:

Bail-outs or even bail-in buy-outs (basically what Dodd is proposing), have some massive incentive issues.  They need to be structured so that bad behavior is hopefully punished, or at least not rewarded.  This is tough, and it requires a good bit of imagination and gaming of the system before it is actually utilized. 

Cheryl Rofer at Whirled View asks a good question on incentives and flat-fees that I want to go off on for a bit:

For that brain trust, I'd like to know why it wouldn't make sense for the government to tell the financiers yes, we'll buy your trashy investments for twenty cents on the dollar or some other very low price. Kevin Drum suggested this and was jumped on by one of his commenters, but that commenter has a heavy rightward bias. I'd like to hear more about this.

Let's assume that participation in a bail-out is voluntary by the current owners of crappy debt.  If we let got of that assumption, then the rest will not make sense.  If participation is voluntary AND if there are lots of different prices for lots of different types of currently distressed mortgage debt, then we have a problem with incentives if the bail-out is offered at 20 cents on the dollar.

More on the flip:

Self-Interest as a Threat

By Fester:

The Cunning Realist has a good round-up of this week from a conservative perspective but there is one bullet point that really seems out of place intellectually.  I also fear that this bullet point will be a cornerstone of the public debate on foreign and economic policy, so I want to unpack it a bit:

I've been writing about how bailouts, interventions, and the socialization of risk are only feasible with a de facto dollar standard. With a massive new expansion of government liabilities, that will become even more imperative. Last week, gold rocketed from $780 to $900 in a few hours. Oil is back over $100. That's unacceptable. Those who shun the dollar are threats, and must be treated accordingly -- now more than ever.

So acting in one's own best interest is now a threat.  An interesting thought process from an 'investment professional' who has a long record of seeking a mostly free market system where constrained best interest seeking is seen as a good. 

Let's recount what has gone this week --- the US is seeking to nationalize all banking losses, while privatizing the profits, add at least $700,000,000,000 to the national debt, increasingly involve itself into a third war in South Asia, and has a Presidential Candidate with a non-zero probability chance of winning whose stated policy positions will further weaken the US dollar due to massively larger deficits that will be cured by magical pixie dust. 

Sounds like a great to invest on a rational level.  And if we throw in any sanction/seizure fears related to foreign policy, again it sounds like the place to bail-out without actually receiving any leverage.  Being cautious on the US dollar sounds like a sound economic policy and a very sound foreign policy decision for non-dollar hegemonic nations. 

An effective plan

By Fester:

The following is from Ian Welsh at Firedoglake, but it should be the basic template of any plan that progressives advance.  It is based on proven systems, discourages stupidity, gives the taxpayers an upside stake, and does so in a manner that protects and enshrines constitutional norms:

1) Buy up mortgages at a discount and give people new fixed rate mortgages. The government shares in further house appreciation (only fair since it bailed the homeowner out). This stabilizes mortgage prices and helps people and banks both. It is essentially identical to what FDR did with the Home Owners Loan Corporation (HOLC), and we know how to do it. Initial price tag? Probably around 20 billion.

2) Use the FDIC (the folks who take over failed banks) to take over failed mutual and money market funds, make sure the investors get as much money back as possible, liquidate the funds in an orderly fashion (or keep them operatiing if necessary) and if they are kept alive, kick the people who screwed them up to the curb and change how they do business.

3) Declare a national emergency, with judicial review (unlike Paulson's seizure of ultimate power) and use the authority to review all purchases of banks. to insitute oil rationing if necessary (or simpler procuedures like "every street now has a 55 mile an hour speed limit, if it is normally higher). Also allows release of oil from the reserve, if necessary.

4) Expand the safety net such as food stamps, employment insurance, welfare and so on. We know this is going to get worse no matter what we do, so why aren't we taking care of ordinary people?

Looking for 30 good Democrats

By Fester:

Matt Stoller at OpenLeft is printing some Congressional e-mails that illuminate the basic projected state of play on the bail-out.  And it is ugly for anyone who wants an effective rescue plan that respects both reality and the Constitution unless we can create a countervailing bloc in the next week:

progressives will approach Nancy with ideas for reform, and she'll agree to push for their proposals, and she'll really mean it. Then industry lobbyists will go to Dennis Moore, Melissa Bean and a few other Democrats, and tell them how dire the consequences of the proposals would be, and that the members who understand how the economy works need to step up to stop Nancy and the crazy liberals from doing something rash. Then those Democrats will go to Steny and tell him how terrible Nancy's crazy ideas would be, and how we can't rush into something like that without much, much more thought. Maybe Barney will try to talk to Dennis or Melissa, but it will become apparent quickly that they have no idea what they're talking about; they're just repeating by rote what the lobbyists told them to say. Melissa may actually be dumber than Sarah Palin. Barney will realize he might as well talk to the lobbyists directly and save a step. The lobbyists will agree to something inconsequential....

The only defense for the play is for a significant group of Democrats to say they won't vote for any proposal that isn't unpalatable to industry, and mean it. It's a pretty high stakes game of chicken, but otherwise we come out of this with nothing but a $700 billion giveaway to a crooked industry.

