The Non-Friedman

There's a curious flurry of interest in the late Yale economist James Tobin on the blogs tonight, triggered by a backgrounder from Bloomberg: curious not so much do to the quality of the intro (which is high) but because it seems to receiving so much attention. Maybe it is the endorsement from Paul Krugman; or maybe just the idea that team Obama needs a counter-guru to fill the gap left by the abrupt disappearance of Milton Friedman. In a way, Tobin is an unlikely candidate: aside from the fact that he is dead, he had nothing like Friedman's nack for achieving celebrity. But his was an extraordinarily fertile mind, and he left his fingerprints on any number of subfields in economics.

Indeed, here is one Tobin idea that nobody seems to be saying much about tonight: the "Separation Theorem." To summarize: Harry Markowitz kicked off the revolution in modern finance with the invention of his amazing money machine--the notion that you may be able to increase the return on your portfolio without increasing risk if you properly diversify (or reduce risk without reducing return). Tobin swiftly carried the idea to a whole new dimension: Tobin showed how, if Markowitz was right, then all sensible investors would want to hold just one portfolio--the so-called "market portfolio." If the market portfolio was too risky, they could reduce risk by putting some of their money in risk-free securities; if they wanted more risk than the market, then they could leverage up by borrowing at the risk-free rate.

From this, naturally follows "the index fund," and, pretty quickly the other innovations that make up the story modern finance. Markowitz published in 1952 (Tobin in '58). From that time to this, finance theory has been pretty much a narrative of triumph. No, strike that: from that time to last year, when it all fell apart. If you were going to round up all the culprits, Tobin would have to be one of those making the perp walk.

*Snide Alert: I kid, I kid. Actually, I think Tobin's theorem is briliant in its simplicity and elegance, and an idea that looks no worse today than it did a year ago. But you'd have to admit that he is in pretty bad company.

Is Rush Right?

Rush Limbaugh says that every Republican wants the President to fail:

Would this be right, I wonder? I admit, I can see how it might be tempting. I vividly remember 2001. I didn't vote for George Bush; I didn't/don't even think he was really elected. But at that time, I was not deeply hostile to him, and in any event, I very much subscribed to the view that we get only one President at a time, and that we all had a stake in Bush's success.

Flash forward a year or so and of course it wasn't a question of wanting him to fail; Bush had pretty much taken care of that problem himself. But I admit I did feel myself a bit of a chump for ever so much a having entertained any attitude of charity and goodwill, against people with so much contempt against anybody who did not share their own ruffian ways. I suppose we can imagine an Obama regime that is such a farrago of malice and incompetence that we'll start counting the days all over again.

Is that the attitude of Susan Collins? Arlen Specter? Lindsey Graham? Any of those other Republicans that we choose to treart as "statesmen," at least as that term is understood on the Sunday morning talk shows?

My guess: they don't want Obama to fail. They feel more or less as I did in 2001 (and suspect they will not have reason to feel as I did by 2002). My guess is that Limbaugh knows that as well as I do--and in fact, he isn't even presuming to speak for them. What he is doing is to offer an assertion of dominance, an attempt at humiliation: he wants to show, hopes he can show, that people like Collins, Specter and Graham are so afraid of the great gasbag that they won't even be willing to step up for this fundamental act of civi responsibility.

So where are you guys? Will you let yourself be bullied by Limbaugh? Or will you step up and say that no, you for one do not hope that our President will fail? Anyone? Anyone?

Call for Manuscripts

Here's a book that probably needs to be written (again?): a history of "the China lobby," the cabal of hustlers and intriguers who provided so much of our political wallpaper in the period of, say, 1945 to 1960 (perhaps even up to 1972, when Nixon finally went to China)--the crowd who gave us "Who lost China;" the gang who did so much to preserve (if not exactly to create) Chiang-Kai Shek, the throng who cost us and the Chinese people nearly a quarter century of modern life by isolating Mao behind a wall of indifference and paranoia where he was able to inflict his private visions on his own beleaguered people.

The thought occurred to me while making my way through David M. Oshinsky's fine biography of Joe McCarthy. You can't tell the McCarthy story without lots of cross refs to the China and Oshinsky does an admirable job of keeping China in the story. There is other good stuff on the topic: you can't go far in this literature without discovering Michael Ybarra's Washington Gone Crazy, on the career of Pat McCarran; Robert P. Newman weighs in with Owen Lattimore and the "Loss" of China. You get wonderful pre-1945 background from Barbara Tuchman's Stilwell and the American Experience in China.

Amazon does turn up one title, The China Lobby in American Politics, by one Ross B. Koen (unknown to me), published in 1974 and available in hardback for $194.06 (there are new and used from $4). I haven't seen it but it doesn't seem to have established itself in the literture so I would have to regard it as unpromising.

Best I can tell, the phrase enters the language via Max Ascoli's Reporter magazine, the great bugaboo of the 1950 Republican noise machine; see See Max Ascoli, Philip Horton and Charles Wertenbaker, "The China Lobby," Reporter 6 (April 15, 1952) 2-24; (April 29, 1952): 5-24. Robert Griffiths (from whom I just cribbed the Reporter reference) comments:

In a strict sense the "China lobby" was a myth. Like the "McCarthy lobby," it was not a cohesive, well-orgnized group, but a coalition including representatives of the Nationalist government seeking arms and aid, true believers in the cause of Chiang Kai-shek as against the Conmmunists, and a bevy of Republican politicians.

(The idea of Republican politicians arriving by the "bevy," is something to savor itself.) Griffiths' point is just, but it doesn't gainsay the political reality and power of the non-lobby on the politics of its time.

Historians, to your word processors! Operators are standing by!

[The Griffiths quote is from The Politics of Fear, fn. 32 p. 64, available at Google Books. Griffiths played for McCarthy something of the role that Lou Cannon plays for Ronald Reagan--a hometown journalist who knew his subject long and well and writes with an admirable pairing of sympathy and detachment].

What Jindal Didn't Do

Leftbloggers are having a day of harmless merriment as they smear egg on the face of Bobby Jindal for saying he stood shoulder to shoulder with a Louisiana sheriff against the power of the Federal government when he, well, did nothing of the sort. I'm all fot he public humiliation of mendacious politicians, but Jindal's critics need to remind themselves that none of this really matters. They are dealing with the party of John Wayne and Ronald Reagan and Tail-gunner Joe McCarthy and the Bridge to Nowhere, where fiction trumps reality every time.

I'm not saying that Democrats don't do it, too (yes, I'm looking at you, Hillary). But establishing the disconnect between Life and Life: the Movie is just something Republicans are so much better at. Leftbloggers might as well remind themselves that when the dust settles, the base will remember the stuff about Bobby and the sheriff as they face down Washington power, and the second-day tedious fact-checking will fade to obscurity.

Oh Brave New Graffiti-free World!

Am I the last to notice this tectonic shift in literary production as a result of the internet--I mean the precipitous decline of graffiti, now that we all can trash our neighbors with impunity on the web?

I heard it in a podcast from Saul Levmore at the University of Chicago, but I can see he is right. Go into a stall at any good university a few years back and you could acquire a comprehensive intelligence report on the skill and quality of the faculty, and the rutting habits of at least some of the student body.

While I can't say I've made a comprehensive inquiry, I'd have to agree that the walls these days are a lot more pristine (is this why we have laid off so many custodians?). And it does indeed sound plausible to infer that the students are all back in their carrels, laptops humming.

For Those of you Keeping Score at Home

I think my friend Chris believes I am suspiciously hostile to state socialism. I deny it; I was soft on the idea of nationalizing Bear Stearns way back last spring. The government would probably screw it up, but in the current market, that is hardly an argument. I did recall that Mussolini nationalized some chunks of Italian industry in the 20s, and that the government still owns them. Chris responds:

I suppose holding the companies in public hands for 70+ years might be worse than keeping them paying 'em $300B every quarter or so, 80% of which is passed through to shareholders (who hold for no other reason) or vaporizes as bonuses . . .

Hey, I smell learned academic paper here! Compare: (a) damage done by bankers in the last 18 months against (b) 70 years of corrupt, inefficient, mob-ridden, often fascistic public management. The envelope, please! Boy, I'm on the edge of my chair...

