Today, U.S. District Judge Colleen Kollar-Kotelly dealt a “setback for the Bush administration in its effort to promote a narrow definition of materials that must be safeguarded under by the Presidential Records Act” by ruling that Vice President Cheney must preserve his records. Kollar-Kotelly said that the Bush administration’s legal position “heightens the court’s concern” that some records may not be preserved. The lawsuit, brought by CREW and several historian organizations, was prompted in part by Cheney’s claim that he is not part of the executive branch.
Sebastian Mallaby strikes me as a pretty business-friendly, establishment-oriented type so when he says this bailout package stinks I suddenly go from thinking “this smells fishy to me, but maybe these guys know what they’re doing” to “oh shit.” He points to a couple of better models:
Raghuram Rajan and Luigi Zingales of the University of Chicago suggest ways to force the banks to raise capital without tapping the taxpayers. First, the government should tell banks to cancel all dividend payments. Banks don’t do that on their own because it would signal weakness; if everyone knows the dividend has been canceled because of a government rule, the signaling issue would be removed. Second, the government should tell all healthy banks to issue new equity. Again, banks resist doing this because they don’t want to signal weakness and they don’t want to dilute existing shareholders. A government order could cut through these obstacles.
Meanwhile, Charles Calomiris of Columbia University and Douglas Elmendorf of the Brookings Institution have offered versions of another idea. The government should help not by buying banks’ bad loans but by buying equity stakes in the banks themselves. Whereas it’s horribly complicated to value bad loans, banks have share prices you can look up in seconds, so government could inject capital into banks quickly and at a fair level. The share prices of banks that recovered would rise, compensating taxpayers for losses on their stakes in the banks that eventually went under.
Here’s Zingales on “Why Paulson is Wrong.” Here in Vegas, the house always wins, but I at least have a sound understanding of the underlying mechanism.
Doug Elmendorf, senior fellow in economic studies at the Brookings Institution is not, I take it, a Communist of some sort. But he says that instead of buying financial institutions’ bad assets, we should be buying the institutions:
An alternative to the government buying certain types of debt from financial institutions is for the government to make equity investments in a wide cross-section of such institutions. For concreteness, suppose that the government offered to make an equity investment in every firm regulated by a federal or state banking regulator equal to 10 percent of the market value of the company as of September 1st in exchange for a 10 percent equity stake in the company. (The 10 percent figure is illustrative. As with the first approach, a judgment about the appropriate total amount of government funds would need to be made.)
He goes on to observe that objections can be raised to this. But it has several important advantages over what Paulson is proposing. Most importantly, the government would “own the upside” of the bailout. In other words, if the plan worked and confidence was restored in these institutions, the value of the taxpayers’ investments would go up. If the plan failed the public would lose a ton of money, but obviously with any plan if you fail bad things are going to happen. Under Paulson’s plan, by contrast, the public has very little upside.
The other big advantage is that the equity proposal leaves the government bailing out everyone equally. Under Paulson’s plan, as I understand it, you would be giving more help to financial institutions that had made bigger fuckups.
Now in typical Brooking style, Elmendorf is being calm and judicious about this in his tone. Judicious to a fault I would say. He’s acting like this is just a decision that’s going to be made on the merits, so what’s needed is a calm and judicious tone. But there are big interests at stake here. Buying the assets is much less favorable to the taxpayers but much more favorable to well-connected financiers. That, rather than an argument over the merits, is what seems to be crucially at stake here.
Dean Baker has ideas for some fetters congress might want to put on the bailout package:
The government can set whatever conditions it wants on participating in the reverse auctions. One of the conditions it should set is that executive compensation be severely constrained at any financial firm that participates. For example, it can set an absolute limit of $2 million in total compensation for any executive at any firm that takes parts in the reverse auction.
Since participation in the auction is completely voluntary, this would make the cap voluntary. Furthermore, there need be little fear about losing good talent, because well-managed firms would not have to participate in the reverse auction.
It turns out not to be the case that the Chinese character for “crisis” is formed by combining the characters for “danger” and “opportunity.” Nonetheless, people always repeat that idea because it’s genuinely insightful. This financial crisis is a great opportunity for progressives to gain some leverage over a set of economic problems that it’s normally difficult to devise a workable method of addressing. I’m not holding my breath out for congress to make the most they could out of this opportunity, but for the moment progressives out to be drawing attention to the fact that the opportunity exists.