So basically we need a group of Democrats that are sufficiently large and internally coherent to force an alternative veto point.  That is roughly 30 Democrats who will vote no unless it is a damn good package.

Who are they and how do we find them? 

I would think that the core group of Progressive Caucus Democrats who have been consistently pressing on Iraq, but whom else.  I'm flying blind here....

Tough to fight when there is no one there

By Fester:

Massive sectarian dislocation, hundreds of thousands of deaths, mass instability to hold onto centralized power --- I thought those were te key components of the 'humanitarian' argument for invading Iraq. 

Well, that has also been the impact of the US invasion and occupation of Iraq.

UCLA geographers are looking at power usage rates to see where people lived in Baghdad and security was 'restored' because of mass ethnic cleansing that happened independent of and before the 'Surge' troops arrived.  It is hard to fight when there is no one there.

"Essentially, our interpretation is that violence has declined in Baghdad because of intercommunal violence that reached a climax as the surge was beginning," said lead author John Agnew, a UCLA professor of geography and authority on ethnic conflict. "By the launch of the surge, many of the targets of conflict had either been killed or fled the country, and they turned off the lights when they left."

The night-light signature in four other large Iraqi cities — Kirkuk, Mosul, Tikrit and Karbala — held steady or increased between the spring of 2006 and the winter of 2007, the UCLA team found. None of these cities were targets of the surge.

Baghdad's decreases were centered in the southwestern Sunni strongholds of East and West Rashid, where the light signature dropped 57 percent and 80 percent, respectively, during the same period.....

Lights dimmed in those neighborhoods that Gen. Jones pointed to as having experienced ethno-sectarian violence and neighborhood ethnic cleansing in his "Report of the Independent Commission on the Security Forces of Iraq."

"The surge really seems to have been a case of closing the stable door after the horse has bolted," Agnew said....

Maybe the Surge forces prompted a final pre-Surge explosion of violence?  Maybe the surge troops prevented Sunni Arab neighborhoods from conducting large scale counterattacks and therefore those neighborhoods decamped for Syria?  But it really does not look like the Surge troops did much to actually stop the fighting; instead the Sadrists and Badrist fighters won their fights. 

Talking Points for Opposing the lBailout

By Fester:

The Bail-out proposal is bad, and it is getting worse as more information is being released.  It should not be implemented for multiple reasons.  Most importantly, it transforms the Sec. of Treasury into an economic Caudillo instead of a mild-mannered technocrat.  The bail-out plan is basically Congress self-castrating itself on all aspects.  If it passes in its current form, we will have declared ourselves an elected dictatorship where the 'accountability moment' may or may not be once every four years.  Initially it would be every four years, but sooner or later, there would be some emergency that would offer the Presidential Potente the opportunity to be come President for Life or until the End of the Emergency.  We need to flood Congress and get them to act in their own best interests and our best interests instead of panicking to appoint Paulson as Palpatine. 

Here are the start of some talking points:

From Ian Welsh:

Bush is asking you to trust his administration with 700 billion after spending 580 billion on the Iraq war.  Do you trust him?

From Paul Krugman:

Anyway, the vicious circle aspect is only part of the larger problem, and arguably not the most important part. Even without panic asset selling, the financial system would be seriously undercapitalized, causing a credit crunch — and this plan does nothing to address that.

Or I should say, the plan does nothing to address the lack of capital unless the Treasury overpays for assets.  And if that’s the real plan, Congress has every right to balk.

So what should be done? Well, let’s think about how, until Paulson hit the panic button, the private sector was supposed to work this out: financial firms were supposed to recapitalize, bringing in outside investors to bulk up their capital base. That is, the private sector was supposed to cut off the problem at stage 2.

It now appears that isn’t happening, and public intervention is needed. But in that case, shouldn’t the public intervention also be at stage 2 — that is, shouldn’t it take the form of public injections of capital, in return for a stake in the upside?

Let’s not be railroaded into accepting an enormously expensive plan that doesn’t seem to address the real problem.

From Brad Delong:

John McCain chose Sarah Palin to be his vice president.

There is a 40% chance John McCain will be president on January 21, 2009.

There is no way in hell that anybody should give any extra power to any Treasury Secretary chosen by John McCain.

From Michael Shedlock:

everyone wants to rush this through even though it is the biggest financial crisis in history. One might think that something this big should be carefully considered but no... Bush says: "This is going to be a big package because it's a big problem" and "We need to get this done quickly and the cleaner the better."

It seems the bigger the problem the quicker and cleaner it can be fixed. Indeed Congress will argue more over the cost of toilet seats than they will over this $700 billion (and counting) bailout.

From Nouriel Roubini (via Bloomberg)

"He's asking for a huge amount of power," said Nouriel Roubini, an economist at New York University. "He's saying, `Trust me, I'm going to do it right if you give me absolute control.' This is not a monarchy."

From Ian Welsh (again):

Well, that 700 billion bails out Paulson's friends and colleagues at the highest levels (most of the little people will still lose their jobs). It preserves the world that Paulson worked in all his life. It means that Wall Street and the Banking industry doesn't have to change how they do business. The people in charge of it will stay in charge and they will stay rich.