Climbing Over the Fence on Each Other's Shoulders

Guess I'd never thought of this particular example:

Many times in history two artists have provided their contemporaries with alternative and complementry visions: Masaccio and Fra Angelico, Jan van Eyck and Rogier van der Weyden, Raphael and Michelangelo, Caravaggio and Annibale Csrracci, Rembrandt and Rubens, Ingres and Delacroix, Picasso and Matisse.

That's from Keith "Duccio and the Origins of Western Painting," Metropolitan Museum of Arts Bulletin, 7-55 at 29-40 (Summer 2008). May be old stuff to art historians but new to me. And it fits: we have lots of examples of virtuous circles in the arts: talent responding to talent and rising to heights they wouldn't have achieved otherwise--climbing, as it were, on each other's shoulders. The instances are perhaps so frequent that it isn't even worth catalogueing examples, although it is the kind of thing that gets hidden in plain sight, so obvious that you don't know it. It recalls the observation of Herman Melville in an essay on Hawthorne:

…genius all over the world stands hand in hand, and one shock of recognition runs the whole circle round.

For some interesting background and context on the Melville quote, go here.

More Un-Preferred

A while back, Adam Levitin threw the spotlight on the essential phoniness of the government's "subordinated debt" stake in the bank bailout (link). Now we have James Kwak to explain a new round of the old absurdity, this time in the new Capital Assistance Program (link). We're talking about "convertible preferred stock" at the moment, and Kwak offers a crisp and comprehensible account of why convertible preferred is a good way to pump money into a risky project. Okay, you are behind debt, but if things go well you get a chance to share in the equity.

But this new Treasury plan says you get to convert at the option of the debtor. Kwak is 100 percent right when he says that this is from backwardsville: it is heads-I-win, tails-you-lose. The company will never exercise the option unless the preferred is worthless and so the investor (us) never gets a chance to share the upside.

Look, in Business 01 (hell, sometimes in sixth grade) you learn that shareholder equity is the bottom of the food chain. It is the "net" in "net worth;" it is the residual claim. Evidently somebody (Geithner? Summers? Bernanke?) went fishin' that day. On the issue of bailout, the consistent policy from the last administration to this is that being equity means never having to say you're sorry.

Footnote: Actually, Levitin has been doing some of the most interesting bailout/debt coverage months now. See especially here, and generally here.

Ooh, We'll Be Hearing from the Merovingians on This One!

For valuable prizes, who is the Merovingian?

Since X resumed his place as major of the palace last September, with Y as captain of the palace guard and that weak, fitful, bad-tempered and usable Merovingian in their custody, the outlines of the defeat they mediate have grown plainer.

Go ahead, Google it.

The Parable of the Old Man and the Young

I've been wanting to say a word about Marilynne Robinson's Gilead, but I've been waiting until I finish Home, its companion piece and mirror. Meanwhile, there's a passage in Gilead that stuck in my mind and is just too good not to quote:

I began my remarks by pointing out the similarity between the stories of Hagar and Ishmael sent off into the wilderness and Abraham going off with Isaac to sacrifice him, as he believes. My point was that Abraham is in effect called upon to sacrifice both his sons, and that the Lord in both instances sends angels to intervene at the critical moment to save the child ... because any father, particularly an old father, must finally give his children up to the wilderness and trust to the providence of God. It seems almost a cruelty for one generation to beget another when parents can secure so little for their children, so little safety, even in the best of circumstances. Great faith is required to give the child up, trusting God to honor the parents' love for him by assuring that there will indeed be angels in that wilderness.

--Marilynne Robinson, Gilead 128-9 (2004)

Whatever you say about her powers as a novelist, I think you have to admit that she's an elegant theologian.

Rich Bankers and the Approval Meter

Twas interesting to watch the CNN approval meter when Obama took a few swipes at rich bankers last night. Democrats liked it, but the Republican approval measure just fell of a cliff. Ooh, they were saying do not attack the rich!

Well, I can think of possible reasons for not attacking the rich (instrumental prudence; primitive Aynrandianism, whatever). I'm really not sure which might have been driving this crowd.

But I'm struck by the irony that among those note voting for the rich are--the rich themselves. Specifically, the Upper East Side of Manhattan--the Silk Stocking District, banker central, is red-hot liberal company with a liberal Democratic congresswoman and I bet lots of Obama votes.

It's part of a pattern that gives thoughtful Republicans the heebie jeebies. The brightest, the best positioned, the most cosseted--okay, the richest--Manhattan, Alexandria, Palo Alto are all Obama country. If the mass of Republicans are standing firm in defense of the rich, they are protecting a crowd that doesn't seem interested in offering this kind of protection to themselves.

Glaeser on Mortgages

There's so much good sense in Edward L. Glaeser's view of the mortgage market that it is really a surprise to see him go completely off the rails when it comes to his proposal for reform (link). He's right that foreclosure moratoria are just a form of inefficient wealth transfer to a not-terribly beguiling tranche of borrowers. He's right to say that we should find a way to make foreclosure less costly. He's right--and this is important--to say tht lots of workouts would happen if we could figure out some way to unlock the right incentives from the decentralized anonymity of securitization.

But as to settlements imposed by the bankruptcy court--well, I suppose he's right again, insofar as he is saying that these imposed settlements are no more than a second best. But he vastly overestimates the novelty of using the bankruptcy courts to impose settlements. As others have said--heck, as I have said--bankruptcy judges have been doing this for a long time, with respect to every form of collateral except the home mortgage. And precisely here is where Glaeser gets silliest, characterizing these bankruptcy judges as 'without specific expertise in housing markets."

Whoah, big boy, I don't know where you have been spending your time lately, but it can't have been the bankruptcy court: quite contrary to what you suggest here, I'd say I can't think of any cadre more qualified to understand these distressed deals--their structure and context--than the judges who deal with it every day. Rather than the horror of the bankruptcy court, Glaeser wants to transfer the work to "a formal renegotiation authority [ that] would essentially duplicate what a hyper-efficient bank would do if it owned the mortgage in its entirety." I can't imagine where he expects to get these paladins of efficiency would come from--unemployed bankers, I suppose--but really don't see how (if the job must be done at all) he can improve on the judges who do a large part of the job alrady.

Footnote: since I'm blanketing the soil with rose petals, I might as well add that Glaeser is right again when he said we're way past due for scuttling the home mortgage deduction (link). And rightest of all when he admits that his proposal is "quixotic."

Why Don't Germans Want to Own Their Homes?

A few years back I was on TDY at Stanford. With time on my hands, I dined out a lot with a visiting professor from Greece. He marveed at Palo Alto real estate prices (and this was long before the boomandbust). "At least our children can buy their own homes," he kept saying. "They can buy their own homes."

He was right. Greece had and has a high level of home ownership. Indeed, so do many of the poorest and least developed countries in and around the European common market (I believe Hungary may be the highest).

The flip side is that we get some of the lowest rates of home ownership in some of the richest countries--like Sweden, and Germany.

Frame it as a question: why does Germany have such a low rate of home ownership? I tried it on a few of my friends who know more about Germany than I do. I learned some stuff I didn't know before, but most of the answers get you nowhere because it isn't clear which way you are going on the ladder of causation.

• The German government doesn't promote home ownership.

• The banks make it difficult to get a long-term mortgage: lots of cosigners, high down payments.

• There's a horrendous transfer tax (20%+ of value).

• Huge protections for renters; almost impossible to evict.

All this is most interesting and instructive, but in every one of these instances, the phenomenon seems more like effect than cause: i.e., if society wanted home ownership, the government would promote home ownership; would get rid of the transfer tax, would squeeze the banks, would toughen up the eviction laws.

My friend Taxmom has some good anecdotes about the German aversion to home ownership. "My German friends (dual income no kids)," she recalls,

last time I was there explained to me that no-one seriously thought about buying a home unless they wanted to leave something for their heirs, and since they didn't plan to have kids, what was the point? At about the same time I read an article in the Frankfurter Allgemeine about the beleagered misguided Brits, who put themselves into economic servitude for the sake of owning their own home.

Still, I wonder why.

Data: There's a convenient collection of links here. Here's a more tempered discussion of the "why" issue, although it really doesn't seem to add anything.

Governor, You're No Sarah Palin

David Adesnik is flirting with a flirtation with (sic) Bobby Jindal (link) (link). "Jindal the Wonk," he calls him,and from a guy like Adesnik, that's a compliment. He's certainly right: Jindal is no Sarah Palin: even though he may appeal to the same base, he is a thousand times better informed and likewise more resourceful on his feet. Adesnik adds:

... I would expect all those conservative columnists who condemned Sarah Palin as lacking substance to fall in love Jindal the same way that liberal columnists fell in love with Obama.