John McCain’s Contingencies article about health care and already been getting attention for the part where he promises to deregulate health care to make it just like the deregulating banking system. But Brad DeLong wisely notes that there’s actually more laughable stuff than that in the article.
For example, McCain wisely observes that lifestyle habits are a crucial element of public health “The final important principle of reform is to rediscover our sense of personal responsibility to take better care of ourselves and our children.” But then he blames the absence of such information on . . . political correctness:
Parents who don’t impart to their children a sense of personal responsibility for their health, nutrition, and exercise–vital quality-of-life information that political correctness has expelled from our schools–have failed their responsibility.
Pining for the good old days you could call African-Americans “colored” and teachers weren’t afraid to say that Big Macs aren’t very healthy? What kind of nonsense is this? Meanwhile, it would be interesting if McCain actually had a policy proposal to improve public health education in the United States. That sounds like a worthwhile goal, and I’d like to hear politicians’ ideas about doing it. But McCain has no such policy. He just calls for “well-informed American families making practical decisions to address their imperatives for better health and more secure prosperity.” But that’s not what’s happening — what we need are ideas to change things.
As legal adviser at Guantanamo Bay, Brig. Gen. Thomas Hartmann has been one of the most aggressive advocates for the Bush administration’s military commissions. In fact, three separate judges have barred him from acting as an impartial legal adviser at the trial of detainees. Judge Stephen Henley said that Hartmann had “compromised the objectivity necessary to dispassionately and fairly evaluate the evidence and prepare the post-trial evaluation.” In the case of Salim Hamdan, a military judge ruled that Hartmann had “exerted improper influence on the case.”
The Pentagon has now quietly removed Hartmann. But as the Miami Herald notes, instead of being fired, Hartmann has essentially become a “war court czar in charge of logistics.” Pentagon acting general counsel, Daniel Dell’Orto, released a statement yesterday, nowhere mentioning Hartmann’s inappropriate advocacy activities:
Gen. Hartmann has driven the commissions process forward since his arrival in July 2007. In no small part because of his efforts and his dedication, the commissions are an active, operational legal system. Due to the dramatic increase in the number of military commission cases, the more than doubling of personnel, and the various policy, logistics and systems issues that arise regularly and frequently in the commissions, it is necessary to establish a more comprehensive executive support structure.
In an interview with the Miami Herald, Hartmann said that in his new job, he would be making sure that war on terror prosecutions move along briskly. “I want those courtrooms to be as filled up as they can possibly be — six days a week,” he said.
At a Senate Judiciary Committee hearing in December 2007, Hartmann repeatedly refused to call the hypothetical waterboarding of an American pilot by the Iranian military torture. Shortly thereafter, Lt. Cmdr. Andrew Williams, a JAG officer with the U.S. Naval Reserve, resigned, saying that Hartmann’s testimony was the “last straw” and “sold all the soldiers and sailors at risk of capture and subsequent torture down the river.”
In August, deputy prison camp commander, Army Brig. Gen. Gregory Zanetti testified that Hartmann was “abusive, bullying and unprofessional” and employed a “spray and pray” strategy to stage tribunals at Camp Justice.
The administration is requesting “unfettered authority” to buy whatever with the $700 billion worth of bailout money they’re asking for. And of course that’s what they want. If you were to give me authority to do something, I’d prefer to get the unfettered kind. But you almost certainly wouldn’t give it to me. And you especially wouldn’t give it to me if the problem the authority was meant to resolve had occurred under my watch. If this scale of funds is going to be spent. Here’s Ed Paisley for CAP on what a reasonable package could look like:
Thanks to the leadership of Federal Deposit Insurance Corporation Chair Sheila Bair, Congress has a model to work with. The FDIC is doing just this at failed California-based IndyMac Bank. By engaging in systematic loan restructuring, rather than foreclosing on the failed bank’s mortgages, the FDIC will likely end up preserving more value and reducing taxpayer exposure. Whatever agency Congress assigns to this broader task should do the same, restructuring troubled loans in the portfolio of mortgages they purchase in a systematic manner, rather than through piecemeal modifications. The result of refinancing more loans than private holders have been able or willing to do will be fewer defaults and foreclosures.