Paulson is asking Congress for 700 billion dollars to bail out his friends and to keep his world intact. To ensure there is no meaningful reform of how the financial industry does business, or who runs it. He knows that if serious consideration is given to how to do a bailout it will include a lot of conditions, that the markets will be re-regulated and reformed, and that his friends will mostly be tossed out on their butts.

Be clear, the economy is in a crisis, but it's not a crisis that requires the literal dictatorial powers that Paulson is asking for. He does not need to be free from all oversight. He does not need to be given 700 billion dollars now. The bailout does not even have to be done through the treasury but could easily be done through the FDIC. Conditions can be imposed on the parties being bailed out. Help could be given to ordinary people as well as banks, not just to banks. Most of all, Congress does not need to sign Paulson a blank check and legal immunity from consequences as to how he spends it.

This is a stickup...

If the crisis was as severe as Paulson makes it out to be, virtually the end of market capitalism, he wouldn't be quibbling over whether or not CEOs get to keep their golden parachutes. 

From Jim Henley:

There is no way whatsoever to credibly cast the proposed bailout as a "never again" measure. There’s no way to ensure that it genuinely is a "never again" measure. There’s no institutional mechanism; there’s no logic to this bailout that could not apply to a future one. It not only culminates the previous era of Moral Hazard, it inaugurates the next one. It guarantees more of the same behavior that led to the current crisis. The only way it would not eventually lead to another, even bigger bailout like the one that got rolling with Bear Stearns in March is if - here comes the happy part - the government is simply too broke next time to pull it off.

Accountability is for peons

By Fester:

I don't like the bail-out for Wall Street as the assumption behind the bail-out is that it is merely a liquidity problem and not a systemic problem.  If it was a liquidity problem, the radical steps of the Federal Reserve over the past year and low interest rates should have been more than sufficient to float everyone through the rough patch.  Even more is the accountability measures that are in the draft legislation shown on Calculated Risk:

Sec. 4.  Reports to Congress.

Within three months of the first exercise of the authority granted in section 2(a), and semiannually thereafter, the Secretary shall report to the Committees on the Budget, Financial Services, and Ways and Means of the House of Representatives and the Committees on the Budget, Finance, and Banking, Housing, and Urban Affairs of the Senate with respect to the authorities exercised under this Act and the considerations required by section 3.

So Congress will have a report from the Bush Administration. It is not like the Bush Administration has ever lied in a report, suppressed evidence, skewed evidence or engaged in extraordinarily deceptive practices on major policy initiatives worth several hundred billion dollars such as Iraq.  Congress may write a Sternly Worded Letter if it receives Bullshit.

Sec. 8.  Review. 

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency. (my emphasis)

Great, this is effectively a Slush Fund to dwarf all slush funds.  Again, it is not like we have seen an Administration ever use government resources for political purposes.  The Justice Department and the the Treasury are above reproach --- it is absurd to think that there could be any abuse of power.  $700 Billion dollars are unrestricted spending with absolutely no oversight.  It is only the good graces and manners of Sec. Paulson that we can rely on.  I don't count on anyone's good graces with that much money.

Accountability is for peons.

Succinct Summary of the Credit Crisis

By Fester:

VIa IOZ:

The problem with big-finance accounting is the problem with observational physics in the quantum age.  Just looking at it fucks up the model.  Everything is probabalistic.  Nothing is real.  Remember that great Denise Levertov poem, "Everything that Acts Is Actual"?  Well, alas, no it ain't.

Unlike physicists and their brethren, however, Accountancy did not devise new models and mathematics to understand the elaborate, intricate inner pseudoworkings of the objects of its observation, but instead contented itself to become a sort of dorm-room-Theosophical Society to the financiers, taking the old, "Well, it is what it is what it isn't" approach, because, after all, do you know how much money Arthur Anderson et al. got paid? Everyone got stoned and agreed that our solar system is just an atom in the pinky toe of some vast cosmic being, and so, like, who cares, dude? What are you talking about? Pass the chips.

This, ladies and gents, dudes and dudettes, was the American Economy.

Competence, people!

By Fester:

Via Steve Benen at Political Animal, I saw this poll done for Yahoo News:

People would rather watch a football game with Barack Obama than with John McCain — but by barely the length of a football.

Obama was the pick over McCain by a narrow 50 percent to 47 percent, according to an Associated Press-Yahoo News poll released Friday that generally mirrored each presidential candidate's strengths and weaknesses with voters. Women, minorities, younger and unmarried people were likelier to prefer catching a game with Obama while men, whites, older and married people would rather watch with McCain.

"I think he'd be fun to sit back with and hear his experiences, all his stories....."

Great, this is the way to choose a President --- who would be better to have a couple of beers with and discuss the intricacies of the Cover-2 or the variations of the 3-4 0 technique.  That has worked out so well in the past eight years.  And I am sure that I can get better football coverage at Football Outsiders. 

That same poll asked who would be the better teacher; again Obama won.