It's not easy to suss out exactly what Adesnik has in mind here, but he seems to be advancing two propositions, neither of which will bear close scrutiny:

• Jindal will be able to maintain his more-or-less coherent body of conservative doctrine once he gets caught up in the maws of the national Republican party.

And:

• Conservative commentators have been pining for an honest and coherent conservative candidate and will toss their hats in the air when they see one.

The first is the more problematic of the two: it maybe that the national Republicans will forgive him a reasonable amount of policy coherence as long as he retains a commitment to core principles like exorcism and general religiosity. Although I wouldn't count on it: the only guy in the last round who had anything like an intelligible economic platform was Mitt Romney and look what happened to him.

The second point is, I think, just laughable. The idea that there is a cadre of "conservative commentators" who are just waiting for an honest and responsible Republican candidate to embrace is just laughable. Or rather it is a club of one: Bruce Bartlett. Beyond that, it is hard to think of any self-styled conservative commentator who wasn't willing to get in bed with the devil if it looked like elective office for his team might be the prize. So if they take him, it will be because they think he can win, and his "program" will be just an incident.

[And while I'm at it--scoring against David Gregory may not be that big of a deal anyway. Gregory interviews strike me as pretty limp, although it may be a question whether that's a weakness in Gregory or in his customary opposiition.]

Update: Brad DeLong believes that Jindal shows disloyalty to his electorate by rejecting unemployment spending. But this is hardly disloyalty: the money in question would go mostly to blacks who didn't vote for him anyway.

My God, How it Rolls In!

Available at for your reading pleasure:
-

Smartmoney.

Dumb Money.

Bad Money.

Dirty Money.

Clean Money.

Money, Money, Money.

Money.

What Will We Wrap Our Fish In?

The giant crumping sound you hear this morning would be the nation's newspapers filing for bankruptcy--over the weekend, Philadelphia Media Holdings (The Inquirer and the Daily News) and the Journal Register Co. (New Haven and others). They followed four others, and still more are in the queue. The Wall Street Journal puts it in context:

Newspaper companies have been pounded by spiraling advertising declines, but many of their wounds are self-inflicted. New York Times Co., McClatchy Co., Journal Register and others plunged into newspaper deals that now look ill-conceived as falling profits undermine their ability to repay debt. Leadership from outside the newspaper industry didn't fare much better, with huge debts racked up to buy Tribune Co., the Philadelphia dailies, GateHouse Media Inc. and the Star Tribune in Minneapolis.

And they might have added: the Wall Street Journal itself. As a business, the Journal seems to be functioning today better than almost any comparable newspaper property. But there doesn't seem to be much doubt that Murdoch vastly overpaid for the property, so as to indulge his unbusinesslike passion to secure his place as a press lord. See link; but cf. link.

George Birthington's Washday

Have a happy.

Quote of the Day: The Literary Life

On the much-admired new biography of V.S. Naipaul:

This book would be a great gift from a parent to a child who is interested in becoming a writer. When Junior discovers that winning the Nobel Prize in Literature at age 69 entails spending most of ones decades depressed, impoverished, ignored, and bitter, he will likely knuckle under and agree to pursue radiology.

Yes, with the added inducement of giving him the chance to explore a lifestyle of conscience-free buggery. Phillip Greenspun does seem to be willing to pursue one line of inquiry I have never been able to handle: he's read a biography of a writer whose own work (apparently) he has not read. Greenspun is right, th0ugh, that the places to start are House for Mr. Biswas and Bend in the River.

[Statement of interest: I have read only so much of the biography as I could absorb in an afternoon of conscience-free grazing at Borders. Found it admirable in its way, but VSN himself comes across as not a bit more attractive than you might have suspected.]

California Budget Datapoint

This one has probably been around for s while, but it's a new one on me:

To be sure, none of the GOP lawmakers who demanded that the state close its $42-billion shortfall without raising taxes detailed the doomsday cuts that approach would entail, nor did the activists who lobbied against the tax increases. If the state had laid off its entire workforce of 238,000 -- every prison guard, firefighter and clerk -- it still would have fallen billions shy of a balanced budget.

I suppose it's disingenuous in the respect that the state budget is more than salaries. And a sensible defender of spending knows how to threaten the most visible, crippling, generally horrendous budget cuts imaginable (the librarian will threaten to close during the busiest hours, or to cancel all email accounts).

But the flipside is equally true: I have never yet met a budget-cutter active in electoral politics who will offer a detailed and candid account of just how much he will cut, and where (possible exception: Tom McClintock).

Robins

Forgot to mention at the time--after a spring rain last week, we had fourteen count 'em fourteen robins on the back lawn at one time. They were picking at something--seeds? bugs?--and it must have been good feeding because they seemed reluctant to leave, even when I moved a curtain. AS say robins: some of them looked almost like the wood thrushes I used to see back in Kentucky--kin to the robin, I gather, but endowed with the most beautiful birdsong I have ever heard.

A grand moment in its own right, and especially so for a state that seems to be in the midst of a drought. Easterners may not see the point: we Californians get all our rain between October and March; it's suppose to build up in snowpack in the Sierra, and then we move it all around and draw on it the rest of the year. We're deep in deficit right now, and there is talk of cutting off supply to the vegetable belt down in the San Joaquin one (one of the richest/poorest Congressional districts in the nation). We have had a bit of rain this past week or so, though, and it is raining again this morning. And robins are never, ever a bad sign.

Life Imitates Caricature: Lafcadio Hearn in Sin City

Japanophiles will remember Lafcadio Hearn as one of the earliest enthusiasts for the realm, if somewhat highly perfumed and overheated (how Edward Said overlooked this guy, I'll never know.). Perhaps not many of them know that he left quite a trail even before he made it across the pacific, all wrapped up in a marvelous and too-little noticed biography by Jonathan Cott. Here Cott, with excusable relish, provides context for Hearn, during his stay in New Orleans (sic), where he met "the most legendary figure of that period, Marie Laveau."

Born in 1794, the illegitimate daughter of a Creole planter and one of his mulatto slaves, the charismatic and strong-willed quadroon girl started her career as a coiffeuse, with access to the "best" homes in the Vieux Carré. This enabled her to supplement her income by acting as a go-between, carrying billets doux and arranging clandestine rendezvous for her well-to-do-white clients. She eventually became the proprietress of a famous, lavishly appointed bordello, the Maison Blanche (among others); and through a network of intelligence agents among the black servants to the city's rich, she was able to exploit the secrets of New Orleans society, using blackmail to protect the houses of prostitution she controlled.

Marie's grandmother and mother had been conjurers--adpets of hoodoo. Marie, however, showed no interest in following their example and one night when, legend has it, a rattlesnake entered her bedroom and "spoke" to her. Whereupon Marie decided to study with a renowned hoodoo doctor named Alexander. Soon she was teaching her teacher.

She then began a flourishing business in the manufacture and sale of a wide range of charms and herbal medicines. Admired and feared for her powers of healing and hexing as well as for her psychic and fortune-telling abilities. Marie became renowned as a kind of combination mambo-witch shamaness, who was consulted by both blacks and whites. One wealthy Creole family bought her a house at 1020 St. Anne Street in gratitude for her magical intervention in the court trial of their son. She also gained a local reputation as a saint for tending to wounded soldiers during the Battle of New Orleans in 1815, for nursing the victims of yellow fever epidemics, and for providing food and amulets to the prisoners on death row and in parish jail.

--Jonathan Cott, Wandering Ghost: The Odyssey of Lafcadio Hearn 145 (1990)

With friends like that, it's a surprise that Hearn ever got to Japan at all.

Skip the Louis Vuiton, Bring on the Cabbage Soup

Must-read of the day is the Times piece on Japanese frugality, accessorized here with sapient comments from Yves Smith. I must say--I was in Japan last fall and had not the least sense of a country in distress. I wasn't in any private homes, but my experience (too) was that people looked busy and well appointed--to all appearances, prosperous, except maybe they aren't.

Update: Dean Baker is not impressed.

Doesn't Anybody Know How to Play This Game?

The Economist answers--no:

THE BBC’s “Today” programme is the main current-affairs show on British radio. Last year it recruited a new presenter, Evan Davis, who is also an economist. An amusing pattern has since developed. Quizzed about the credit crunch, a politician delivers some carefully memorised remark about, say, quantitative easing. Then the guest experiences an audible moment of existential horror, as Mr Davis ungallantly presses him for details.