The financial markets are but one of the economic problems we face. The last eight years brought stagnant wages and weak job creation—with the situation getting even worse over the course of this year. Restoring our economy requires a plan to address the financial crisis and the underlying weakness in our economy. We need to make job-creating, growth-producing investments in our infrastructure and transform to a low-carbon economy. The legislative package that moves rapidly through Congress to implement Paulson’s new plan should also include expanded unemployment benefits and heating assistance for low-income families, increased food stamps, and assistance for states in providing health coverage to families in need during these difficult times. The folly of Wall Street and the negligence of the Bush administration has produced today’s pain on main street. It would not be right if the rescue only rescues firms and not families.
To give the regulatory authorities who failed to prevent this crisis carte blanche to hand out money to the financial institutions who caused the crisis while doing nothing for ordinary people would be outrageous.
The site for baseball-style statistical analysis applied to polling, FiveThirtyEight.com, finds:
Obama has developed a structural advantage in the Electoral College that is understated by the popular vote margin. If we break the election down into its four fundamental scenarios, it looks like this:
In the latest edition of American Academy of Actuaries, Sen. John McCain (R-AZ) makes his case for “deregulating the health insurance industry by extolling the benefits of the last decade of deregulation in the banking sector“:
[Individuals] need to be in charge of their health care dollars… I would also allow individuals to choose to purchase health insurance across state lines…Opening up the health insurance market to more vigorous nationwide competition, as we have done over the last decade in banking, would provide more choices of innovative products less burdened by the worst excesses of state-based regulation.
In fact, deregulation of the banking industry “offers a cautionary tale about a little-understood provision at the center of John McCain’s health care plan.”
Following a pair of Supreme Court decisions which deregulated the banking industry, credit card companies relocated to states with no interest rate caps and charged “what they wanted” to borrowers in states with interest rate limits. This deregulated environment allows credit card companies to “use pricing practices, like teaser rates, to attract cash-strapped families and then…double or triple those rates without notice.”
Similarly, in McCain’s national insurance marketplace, insurance companies “would have little incentive to continue doing business” under certain state rules which “require that companies issue coverage to all new customers and not set higher rates for people who are already sick”:
[Under legislation that McCain supports], insurers wouldn’t even need to pick up and move their operations; it would be enough to file some paperwork with a state insurance commissioner and pay that state’s relevant taxes…An insurer operating under Arizona law would be able to offer healthy New Yorkers a cheaper policy than an insurer working under New York law that has to price policies the same for everyone.
Ultimately, “insurance companies could sell plans across the country that deny coverage altogether to high-cost cases. Healthy “individuals, regardless of their state of residence, could move to cheaper (albeit less comprehensive) plans based in states with fewer protections. Plans based in states with more rigorous insurance regulations would be left with sicker, more expensive patients—and higher rates.”
Given the current financial crisis, McCain’s comparison would be unfortunate if it wasn’t so accurate. Indeed, allowing health insurance companies to flaunt consumer protections and sell policies from states which do not require insurers to cover cancer screenings or maternity care could lead Americans into a personal financial crisis (should they actually need medical care, they would have to pay for it out of their own pockets) that mirrors America’s current financial predicament.
In a “potentially groundbreaking federal sex discrimination lawsuit,” a federal district judge in Washington, DC ruled yesterday that “the Library of Congress discriminated against Diane Schroer when it offered her a job and then rescinded it after learning she was transgendered.” This case is the first to hold that “the federal sex discrimination statute, Title VII of the 1964 Civil Rights Act, applies to transgendered people.” In his decision, Judge James Robertson compared Schroer’s case to religious discrimination:
Imagine that an employee is fired because she converts from Christianity to Judaism. Imagine too that her employer testified that he harbors no bias toward either Christians or Jews but only “converts.” That would be a clear case of discrimination “because of religion.” No court would take seriously the notion that “converts” are not covered by the statute.
More on how the Library of Congress denied Schroer a job here.