Even better, I'm not voting for an elementary school teacher.  My school district has a solid early education system and the research shows home environment is key.  I'm hoping a president is capable of dealing with crisis and responding to events in a productive and coherent manner.  I'm looking for basic competence.

So when I see this type of 'journalism' juxtaposed with the following blurb via Calculated Risk

From the NY Times: Congressional Leaders Stunned by Warnings

[A]s the Fed chairman, Ben S. Bernanke, laid out the potentially devastating ramifications of the financial crisis before congressional leaders on Thursday night, there was a stunned silence at first.
...
Senator Christopher J. Dodd [said] the congressional leaders were told “that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally.”

Whoopsie --- Congress did not know that the entire goddamn credit market was screwed up, that there was a housing bubble, massive loss of trust, massive loss of cash, and there might be a couple of problems. 

This is bipartisan stupidity, ignorance and incompetence as plenty of bloggers on the left, right, anarcho-socialist, liberertian and dirty fucking hippy persuasions among other have been keeping track of this damn problem for anywhere from one to five years now. 

And we get reports telling us which candidate would be more fun to watch a football game with.  I'm glad that I'm going to a bachelor party tomorrow night as I'll be able to drawn the pain in whiskey. 

For only a trillion dollars, TED is calm

By Fester:

The resurrection of the RTC and the explicit bailout costs of the banking fiasco could cost us at least a trillion dollars over the next couple of years according to Alabama Republican Senator Shelby.  The New York Times reports that RTC Part Deux and the FIDC are looking to raise $1,200,000,000,000 between the two of them for emergency bail-outs and buy-outs of fiscal toxic waste. 

And for a trillion dollars of probable commitments, combined with several hundred billion dollars of coordinated central bank actions to flood an insolvent system with liquidity what do we get?

We see the TED spread drop from 3.14 yesterday to 2.33 today.  That is still above where it was at the start of the week.  It is higher than it has been at other points in the credit crisis.

We also see the domestic agenda of the next ten years destroyed.  If we see the screeching that a rapid drawdown in Iraq produces, there goes any domestic flexibility for my children's youth. 

Thanks unfettered crony capitalism...

Time to look at reinstituting a 50% marginal rate on incomes in $20 million and more per year zone.  Those geniuses are the ones who created the conditions of this bailout, they should be the ones who pay for a good chunk of it. 

All Right California

By Fester:

I'm a day late on this, but I am very happy to see this lede from the Sacramento Bee:

A constitutional amendment that would ban same-sex marriage in California has lost support during the past two months and now trails by a 17-point margin.

Just 38 percent of likely voters back Proposition 8 while 55 percent say they will vote against the Nov. 4 ballot measure, according to a new Field Poll. In July, the measure trailed by nine points.

Since then, the heading on the ballot summary – which began with the words "Limit on Marriage" on petitions to gather signatures for the measure – has been changed on voter pamphlets to read "Eliminates right of same-sex couples to marry."

I'm proud that California is coming out in a massive shrug of indifference on the ability of two consenting adults forming a binding committment to each other.  I have never seen what the big deal is about adults forming consenting unions.  It is not like anyone is forced to be married to someone of the opposite or same gender.  Really, the only person who is being forced into a marriage is Levi Johnston..... For just about everyone else, the coerced marriage is a rare event.  Marriage is a voluntary commitment.

I'm glad that some of the nonsense and diversions of the past few cycles are losing their effectiveness --- hopefully we as a nation can have an actual conversation and incentive structure that encourages conversations about actual problems instead of snipe hunts of fear and avoidance.    

TED 3.14

By Fester:

I believe the artificial diamond production bail-out plan that I mentioned yesterday is in full swing.  The TED spread has increased from Wednesday to Thursday.  TED is a measure of fear and pressure for bankers.  The higher the spread, the more distrust and stress banks are under. 

The biggest driver of the increasing spread is the drop in US Treasury bills.  Right now companies and banks with money sitting around are running for safety.  For a chunk of Wednesday, the yield on short term US debt was negative.  People were paying for the privilege to loan the US government money. The mattresses are not big enough to stuff cash into.  So for a little while, people were willing to take a small certain loss to avoid the probability/uncertainty of taking a very large loss.  [h/t Paul Krugman]

This is scary.  We have basically reached a de-facto Zero-Interest Rate Policy similar to the one that Japan has adapted.  We are in the middle of a lost economic decade, and the storm surge has barely begun to push debris into the rest of the economy. 

Red Sox Democrats needed

By Fester: Nate over at FiveThirtyEight compares national Democrats to Cubs fans:

So I've spent the past couple of days at meetings of various kinds in New York, and there was certainly a sense of impeding doom among many Democrats here. The cute analogy that I've come up with are that Democrats are like Cubs fans -- they assume that something will go wrong until proven otherwise

The recent spate of positive polling for Obama is creating a national sigh of relief, but I think Nate is highlighting an interesting potential generation/memory gap within the Democratic operative/opinion leader universe.  There are the Cubs fans and then there are the Red Sox fans. 