The tide has gone out and, with a very few exceptions, Britain is swimming naked: almost nobody appears to know what he is talking about. The havoc of the financial crisis has stretched and outstripped even most economists. The British political class is befogged. Ordinary people are overwhelmed. And just as the interaction between banking and economic woes is proving poisonous, so the interplay of public and political ignorance is damaging the country’s prospects.

Start with the government, whose ministers are still oscillating between prophesying economic Armageddon and gamely predicting the best of all possible recoveries. Gordon Brown is learned in economic history—indeed, he is at his most animated and endearing when discussing it. But the prime minister’s grip on the history he is living through is less masterful. The government’s implicit strategy is to try something and, when that does not work, try something else: the approach modestly outlined by Barack Obama, but rather less honest. ...

The truth is that hardly any MPs in any party have more than a rudimentary grasp of the crisis; indeed, their inability to track the City’s baroque excesses helped to foment it. (The intellectual background of MPs, few of whom have much training in economics or commerce, may contribute to this deficiency.) ...

Meanwhile, the bodies and advisers appointed by the politicians to do the understanding for them have been largely discredited. The Bank of England obsessed about monetary policy and neglected financial stability. Sir James Crosby quit as deputy head of the Financial Services Authority (FSA) amid embarrassing questions about risk-taking at the bank he used to run. The involvement of Glen Moreno—chairman of Pearson, which part-owns The Economist—in UK Financial Investments, which manages the government’s new stakes in Britain’s banks, has been undermined by his association with secretive Liechtenstein. ...

Change a few proper nouns and this could be the United States. High-grade macro is way above my pay grade, but it makes my hair stand on end to listen to the schoolboy howlers you hear from public figures even when (if ever?) they are trying to tell the truth?

One reason, I think: difficult and sophisticated as it may be, macro still remains one of those "sciences" closest to phrenology--nothing anything close to agreement among the adepts on any but the most elementary principles. Part of the problem may be that (this is not original with me) it is hard to think of any "social science" more dependent on the self-fulfilling prophecy and kindred feedback loops. Keynesian stimulus "worked," (if it did work) the first time because it came as a surprise. But as Wittgenstein says, once you know it's a game, it isn't a game any longer: just about everybody recognizes that the massive, convoluted (and, I suspect, largely ineffectual) effort at "stimulus" is just a desperate effort to try to find something, anything, that might work (search "hail Mary pass" at Google blogs and I think you might come up with a piece that makes the point better than I do). This time, sadly, we may all be wise fools, too smart for our own good, able to decode and discount the trees without any notion how to conceptualize the forest.

For the clip, HT Joel again.

Sitzfleisch and the Novel

My new fave grumpy old man has a delightful rant up about the crimes and follies of the AP English exam. I admit I can't claim actually to have read either Rutherford's London or Follett's Pillars of the Earth, so I cannot responsibly pretend to confirm that they are in fact tedious potboilers. I admit that I've actually enjoyed a bit of Follett here and there though it never occurred to me to class it as high art. And while I haven't actually read Rutherford, the people who lug around copies of Rutherford often strike me as tedious potboilers themselves.

So I suspect that he is onto something. But as I sugget in his comment section, I think he may be overlooking an important instrumental necessity here: the purpose of the AP English exam is to feed the maw of the great beast--perhaps in particular, to get them ready for law school (those med school bound are doing AP biology, I hope). And as I must have said before: brilliance, or acuity, or insight, are not at the top of the list of qualities that you want to cultivate in a prospective law student--or even a prospective lawyer. Far more important is sitzfleisch--the capacity to prop up that $140 casebook under the gooseneck lamp and pull out your yellow marker and undertake hours and hours of parsing For training in sitzfleisch, I suspect that Rutherford and Follett would stand fairly high on the list.

Added note: I do think he is a bit hard on Child's Christmas in Wales, though. Another instance of a perfectly good artifact spoiled by an English teacher.

Where There Is No Vision, The People Perish (And Sometimes, When There Is Vision)

Evidently there is one Republican* who yearns for the day when we will be a resource-driven kleptocracy where the old ladies sell Mars bars outside of Metro Stations (link).

And who can tell--maybe he'll get his way (thanks John).

*Self-styled. They can claim him if they want.

Roger Remembers Gene

Roger Ebert's tribute to Gene Siskel is a model of grace and generosity. We all knew they didn't like each other, but Ebert explains how much they did like each other--how much they responded to each other and triggered each other's responses.

Ebert is too generous, however, to thrust one important detail into the mix: Siskel was a snob. You could hear it in his voice, even if not see it in his face. He knew that he was the Yalie, the student, the man fit to keep company with an auteur. Ebert, in Siskel's eyes, was the hick from Hicksville who did not deserve a place on the same stage with him. Ebert for his part may have felt the same way, but he was self-contained. It's if he wasn't going to trouble himself with looking down his nose at Siskel; there was too much interesting work to be done.

Of course this kind of tension was hardly a drawback: you could tune in every week for the same reason you might watch the Indianaopolis "500"--to wait for the pileup and the flames. Which in the case of S&E of course never came and thank heavens for that--the show wouldn't have been nearly as much fun after therapy.

Frank Wilson also flags to a fascinating followup from a Chicagoan who was a close observer of the whole drama. Seems overdone to me: I never thought Siskel was quite that awful. But the writer knows he turf a whole lot better than I do, and he's probably worth a thought.

Update: In the first posting, I got the names mixed up--so, "Gene Remembers Roger." Now, that would be a story worth reading.

Poetic Justice

Oy, the onslaught of bad news.  We need surcease.  How about a spot of poetry? David Lal from Above the Law is happy to oblige:

Into our town the Hangman came,
Smelling of gold and blood and flame.
And he paced our bricks with a diffident air,
And built his frame in the courthouse square.

Lal's source is here--where, in full length, the poem carries a somewhat different message from the message of the bare excerpt.  There's even a movie.

How Long Does He Get?

Charlie Cook asks the question any reflective Democrat will have to be asking--and offers a not-so-optimistic answer:

At what point will the public blame the recession on Obama instead of Bush?

by Charlie Cook

Saturday, Feb. 21, 2009

The relentlessly bad economic news in recent days raises an important political question: How long does former President Bush keep ownership of this recession?

At this stage, voters have no doubt that the recession started on his watch. Yet plenty of blame deserves to be laid at both ends of Pennsylvania Avenue, and that blame extends to administrations of both parties, not to mention government-supported enterprises and mortgage companies.

In political terms, voters have dumped the blame into Bush's lap. But, at some point along the way, if this recession lasts very long, its ownership will transfer to President Obama. ...

Should the recession last twice as long as the worst downturns since the Great Depression, or 32 months, it would extend into July 2010, or just over three months before the 2010 midterm elections. And although Bush still has ownership of the recession today, at some point next year, if the economy has not clearly bottomed out and started improving, ownership would transfer to Obama. All of the new president's actions would have had a year and a half to have worked. And if they haven't by then, he would begin to get the blame.

Statistically, so long as most of the remaining financial institutions hold together, one would certainly expect this recession to be coming to a conclusion at least by mid-2010. But, that proviso about financial institutions and their assets is the key. Their troubles are largely what's making this downturn deeper and tougher than normal.

Cook also says that "about the only intelligent thing Republicans have done since election day" is (ta da) the selection of Michael Steeele as Party Chair. Boy, if that is the best they can do...

Rocket Docket

Lots of distractions today, so I'll decorate the space with a pickup from the ever-watchful Joel on the Florida housing market/meltdown:

A Florida Court's 'Rocket Docket' Blasts Through Foreclosure Cases
2 Questions, 15 Seconds, 45 Days to Get Out; 'What's to Talk About?' Says a Judge


By MICHAEL CORKERY

FORT MYERS, Fla. -- Hoping to save her house, Saundra Hill Scott arrived at the county courthouse clutching dog-eared mortgage bills and letters from her lender.
Foreclosure Court in Fort Myers

View Interactive
Lexey Swall-Bobay for The Wall Street Journal

See photos and hear audio clips from the Lee County Courthouse and Ms. Hill Scott's home.

She need not have bothered. The foreclosure hearing lasted less than 20 seconds, with Judge John Carlin asking her two questions: Are you current on your mortgage and are you living in the home? She answered no and yes and then offered to show him her paperwork.