I’m a Red Sox fan Democrat.  I’m also a Red Sox fan in general.

What do I mean by this? 

Simple, until 2004, both Red Sox fans and Cubs fans expected their teams to lose.  They often lost in amazingly bizarre ways.  Please, don’t let me go down this memory lane of Pedro being kept in for one extra inning or worse, Bill Buckner’s fielding.  The pain is too great.

Since that pain is to great, panic and uncertainty along with dread fulfilled the fans of these two teams whenever it looked like they could blow it again.  August and September were never fun months no matter how much hope there was in May or June. 

And then the Red Sox won the World Series.  WHAT THE HELL! Millions of world views had to change as Boston fans became use to winning (the Patriots success has help also).  This realization that the Red Sox could and can actually win the World Series without blowing it despite a setbacks has split the Sox fans from the combined miserable commiseration with Cubs fans.  Sox fans now expect to win.  (I have doubts about the bullpen against the Rays though this year.)

So what does this have to do with Democratic politics?  Older, and more experienced Democratic opinion leaders are Cubs fans --- they are used to losing and they are used to blowing it on dumb things --- sighs, windsurfing, voting for the damn war in 2002 so they can talk health care.  So a natural convention bounce and then a bit of a lag appearance in the state polls re-affirms their past experience of Democrats operating in a conservative leaning environment where the default assumption is to lose.  Gnashing of teeth, breaking out the sackcloth and cooking up some ashes ensued.

Younger Democratic activists and opinion leaders are used to winning. We supported Herseth in South Dakota’s special election in 2004, Chandler’s special election in deep red Kentucky in 2004 as well.   We lost at the Presidential level in 2004, but we won the intra-party fight of 2005 for the DNC.  Our strategic vision of challenging 435 seats in 2006 worked.  Not every fight has been a win (see Dean ‘04 and Paul Hackett in OH-2) but there is an expectation that winning is a reasonable goal.  Daily fluctuations are stressful but are not the signs of a collapse. 

These same fault lines opened up in the primary.  During the Democratic Primary season, it was noted that Obama’s Congressional super-delegates were much more likely to be elected to Congress before Reagan or after 2002.  Hillary Clinton’s Congressional super-delegates were more likely to be elected during the conservative tide of Reagan, Bush or during the Gingrich years in the House.  Those two decades of Republican and conservative ascendancy were traumatic experiences for Democrats much like 1986 was traumatic for Red Sox fans.  And this defensive crouch still permeates Cubs fans and Chicago Cub Democrats.

We need more Red Sox Democrats :)

USA's AAA Rating at risk

By Fester: One of the fundamental assumptions in finance is that the United States government debt is functionally risk free and that its AAA rating really is AAA rating.  We have built that reputation for being good debtors because the US government has never defaulted on its debt.  Furthermore while the absolute size of the debt is huge, most of the fiscal analysis ratios are not significantly troubling even though recent trend lines on the current account deficit are worrying over the intermediate term. 

However, the US government has engaged in a massive increase in its explicit liabilities in the past three weeks.  We are now responsible for most of the US mortgage market, the largest insurer and bits and pieces of many other things that are bundled up in the MBS and ABS that we are bailing out.  The AAA rating may be at risk:

From the Globe and Mail:

Rating agency Standard & Poor's warned that the spending spree is beginning to endanger the prized “AAA” credit rating that allows the U.S. government to borrow at low rates from the rest of the world.

This is extremely unlikely to occur but the risk that the US Government will lose its AAA rating is stunning. Kevin Drum notices this and passes along another interesting tidbit concerning the risk of US governmetn debt:

Reuters reports that the federal government's AAA credit rating is under pressure. Also this: "The cost of insuring 10-year U.S. Treasury debt against default rose Wednesday to a record high, a day after the government rescued insurer AIG with an $85-million loan....Ten-year credit default swaps, or CDS, on Treasury debt widened three basis points to 26 basis points, according to data from CMA DataVision. You know, I never even realized there was a market for insurance against U.S. Treasury default (let alone that the cost of a CDS on American debt is now twice as high as that on German debt).

By the way, that last parenthetical is one of the best arguments for the long term existence of the Euro despite the schitzo-cyclical problems the Euro-bloc has. 

TED @ 3.04

By Fester:

At 14:00 EST, Bloomberg reports that the TED spread is at 3.04.  This is an incredible increase from just yesterday.  The TED spread measures the degree of risk or the fear of risk in the reliability of banks loaning and repaying loans to other banks on a short term basis.  The lower the difference between the 3 month treasury rate and the 3 month interbank loan rate, the safer that market is perceived to be.  The higher the spread, the more fear there is. On Monday the TED spread was at 2.01.  The spread has increased by 50% and it is not even time for the Hump Day happy hour this week.

I think this is an indirect bail-out plan.  Bankers' sphincters are clinched so tightly in fear right now that they will soon be producing and shitting diamonds.  Those diamonds can be used to buy back the old assets and restore the capital base of most American banks.  This is not fear; it is a plan [/snark]

Luxuries during Austerity

By Fester:

The global financial elites are getting bailed out.  They already have been bailed out to the tune of the US government and taxpayers taking on 5 trillion dollars in potential liabilities from Freddie and Fannie. We now own the biggest insurance company in the United States.  The Federal Reserve balance sheet is becoming the Love Canal of the finance industry as it continues to accept toxic waste debt and equities for liquid cash loans.    We are entering an age of austerity at the day to day level even if there are hundred billion bail-outs offered on a monthly basis. 

Austerity is simple --- we do without luxuries, material and societal so that we can focus on core responsibilities.   Iraq is a luxury, and it always has been.  Starting a third war in Pakistan is a luxury and  it will become an expensive one.  And the drug war is primarily a social luxury reaction of fear and supremecy asserting itself.  Can we afford the lower end of the of the war on some drugs used/possessed by some people. 

From Hit and Run: 

According to FBI figures released today, about 873,000 people were arrested on marijuana charges in the United States last year, 5 percent more than in 2006 and a new record. This is the fifth year in a row that marijuana arrests, which are up 167 percent since 1990, have increased. In 2007 marijuana arrests accounted for nearly half of the 1.8 million drug arrests; as usual, the vast majority of the pot busts, about 775,000, were for simple possession.

Possession does not intrinsically harm anyone else.  Potentially consumption, and definitely operation of vehicles and other equipment while impaired is harmful or highly likely to be harmful to others, but possession without consumption is not an action that creates immediate harm to others. 

Instead we use possession as a catch-all charge against the socially undesirable as it is a simple rap to prove, and it is a highly discretionary charge to make.  There are plenty of cops who will see socially protected individuals with a joint, and they will either tell them to hide it better or will confiscate it with no further action taken.  Other individuals will be brought into the criminal justice system where their lives are turned upside down and we as a society incur significant expenses for a minor charge. 

Treating marijuana as if it is a hard drug is a social luxury.  It is a delegitimizing action for the authority and legitimacy of the state as it is haphazardly enforced and often violated.  The social/economic costs of prohibition may not be sustainable during times of austery unless the political process decides to engage in bugger they neighbor, you're at least superior to someone politics. 

Is National City in deep trouble?

By Fester:

During economically turbulent times with high risk and uncertainty such as today, cash is king.  Hard currency cash only faces the risk of inflation.  A dollar bill in my wallet or in a bank's vault will purchase a dollar's worth of stuff tomorrow morning.  Cash holders don't have to worry about any counter-party risks, and they don't have to worry about trying to convert their dollar bill into a liquid asset.  It already is extremely liquid and widely acceptable.

My wife and I have been using National City as our bank for a while now.  They have always treated us well as customers and the service has been good.  However in the past couple of weeks, we have noticed something funny.  Deposits and withdrawals are taking significantly longer to clear.  For instance, we deposited a check drawn from a competing, local bank last Friday morning.  Normally, it clears by Saturday afternoon.  It cleared late on Tuesday.  We also deposited cash on Sunday; typically it is available on Monday.  It only became available on Tuesday.  We used a debit card to purchase the baby's crib on Friday.  That charge still has not cleared. 

Three things could be going on.  The most innocuous is that we are just paying more attention than normal to a normal procedure.  I don't think this is the case.  Secondly, it could be a temporary mechanical/procedural glitch. 

Thirdly, and potentially the most interesting is that this is a deliberate policy decision by National City.  These three, and other instances, all have the same benefit for the bank.  The bank can keep the float, interest free, for an extra day or two before it has to move cash out or increase reserves.  Playing with cash flow procedures to slow the velocity of money that goes through the bank would allow National City to require less short term credit than it otherwise would need.  Given the high levels of distrust and fear in the banking world, this could make sense, especially since National City has been mentioned as a vulnerable regional bank. 

So is anyone else noticing steps that increase the float in National City's favor?  And is this indicative of greater problems?

Delegitimization of Mexico through lower oil prices

By Fester:

I've been tracking the narco-insurgency in Mexico for a while now as I think this is the foreign policy crisis that is most likely to be a 'surprise' during the next decade. The downturn in the price of oil is a destablizing influence for the Mexican central government. This is because Mexico is facing competing streams of hard currency with which different actors can do different things to cement or fracture competing primary loyalties.

Mexico's primary cash streams are remittances from citizens working out of the country; overwhelming in the United States, oil exports, manufacturing exports that are overwhelmingly sent to the United States, and drug smuggling. These cash flows are under threat.

Remittances are readily switchable from the overt economy to the gray and black markets. They are also under pressure from a weakening US economy; more specifically from a crushed construction sector. Manufacturing for export to the United States is weakening both to internal US demand dropping as we are in a consumer recession, and due to increased competition from near peer competitors. The higher price of petroleum has given Mexico some protection as Northern Mexico's proximity to US markets made transportation costs lower. However this protection is disappearing now as oil hits the mid-90s. Manufacturing is a job stream for Mexico, but it is not a massive cash stream for the state as it is a low margin business with plenty of near substitutes.