"I don't need to see that. That's between you and the bank," he said as he gave Ms. Hill Scott, her husband and three grandchildren 60 days to work out a deal with their lender or vacate their three-bedroom house.

While the Obama administration prepares to unveil on Wednesday its plan to rescue the U.S. housing market, officials here in Lee County have come up with their own unique plan for dealing with the crisis. To clear a huge backlog of foreclosures, judges are hearing "rocket dockets" of nearly 1,000 cases a day and calling retired colleagues back to the bench to help ease the workload.

The housing crisis has been pounding the Florida court system like a Category 5 hurricane. Not only does the state have among the highest default rates in the country, its legal system, unlike many other states with devastated housing markets, requires judges to sign off on foreclosures. The combination has created a monster glut of cases that are overwhelming the courts. The Obama plan to encourage more loan modifications nationally may stem the flood of foreclosures in Florida somewhat, but Lee County officials say that the area's large number of unemployed residents and housing speculators may end up losing their properties anyway. ...

Was it not Eugene V. Debs who said that the American judicial system is the only railroad that runs on time.

Who Wants to Take Over the Banks?

This isn't exactly news but I am still impressed by how broad-based is the support for nationalizing the banks. I mean, no surprise that you've got Nouriel Raoubini and Paul Krugman. But then there's Alan Greenspan and Lindsay Graham. And John Makin from the American Enterprise Institute, of all places (and Underbelly too, now that we think of i: link, link).

Notables not on board include the President, and the Democrats' Congressional Finance Pointmen: Barney Frank and Tom Dodd. This makes sense, I suppose. It is hard to believe ethat Barney Frank would resist the opportunity to run a bank if it presented itself, but I suppose he understands that his embrace could queer the deal, and that he's much btter off letting the likes of Greesnspan and Graham carry the water.

Afterthought: But I still don't see why it needs to be a total takeover. Take preferred stock--just not the kind of funny money fake preferred we weighed in for at the time of the Fannie Freddie deal last year.

Webwatch: Dubai

General hilarity on the aggregator today about the implosion of Dubai--no, wait, strike that, not general hilarity but one of the most useful (and remarkably civil) comment threads I've read in a long time. Makes Dubai about as attractive as a City with 49-Celsius summer tempertures (and a parking lot full of abandoned cars) could possibly be. I gather it is true that Dubai still has debtor's prisons?

In Answer: No, never set foot in the place.

We'll Still Have Sarah

Leftbloggers are enjoying a moment of ungracious glee at the spectacle of Sarah Palin as she seems to melt under the hot lights (link). I suppose some of this was inevitable, and predictable: to anybody who paid attention, it is clear that she always was an empty (pant)suit and there's nothing like $37-a-barrel oil to bring out the warts and wrinkles.

But I wouldn't be in too much of a hurry to consign her to the shelf. Recall there is an almost total disconnect between public persona and actual capacity to govern. It's entirely possible that Sarah could find herself (a) chased out of office on a 35-percent vote; and (b) nonetheless remain the darling of Fox News and the rubber chicken circuit. Who knows, we maybe looking at the first Lady Limbaugh; at least there should be room for her in the club with this guy or this guy.

Great Chain of Being

My 73d birthday today. As Saul Bellow used to say, I don't need to visit cemeteries; the ghosts come and visit me. Now this:

Quand nous avons dépassé un certain âge, l'âme de l'enfant que nous fûmes et l'âme des morts dont nous sommes sortis viennent nous jeter a poignée leur richesses et leurs mauvais sorts, demandant à coopérer aux nouveaux sentiments que nous éprouvons et dans lesquels, effacant leur ancienne effigie, nous les refondons en une création originale. ... Nous devons recevoir, dès une certaine heure, tous les parents arrivés de si loin et assemblés autour de nois.

That is:

When we have passed a certain age, the soul of the child that we were and the souls of the dead from whom we sprang come and shower upon us their riches and their spells, asking to be allowed to contribute to the new emotions which we feel and in which, erasing their former image, we recast them in an original creation. … We have to give hospitality, at a certain stage in our lives, to all our relatives who have journeyed so far and gathered round us.

--Marcel Proust, Remembrance of Things Past V, 82

Trade Him for Larry Summers

How come nobody on this side of the pond can explain the current uproar quite so well as Martin Wolf? Here he is comparing the US now against Japan in the 1990s:

The bad news is that the debate over fiscal policy in the US seems even more neanderthal than in Japan [in the 1990s]: it cannot be stressed too strongly that in a balance-sheet deflation, with zero official interest rates, fiscal policy is all we have. The big danger is that an attempt will be made to close the fiscal deficit prematurely, with dire results. Again, the US administration’s proposals for a public/private partnership, to purchase toxic assets, look hopeless. Even if it can be made to work operationally, the prices are likely to be too low to encourage banks to sell or to represent a big taxpayer subsidy to buyers, sellers, or both. Far more important, it is unlikely that modestly raising prices of a range of bad assets will recapitalise damaged institutions. In the end, reality will come out. But that may follow a lengthy pretence.

Yet what is happening inside the US is far from the worst news. That is the global reach of the crisis. Japan was able to rely on exports to a buoyant world economy. This crisis is global: the bubbles and associated spending booms spread across much of the western world, as did the financial mania and purchases of bad assets. Economies directly affected account for close to half of the world economy. Economies indirectly affected, via falling external demand and collapsing finance, account for the rest. The US, it is clear, remains the core of the world economy.

As a result, we confront a balance-sheet deflation that, albeit far shallower than that in Japan in the 1990s, has a far wider reach. It is, for this reason, fanciful to imagine a swift and strong return to global growth. Where is the demand to come from? From over-indebted western consumers? Hardly. From emerging country consumers? Unlikely. From fiscal expansion? Up to a point. But this still looks too weak and too unbalanced, with much coming from the US. China is helping, but the eurozone and Japan seem paralysed, while most emerging economies cannot now risk aggressive action.

Last year marked the end of a hopeful era. Today, it is impossible to rule out a lost decade for the world economy. This has to be prevented. Posterity will not forgive leaders who fail to rise to this great challenge.

Shorter Martin Wolf: there is no Plan B.

Allen Who?

Given my taste for financial fraud, I admit I am coming a bit late to the story of Allen Stanford who seems to be the very model of watch-the-shell and watch-the-pea multijurisdictional banking (and perhaps a middleweight Bernie Madoff to boot). Maybe because it kind of snuck up sideways:

For anybody who's coming new to this story, it began with an article entitled "Duck Tales", which can be downloaded here, in Veneconomia magazine in Venezuela. The article essentially accused Stanford of being a fraud; it was picked up by Venezuelan blog Venepiramides on February 6, and had made it to Portfolio.com by the morning of Feburary 10. The following day, February 11, there was a big article at both BusinessWeek; by February 12, the rest of the mainstream media had cottoned on, if cautiously.

As it happens, I don't read Business Week but I should know that it is always a mistake to leave Felix Salmon unread. I suspect he is giving himself a bit of a pat on the back here and I say God bless, he deserves it (and so, of course, does God).

Hoisted From the Other Guy's Comments: Stimulus Again

Re the elusive multiplier, I wish I'd written this:

Some questions I'd like answered about the spending multiplier:

1. What is the multiplier when the U.S. borrows 8 billion dollars for high-speed rail, as it has done in this package, and most of the money goes towards buying equipment and engineering services from foreign companies like Siemens or Hitachi or Bombardier? Very few high speed rail suppliers exist in America. As a more general point, if I took a billion dollars of government money and gave it to China for some magic seeds, wouldn't my multiplier be zero?

2. If we are in a 'balance sheet' recession, and therefore helicopter money won't work because people will simply save it (as seems to have happened with Bush's last stimulus), how is infrastructure spending any different? If you employ 3 million people, won't they just save the excess money they just earned? And if THEY don't, won't your multiplier stop the minute they spend their money, and the recipients, who presumably were already employed and had enough money to get buy, save the excess?

3. Have any macroeconomists considered how the multiplier effect is changed when the spending is targeted in ways which may not be able to utilize resources that are currently idle? For example, in the early years, the 20 billion dollar health care IT expenditure will almost certainly have to go to people who are currently employed, since there is not a lot of unemployment among the kind of high-level IT professionals capable of starting up and managing a project of this size. The same can be said for many of the specific items in the stimulus bill. Long gone are the days when you can take an unemployed stock broker and give him a shovel and put him to work building a road.