But the real problem for Mexican government authority and legitimacy is the two competing cash streams that are large and rent based. These streams are oil revenues for the government and smuggling/drug profits for the cartels. And here is where the Mexican government is in trouble over both the short term and the long term. This is different than the short term prognosis from earlier this year. The Mexican government receives roughly 40% of its revenue from oil exports. This is primarily economic rent that it collects. It is money available for redistribution, armed units, resiliency improvement, education and a host of other goods and services that can improve its standing of legitimacy and tie people's primary loyalties to the state.

Over the long run, Mexico is facing the Export Land problem.

Mexican oil fields are old and due to geology are producing less oil today than they were last year, and the year before that.  This is ongoing.  Assuming constant internal consumption, the amount available for export will decrease on an annual basis.  This is okay for a while IF prices are high and increasing as the total value of exports will be constant or increasing.

There are two problems with this scenario.  The first is the assumption that internal consumption is constant.  It is not.  It has been increasing and will continue to increase.  This decreases the quantity available for export.  The second is the drop in prices.  The combination of these two problems leads to significantly lower revenue for the state.  This has been the long run prognosis for a while.

However when oil prices were going parabolic, it provided a cushion for the Mexican state to make changes with little pain as it was flush with cash.  Now that prices are responding to both demand destruction due to increased efficiency and financial panic that indicates a global slow-down, that cushion is getting very thin at this time.  Legitimacy enhancing operations that previously were affordable and politically acceptable as choices were made in a non-zero sum environment will now be much harder to make as the fiscal and political environment is either a zero-sum or a negative sum environment.  Entrenched interests can not be easily bought off and re-aligned to the interests of legitimatizing the state. 

And when the state loses legitimacy and capacity to take care of basic needs, other actors and groups are willing and able to step in.  And one of those groups will be a diverse collection of gangs, mobs, militias and cartels. 

Cool --- where are the cryo ships

By Fester:

Researchers at the  University of Toronto, using a Hawaiin telescope think they found a planet orbiting a Sol like star --- now when can we go visit :)

I remember being a young teen when the first exo-solar planets were discovered.  They were massive blobs of gas in odd orbits that make Jupitor look like a solar mass rounding error.  I remember going to Mars, Triton and beyond in so many space ships during my childhood as I laid under the blankets with a flashlight.  I remember waking up at 3:00 AM one day with my dad so that we could watch the MIR space station process across the horizon (and then we went to the Owl diner for a great breakfast).   This is just cool.

 

Fearful Bankers

By Fester:

Banker's testicles are next to their tonsils this morning.  Fear and uncertainty has been unleashed yet again as Big Shitpile becomes even more rank and pungent as Lehman Brother's is now bankruptcy, Merrill Lynch is now a component of Bank of America and everyone else is trying to figure out who owns what, how much that is worth and what their personal exposure is.  Cash is king in this environment. The king is miserly.

Bloomberg shows that the TED spread has climbed back to over 200 basis points this afternoon.  The TED spread is the difference between short term Fed rates and the price that banks pay each other for short term loans.  The bigger the gap, the greater the fear that some of the banks won’t meet their obligations to other banks. 

Cutting the Federal Reserve overnight rates by a quarter of a point or passing a fifty billion dollar stimulus package will not reduce this fiscal market fear.  The stimulus package, which is heavy on infrastructure, Medicaid, and unemployment insurance will do a good job of relief and multiplier effect, but it will be overwhelmed by bond market fear.

People and banks don't know who is trustworthy and how trustworthy they are because they themselves do not know what they actually own.  And they fear that as Lehman liquidates in a reasonably orderly fashion, their Tier II and Tier III assets will actually be marked to market with an attendant massive write-down. 

Get a bigger bag to hold

By Fester:

We are becoming the biggest bag-holders in the world today.  The Federal Reserve is looking to bail out the systemic risk Lehman Brothers' bankruptcy filing by flooding the system with liquidity by taking on massive amounts of low price and/or untradable garbage that is still dressed up as high quality debt. 

From the Fed:

The collateral eligible to be pledged at the Primary Dealer Credit Facility (PDCF) has been broadened to closely match the types of collateral that can be pledged in the tri-party repo systems of the two major clearing banks. Previously, PDCF collateral had been limited to investment-grade debt securities.

The collateral for the Term Securities Lending Facility (TSLF) also has been expanded; eligible collateral for Schedule 2 auctions will now include all investment-grade debt securities. Previously, only Treasury securities, agency securities, and AAA-rated mortgage-backed and asset-backed securities could be pledged.

Investment grade debt is debt that supposedly is safe and secure with a high probability of the borrower meeting all of their obligations. For instance, Pittsburgh municipal debt is very low investment grade debt.   The problem right now is that investment grade still does not meet that definition.  The mortgage backed securities on the whole have been investment grade before going bust.  The rating agencies have been massively behind the reality curve. 

The Fed has moved from a near cash for cash transactions during the summer of 2007 to cash for quasi-cash/quasi-liquid assets in the fall of 2007 to the al-dente method of asset valuation for cash today.  If it sticks against the wall, the Fed will take it and credit it as near cash.  The Fed, and thus us either through direct subsidy or more likely an inflation subsidy, are taking on massive risk while still keeping the potential of profit privatized. 

We need a bigger bag as we're the bagholders of last resort. 

Free Baseball Tickets

By Fester:

I have four tickets to the Pirates game on Sunday, September 14th that I can not use.  If anyone is interested, please leave a comment and we'll see if I can arrange a drop-off.

Lehman Brothers Looking for Payday loans

By Fester:

Calculated Risk was seeing what investors thought of the venerable US investment bank Lehman Brothers.  It is not pretty:

The 6 month Lehman Brothers notes due March 13, 2009 are being offered at a yield to maturity (annualized) of 34%.

The one year senior notes due August 15, 2009 are being offered at a yield to maturity of 36%.

At this point, Lehman Brother's ability to raise new capital or to roll-over debt may be better served by sending their junior level executives to the PayDay lenders at the local strip-mall and backing those debts with promises to sell their plasma (not their TVs...)

Penumbra of Sovereignity

By Fester:

I'm a bit late commenting on the US ground raid into Pakistan earlier this month. 

I want to focus on sovereignty, perceptions and uncertainty in this post.  The US justification for the raid is that the US military had solid intelligence on enemy combatants or combatant facilitators who were residing in the Northwest Frontier of Pakistan.  There has been massive amount of reporting that the Taliban, its allies, co-belligerents and sympathizers dominate the major cities in this region.  This is a natural extension of both hot pursuit and the ongoing series of limited air strikes from both manned aircraft and drones. 

This region is being perceived and acted upon by the United States as if it is own quasi-sovereign territory, or at least a disconnected portion of sovereign Pakistani territory. 

Requoting RockRichard from VetVoices, I want to take a look at Pakistani 'hardliner' perceptions:

The Taliban have been living and breathing in Western Pakistan for a long time now. Its unfortunate that it has taken this long for American troops to start fighting them there, but its a welcomed development.

This is, however, a sensitive issue. It is assumable that the moderates within the Pakistani government want the Taliban removed from Southern Waziristan.  The problem is the more hardline elements of the Pakistani citizenry are sure to be unhappy about this. The unrest amongst the fundamentalists combined with the corrupt officials and Taliban sympathizers within the Pakistani government creates a unique situation that must be handled delicately.

Some of the 'hardliners' could also be people who believe that de jure sovereignty trumps de facto and de-minimas sovereignty. The thick lines on the map confer a de-jure sovereignity to Islamabad and unquestioned and unwelcomed foreign strikes on this territory that is considered by Pakistanis to be part of their land and part of the nation and country-hood delegitimatizes these concepts and identity bonds. 

Jay at Swimming Freestyle is following up on this with Pakistani reactions to the increased and quasi-overt raids that the United States is making into the Northwest Frontier:

The New York Times reported the other day that there is now a sanctioned policy for allowing raids into Pakistan:

President Bush secretly approved orders in July that for the first time allow American Special Operations forces to carry out ground assaults inside Pakistan without the prior approval of the Pakistani government, according to senior American officials.

American officials say that they will notify Pakistan when they conduct limited ground attacks like the Special Operations raid last Wednesday in a Pakistani village near the Afghanistan border, but that they will not ask for its permission.

Pakistan’s top army officer said Wednesday that his forces would not tolerate American incursions like the one that took place last week and that the army would defend the country’s sovereignty “at all costs.”

Pakistan's army isn't thrilled with the new U.S. position:

In an unusually strong public statement, Gen. Ashfaq Parvez Kayani said a raid last week into Pakistan's South Waziristan region killed innocent civilians and could backfire on the anti-terror allies.

...Kayani said such operations were covered by no agreement between Pakistan and U.S.-led forces in Afghanistan and risked stoking militancy in a region which Washington regards as an intolerably safe haven for al-Qaida and Taliban militants.

"Falling for short term gains while ignoring our long term interest is not the right way forward," Kayani said, according to the statement released through the military's media wing. (Link)

We have a dissonance of sovereignty concepts here as the US is looking at de-facto sovereignty and concluding that there is very little of the trappings of control and legitimacy.  Therefore hot pursuit and targetted raids are reasonable actions of a stabilizing power in a lawless zone.  Pakistani officials see their official sovereignity questioned and therefore their power and positions diminished.  This is not quite the farce that is the Somali transitional government's inability to control anything outside the line of sight of the Ethiopian army, but it is a conflict point of different legitimate interpretations of reality. 

Misunderestimating him

By Fester:

If somebody had told me on September 11, 2001 that seven years later Osama bin Laden would still be alive, and that the principal accomplishment of the U.S. military over the past seven years had been to install some theocratic Iranian allies in power in Baghdad, and had done so at the cost of 4,500 American and between a quarter of a million and a million Iraqi lives, I would have simply refused to believe them.

I would have said: "No. I have a very low opinion of George W. Bush. But even my opinion of him is not that low."

Brad Delong

Anectodal data points of the week

By Fester:

This has and will be a busy week for me, so besides a possible municipal finance post, I don't have a whole lot of time to write.  However, my wife and I were walking through the Monr