This last point seems critical to me. The stimulus bill is very specific about what must be built, and much of it is technical. It seems to me that there will be much more 'crowding out' under this kind of central plan than there would have been if, say, the feds has simply apportioned a trillion dollars to the states and allowed them to spend it as they saw fit. Or even better, to leave the trillion dollars in the hands of the people.

Given all this, how can any economist make the claim that the multiplier is X, with any kind of reasonable confidence interval? Historical analysis of past spending seems to be iffy, since the explosion of global trade has changed the game dramatically in the last twenty years. And in any event, study of past spending doesn't seem to support the large multipliers some economists are claiming.

That's from Marginal Revolution here--search for the comment by "Dan H. at Feb 17, 2009 12:45:49 PM." There is more good stuff here. It is really amazing how hard it is to get supporters of this bailout to think seriously about the question of whether the stimulus will stimulate (or if so, what and how). People who take it as loony that supply side taxation will increase income (and btw, it is loony) will swallow the claims of the stimulus like a raw oyster (for some flavor of the confusion, follow this thread at Mark Thoma).

I want the record to show that I'm not speaking as knee-jerk Boehnerite here. I think it's way past time to nationalize the banks, and I'm hospitable to helicopter money, or to digging ditches with a spork (and I think the Bush tax cuts were a sour joke). But it's becoming more and more clear that a good deal of the "stimulus" has been hijacked by a lot of people who have pet projects (so far, Democrats in Congress, but I don't hear of Republican governors turning down the money). In ordinary times, we could get away with this. But it's becoming clearer and clearer that the new president just blew a golden opportunity.

Fun fact: after the 1989 earthquake, it took 12 years to get started on Bay Bridge retrofit. And we aren't done yet.

Update: Greg Clark, channeling DeLong, builds an argument on the model of Pascal's wager. it seems to me pretty flimsy. He says that even if the stimulus works a little, it's better than no stimulus at all. But he overlooks the fact that the taxing/inflating might, on the same language, more than offset all the good effects. And one more time, I'm not opposed to a stimulus. And I'm a bit Pascal fan, but I don't like taking things on faith.

Have a Nice Day

The Dow hit its peak of 14164 on October 9, 2007.

As I write it is at 7601.43.

That's a decline of 46 percent, or a little under one percent a week.

Have a nice day.

Fun with Commodities

Scarcity? Chill. Carpe Diem, channeling George Will, channeling the late Julian Symon, reminds us that the price of a basket of five critical commodities fell by 21.56 percent in the ten years ending at 2000. Let's do the numbers: $100*(1-0.2156)^10= $8.62, so is that the price we can predict for a $100 basket in 3000? And when, exactly, will the supply go to infinity?

What's The Story on the Virginia Eighth?

My friend Ivan takes me to task for calling the Virginia 8th Congressional district the "mother church of the military-industrial complex" (see previous post). The whole comment is worth hoisting:

i dont think arlington-alexandria, where i lived for several decades plus, is "home" to big military lobbying operations, although the pentagon is located there. arlington-alexandria is a very liberal voting area, and home to democratic party operations that really work at electing liberal democrats. virginia got its first black gov, doug wilder, years ago, because of the white turnout in arlington-alexandria.

Well, I don't think any district that is home to the Pentagon can count itself as free of military-industrial influence. But Ivan is obviously onto something here: A-A does have a record of support for liberals statewide, though their own Congressman, Jim Moran, counts rather more as Blue Dog. In some ways, if you are looking for a military-industrial distrct, perhaps a better case could be made for the much richer Virginia 10th, a bit further east, home of so many of the lawyers and lobbyists that keep the political machine oiled.

On the other hand, here's an argument that's hard to top: Finder analyzes Department of Defense spending by district nationwide. The winner, by a runaway margin the Virginia 8th, with half again more contractors, with almost twice as much spending as the runnerup (which is, as it happens, the Virginia 10th). If that ain't military spending, I don't know what is.

Maybe the clue here can be found at the micro level: A-A liberals are people who are comfortable with government. They work there, or their relatives work there, or they did work there and soon will again. When they think "military," they don't think of a skinhead 20-year-old waving an M16A2; they think of the guy sitting next to them on the orange line to Metro Center, wearing camouflage duds and combat boots, carrying a briefcase and penciling a pile of spreadsheets. In the end, maybe the military-industrial complex comes down to that.

California Congressional Datapoint

Browsing through The Measure of America* I find tables showing the "American Human Development Index," organized by Congressional District. Number 1 of 436--the "most humanly developed," I guess-- is the New York 14th, the silk-stocking Upper East Side of Manhattan, home of Bernie Madoff and a gaggle of unemployed bankers. Number 2 is the Virginia 8th, Arlington-Alexandria, mother church of the military-industrial complex. Numbers 3, 4 and 5 are all California: California 14th, Anna Eshoos' Silicon Valley seat; California 48th, the Irvine Ranch, once host to Chris Cox of SEC fame, and California 30th, entertainment central, Henry Waxman's LA West Side.

But flip over to the other end--who is at the bottom of the list? No, not deep south, not high plains: turns out the lowest HD index in the country belongs to another California district, the 20th, the west side of the Central Valley, where a full 47.4 percent of adults report that they did not finish high school. Only 6.5 percent report at lest a bachelor's degree; only one point six percent report a graduate degree. Education appears to be the real killer here: the California 20th acctually leads the next-to-last finisher (Kentucky Fifth, the Appalachians) in life expectancy at birth (77.1 v. 72.6) and the health index (4.61 v, 2.77--Virginia 8th has 7.05).

The 20th is actually rich, in a sense: rich farmland, abundant crops, and lots of government slosh: cotton price supports and (most of all) cheap water.

The desolation of the 20th is partly an artifact of redistricting butchery: our leaders in their wisdom decided it was a Good Thing to put all these potential Democrats in one place. Per the Almanac of American Politics, Rep. Jim Costa was willing to spend $1.9 million to gain the seat in 2004. The median i eaarnings are $16,767.
===
*Sara Burd-Sharpes, Kirsten Lewis and Eduardo Borges Martin (2008).

When You Say That, Smile...

Anybody who thinks lady is going to be a pushover had better start looking for another line of work:

When Senator Kirsten E. Gillibrand grabbed the microphone at the Lunar New Year parade in Chinatown two weeks ago, she blurted, “Ni hao ma, zenma yang?” in Mandarin, or “Hello, how’s it going?” Later that day, after wrapping up a meeting with local leaders at a senior center, she walked by a few card tables and said, “Hao bu hao?” or “Are you doing O.K.?”

It is customary for politicians eager to connect with ethnic voters to butcher a few words in Spanish, Chinese or other foreign tongues. But Ms. Gillibrand is no ordinary politician when it comes to linguistic and cultural comfort: as an Asian studies major at Dartmouth, she studied for six months in China and Taiwan, becoming proficient enough to absorb stories in Chinese newspapers, and later spent four months in Hong Kong as a corporate lawyer.

Ms. Gillibrand’s Chinese is rusty now. But she tells her 5-year-old son, “Man man yi diar,” or “Slow down a little,” and calls chopsticks “kuaizi,” out of habit. And she can still converse for a few minutes, as evidenced when a reporter from a New York City-based Chinese-language newspaper trying to learn her Chinese name unexpectedly found an enthusiastic Ms. Gillibrand on the line. ...

Find the rest here.

McManus on Drama Obama

I think Doyle McManus (in the LA Times) gets it about right:

Barack Obama made running for president look easy. As a candidate, he was famously steady and cool, and his campaign team was a marvel of internal harmony. "No drama Obama," they called him.

Fixing a broken economy is turning out to require some drama. To win his stimulus plan, Obama had to turn white-hot and warn that the alternative was "catastrophe." Backstage at the White House, there has been confusion and even discord, evidence that Team Obama might be populated by mortals after all.

The stimulus plan was a real victory that gave Obama, after relatively brief congressional brawling, most of what he wanted in the first place. But Treasury Secretary Timothy F. Geithner's rollout of a financial rescue plan that wasn't ready for prime time was a real setback -- a self-inflicted wound that exposed apparent conflict inside the administration.

Obama and Geithner made a rookie mistake: They billed the Treasury secretary's speech as a "comprehensive plan" when the most important piece wasn't ready. They over-promised and under-delivered.

Administration officials apparently felt pressure from the global credit markets to say where they were heading. But they would have done themselves a favor if they had described Geithner's speech as an interim report, not a comprehensive plan.

Geithner's brutal candor -- "We will have to try things we never tried before. We will make mistakes" -- didn't reassure a nervous market either.

Most intriguing for Obama-watchers, the half-finished plan forced signs of internal discord to the surface. Before the speech, the New York Times reported that the Treasury secretary had fought off pressure from Obama's chief political strategist, David Axelrod, for tougher conditions on financial institutions.

After the speech, Axelrod's defense of Geithner was less than ringing. "Wall Street was hoping for a complete answer to some really complex and expensive problems, and what Secretary Geithner laid out didn't meet those expectations," he said, accurately. Others in the administration privately agreed that the rollout turned a proposal that should have been a public hit (it includes big increases in help with mortgages and consumer loans) into an unforced error. That kind of internal tension was almost invisible before Jan. 20.

Take the short view -- the last two weeks -- and the Obama presidency has clearly run into turbulence. "Some may call it amateur hour," Obama's chief of staff, Rahm Emanuel, acknowledged with a sardonic smile last week.

Take a longer view, though, and the new administration has accomplished quite a bit in less than a month: a stimulus bill that genuinely qualifies as "unprecedented," a half-plan for fixing the nation's credit markets, and first steps in a dozen other areas. Most of the troubles probably can be attributed to the struggle to learn the difference between campaigning and governing, a challenge that has bedeviled every governor and senator who ever won the presidency.

I don't read this is saying--and I don't believe--that the jig is up already, after 25 days. In the long run, a lot of this is just window dressing, for the entertainment of the press. I have to admit I'm a good deal more panicked about substance: still seems to me that they're not facing up to the fact that we've got a problem of solvency, not liquidity, and that any real fix will have to be real, and different.

But the real test isn't whether it works; the real test is whether things get better, either because or in spite of what they do. If the sun comes out from behind the clouds, then we all got the seashore, and all these momentary bobbles will be forgotten.

H/T: Joel again.

Is That Damn Greek Still Here?

And here I thought beta was dead. But while everyone else was off seeking Alpha, Ashwath Damodaran was digging deeper into beta, and now explains himself with his characteristic clarity.

Blossom Dearie

My friend Larry is remembering Blossom Dearie at Reno Sweeney's. Can't find a Reno Sweeeney's cut, but here is Blossom:

Blossom died February 7 at 82. Here's a good obit.

Sophie

Here's Sophie, the dog who visited at Christmas. She got her rabies shot today; this is before, said to be the happiest she looked all day.

Parting Valentine Thought

I like Lady M[ary] Cooke extreamly. You will be supriz'd at this Sentiment when she is the present Envy of her Sex, in the possession of Youth, Health, Wealth, Wit, Beauty and Liberty. All these seeming Advantages will prove snares to her. She appears to me walking blindfold upon Stilts, amidst precipices. She is at a dangerous time of Life, when the passions are in full vigour, and we are apt to flatter our selves the understanding arriv'd at Maturity. People are never so near playing the Food as when they think themselves wise. They lay aside that distrust which is the surest Guard against Indiscretion and venture on many steps they would have tremble'd at, at fiveteen, and like children are never so much expos'd to falling as when they first leave of leading-strings. I think nothing but a miracle o r the support of a Guardian Angel can protect her.

That's lady Mary Wortley Montagu, writing to her daughter and confidante, Lady Bute on 16 March 1752; Mary Coke was a cousin of Lord Bute, reprinted in Lady Mary Wortley Montagu: Selected Letters 399-400 (1997). Balzac says somewhere (can't put my finger on it) that no woman learns the truth until she is 35, becuause who would want to tell the truth to her before? Mozart (more precisely, Lorenzo da Ponte) reflects the sentiment here, and here:

Afterthought: Hey, I was there! I was on TDY in New York that fall; Mrs, B came to visit and we indulged ourselves with grand circle seats for Cosi at the Met. The rendering of "Soave sia il vento," is a moment I will never forget. Her's a Youtube link.

Must-reads

Two weekend must-reads:

• Axel Leijonhufvud's overview (excerpted here by Yves Smith) has got to be the best all-round summary of the current uproar.

• Epicurean Capitalist has a bit on the psychopathology of capitalist buccaneers which may sound like snark, but in truth hits pretty close to home (H/T Kedrosky).
  

More Valentine Verse

My sister Sally remembers the Valentine syllabus from her years teaching kindergarten in Rocky Hill Connecticut:

I love you, I love you divine,
Please give me your bubble gum, you're sitting on mine!!

or

Do you love me or do you not?
You told me once but I forgot!

Well, Hello

If You're Planning to Get Pregnant, Please Contact the BBC Action Line.

--BBC Women's Hour, via the News Quiz

Sherrod Brown, the Funeral, the GOP, and the Civility of the President

A tranche of the chattering class is scandalized this morning that the Senate Republicans were so piggy as to interfere with Sherrod Brown's mother's funeral (details here). Okay, granted: even if you believe that it is hard to be shocked at anything any more, this particular bit of bad manners comes pretty close.

But I think those with raised eyebrows are missing an important point. That is: if the party of home, family and apple pie undertakes an instance of calculated and absolutely unnecessary rudeness, it must be because they like it that way. Mitch McConnell didn't just fall from heaven on his head: if he undertakes to be a major-league toad, we can safely infer that he has decided that his masters (the voice of the people, aka Kentucky Republicans) will cheer him on. Call it pandering to the base if you like, but recognize that his job is pandering to the base, and he wouldn't be where he is if he didn't do it awfully well.

This, I think, highlights the problem Barack Obama has with his agenda of civil outreach. It's not that he sits down to dine with Republicans; I'm willing to accept that that is probably a good idea, all things considered. The trouble is not that he did it, but that he expected it to accomplish something. He didn't seem to grasp that his efforts at conciliation would be rewarded so swiftly with so much contempt (HA Ha!).

Which uncovers, I think, a larger problem with Obama--a problem of which, so far as I can tell, nobody else has spoken. That is: he's actually a rather sheltered child. Say what you like about the exotic marginality of his past, the fact is that he has spent most of his life among people who loved him and who wanted to give him space--growing up, as Dierdre McCloskey would put it, in the atmosphere of benign Christian socialism that we call the American family. When people say he is "inexperienced," they recognize that he is well schooled, that he has lived a lot of places and met a lot of people. It is that he has been coccooned away from real trouble, has never needed to understand just how nasty a business politics can be.

I am not, repeat not, asking Obama to morph into Nelson Muntz, to return rude for rude. But I'm not quite asking him to turn the other cheek, either. I think Machiavelli would say (probably did say) that it is important to feign civility, but to keep your claws sharpened under your wraps.

Recall the old saying: there is a name for the creature that neither fights nor flees, and the name for that creatute is "lunch." Remember that these are Republicans you are fighting, Mr. President. Don't be lunch.

Hedge Fund Arithmetic

My friend Investo, who runs money for an institutional investor, has cooked up a wonderful get-acquainted example for those who want to make friends with a hedge fund. Investo poses the case of an investor who plunks down $100 (million), with a commitment to pay 20 percent of the gross to the manager (we'll skip management fees, heh heh). Anyway, the fund enjoys 20 percent returns in each of five years; then in the sixth year (sound familiar?) it loses 60 percent. What is the net return to (a) the investor and (b) the manager? The answers are: for the invetor, a $16 million loss; for the manager, a $27.5 million gain. Here are the details:

Parsing: The first column starts with the $100 mill. As we move down, we get the new years' investment less the commission plus 20 percent. The next column is the commission. At the end, we total up the commissions, which the investor pockets. The investor's net is his final position less a grubstake.

Investo also worked out a variant where the manager eats his own cooking, aka invests in his own fund. He still winds up ahead albeit less dramatically, with only $15.52 million instead of $27.51, and as the New York Times did not say, you try living on the Upper East Side for $15.52 million. The investor is skunked as before.

If this does nolt strike you as an outrage, then there is a hedge fund somewhere that might consider you as a candidate for employment.

Geek Footnote: Why can't I lop that extra white space off the bottom of my chart? And what happened to my footnotes?

Dating Service for the Terminally IIll

David Pescovitz says he thinks this is not a joke. Buce says he hopes it is not; rather, it looks like a really cool idea (link).

Good Morning...

Everybody remember what day it is?

Come, my Celia, let us prove
While we may, the sports of love;
Time will not be ours forever;
He at length our good will sever.
Spend not then his gifts in vain.
Suns that set may rise again;
But if once we lose this light,
'Tis with us perpetual night.
Why should we defer our joys?
Fame and rumor are but toys.
Cannot we delude the eyes
Of a few poor household spies,
Or his easier ears beguile,
So removed by our wile?
'Tis no sin love's fruit to steal;
But the sweet theft to reveal.
To be taken, to be seen,
These have crimes accounted been.

-- Ben Jonson

Evidently an homage to the fifth ode of Catullus. For details, go here.

So That Explains It...

Guess I never knew this before.

And happy day before Valentine's day.

What Time Is It, Boys and Girls?

It's 1234567890!

The Minsky Society: Irving Fisher

Greg Mankiw has the Pigou Club, for those who have the good sense to advocate higher Pigovian taxes. Here at Underbelly Central, we today inaugurate The Minsky Society. The Minsky Society is open to those who can show, in an empirically-based and non-lunatic way, that capitalism is unstable not just by accident but inevitably and by nature. The eponymous member #1 is the late Hyman Minsky who probably did more than any other one person to detail just how the engine of finance goes off the rails. The Honorary chairman would be John Maynard Keynes, in fashion now after a long sojourn in the wilderness. We can probably grant membership to Robert Shiller, he of Irrational Exuberance (and note the cool Excel files at his webpage).

Joel offers a new candidate: the late Irving Fisher, famous most of all for the damage he inflicted on the Yale University endowment. The Economist explains how Fisher, though a splendid argument against market timing, pretty well understood the dangers of debt and the pains of deflation:

As parallels to the 1930s multiply, Fisher is relevant again. As it was then, the United States is now awash in debt. No matter that it is mostly “inside” or “internal” debt—owed by Americans to other Americans. As the underlying collateral declines in value and incomes shrink, the real burden of debt rises. Debts go bad, weakening banks, forcing asset sales and driving prices down further. Fisher showed how such a spiral could turn mere busts into depressions. In 1933 he wrote:

Over investment and over speculation are often important; but they would have far less serious results were they not conducted with borrowed money. The very effort of individuals to lessen their burden of debts increases it, because of the mass effect of the stampede to liquidate…the more debtors pay, the more they owe. The more the economic boat tips, the more it tends to tip. ...

Were Fisher alive today, “he would tell us we have to avoid deflation, and to worry about all that inside debt,” says Robert Dimand, an economist at Brock University in Canada, who has studied Fisher in depth. “The ideal thing is to avoid these situations. Unfortunately, we are in one.”

Beyond that, I get cagey: once you get out from under the streetlight, you find a whole universe of cranks and weirdos who think they understand boom and bust, but whose rantings do little but give the good folks a bad name. This includes some, but not all, of the self-styled Marxists.

For example, I'd want to make a place for Doug Henwood, who I believe styles himself as a Marxist but is perhaps better understood as a pretty shrewd wonkish critic of mainstream macro. Applications of earlier Marxists like Paul Baran and Paul Sweezy are still under review. The application of Karl Marx would probably provoke intolerable conflict on the admissions review board but happily, he has not deigned to apply.

[I refuse to forward the candidacy of John Kenneth Galbraith who always struck me as less of an economist than a pious gasbag--a man without a testable hypothesis, as Harold Demsetz used to say. But I have to admit that The Great Crash was a pretty good book.]

Another Just Askin': Tax and Spend and Print

Look, I acknowledge that I am not an economist so I ask this more in the spirit of ingenuous curiosity than of intentional snark. The issue is: stimuli and printing money.

The standard mantra says that there are only two ways to run a deficit: tax and spend, or print money. Tax and spend is bad because it just sends money on a round trip to Washington with added freight charges. Printing money is bad because we will pay for it through inflation.

On the tax-and-spend point: this strikes me as a plausible half-truth. Taxing and spending may be effective if (big if) the recipient is more likely to spend it productively than the victim taxpayer. This sometimes happens: think dissolution of the monasteries. Indeed I suspect (though I do not know for sure) that it might be a good generalization to assert that confiscation of great estates usually enhances productivity.

On the inflation point, I feel shakier. But consider the example of supply side economics: isn't supply side based on the proposition that we can diddle our way to chastity--or at any rate, spend our way to solvency, i.e., cutting taxes without losing revenue? So far as I can tell, the empirical evidence in favor of supply-side is just about zero: actual sightings are less common than sightings of Elvis. Countless critics (including your humble servant) have written in derision of this particular fantasy.

But don't we have a somewhat similar problem with printing money? If we advocate printing money, don't we have to assume that we can accomplish what the supply siders have not, i.e., juice up the economy so much that it will compensate for the cost of inflation? If not, then we are back to issue #1--the efficacy of taxation. And the question would recur: is the recipient more likely to spend the money stimulatively than the one from whom it was taxed away? Except that in this latter case, I think I might know the answer, and that the answer might be "no." I.e., the standard learning is that inflation falls most severely on those on fixed incomes--pensioners and such--the most vulnerable and also the least able to protect themselves.

I hope I've made it clear that I'm not a doctrinaire Austrian here. But so much of the discussion among commentators on the left is just preaching to the choir--and on the right, just nonsense. I'd love to see a more measured response to issues like the ones I raise here.

Just Askin'

People are beating up on poor Paul for his alleged radicalism, but in what respect(s) does the Krugman message vary from the message of that beacon of market orthodoxy, Martin Wolf?

Who? Who?

Time Magazine, seeking salvation in the realm of glitzy packaging, has a cute feature up on "25 People to Blame for the Financial Crisis." And just as the marketers must have hoped, here I am writing about it.

First thing to note- the number of names you don't even recognize. Okay, you've read stories about Angelo Mozilo, Joe Casssano, Ian McCarthy, Jimmy Cayne et al (trust me, you have). But I doubt that any but the most obsessive meltdown junky could score more than 50 percent in associating the malefactor with the malefaction. Might be better to do it backwards, Jeopardy style ("I'll take international criminal masterminds for $200, Alex!"). Then if Alex poses the puzzler "he said 'The consumer has to be an idiot to take on those loans, but it has been one of our best-­performing investments,'" you'd press your button and reply"who is John Devaney?"

But then (as the marketers intended?) the Monday-morning quarterbacking will begin. Does George Bush belong on this list more than Bill Clinton? And where is Jimmy Carter, godfather of the Community Reinvestment Act, beloved villain of the Wall Street Journal? Indeed, strong evidence that this list was put together by Time and not the Journal is that it includes neither Carter nor another favorite Journal boogieman, Congressman Barney Frank (the list does include the very favorite Journal bugaboo, Franklin Raines, late of FNMA).

Indeed, I'm a bit surprised to see who comes top in the rankings: not Bush or Clinton, not Dick Fuld, not Stan O'Neal, not Angelo Mazilo, but Mr. Cuddly himself, Phil ("Bunch of Whiners") Gramm. I'm certainly not going to feel sorry for Gramm, but given the competition, his villainy may be overrated. Give Gramm this: he's got a brain the size of a suitcase, and he's nothing if not candid--he has never for a moment made any secret of the fact that his role is to comfort the comfortable and afflict the afflicted. He's the kind of guy who will never stab you in the back because he is too busy stabbing you in the front, and if you are taken in by him, why I'd say you have only yourself to blame.

I have far more equivocal feelings about Chris Cox from the SEC, number two on the list who, by all accounts, is a rather nice and well intentioned man. In another time, I might even have said "a smart man," but everything you read about Cox lately suggests that he found the SEC job much more difficult, perplexing and generally nastier than he ever suspected ("not Pooh corner," an early commentator warned).

I would take wonkish exception to the inclusion of Lew Ranieri, identified by Time with only mild exaggeration of the mortgage-backed bond. I'm still enough of a troglodyte that I believe in some of these fancy dancy financial devices: I believe that securitizations don't kill people, people kill people, and you shouldn't blame Ranieri for the fact that other people turned his ideas into junk. Follow down that road and you wind up laying the blame on this guy, said by Aristotle to be the all time granddaddy of funny-money securities.

Afterthought: coming in at number 10 is one guy who strikes me as clearly not responsible for the financial crisis. That would be our beloved friend Bernie Madoff, author of perhaps the biggest financial fraud of all time but still, ironically, more victim than perpetrator of the currrent collapse.

Pedantic Footnote: "Who who?" is supposed to be a joke. Go here.