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Yglesias

Can You Measure Bank Capital

There’s been a fair amount of discussion over whether it’s necessary to set a statutory limit to bank leverage or whether it’s okay to leave capital ratios at the discretion of regulators. Steve Randy Waldman says it’s essentially all irrelevant since we can’t accurately measure capital at large, diverse financial firms. For example:

On September 10, 2008, Lehman reported 11% “tier one” capital and very conservative “net leverage“. On September 25, 2008, Lehman declared bankruptcy. Despite reported shareholder’s equity of $28.4B just prior to the bankruptcy, the net worth of the holding company in liquidation is estimated to be anywhere from negative $20B to $130B, implying a swing in value of between $50B and $160B.

So what happened? Was is fraud? Waldman points us to the relevant section of the Valukas Report:

The Examiner did not find sufficient evidence to support a colorable claim for breach of fiduciary duty in connection with any of Lehman’s valuations. In particular, in the third quarter of 2008 there is evidence that certain executives felt pressure to not take all of the write‐downs on real estate positions that they determined were appropriate; there is some evidence that the pressure actually resulted in unreasonable marks. But, as the evidence is in conflict, the Examiner determines that there is insufficient evidence to support a colorable claim that Lehman’s senior management imposed arbitrary limits on write‐downs of real estate positions during that quarter.

So maybe a little fraudy—maybe—but not in a provably illegal way even after the fact. So will there ever be a way for regulators to know whether or not a bank is skirting the limits?

Media

The Books Problem

There’s interesting commentary from Steve Clemons, Howard Kurtz, and Glenn Greenwald about the idea that the White House press corps is trading favorable coverage in exchange for access in order to better put together books about the Obama administration chock full of interesting “insider” information.

Obviously, I can’t say whether any such deals exist. Equally obviously, whether or not they do exist everyone will deny it.

But it’s worth saying that there’s a problem here even in the absence of any kind of explicit deals, namely that we expect reporters who are covering the news on a daily basis to be telling us the truth about what’s going on to the best of their ability. But publishers and book readers naturally expect authors to be telling us new stuff. Trying to simultaneously cover and ongoing story and gather string for a book is an inherent conflict—you’re holding back on your audience.

In a world where economics didn’t matter, a news organization that cared only about quality would insist that its reporters not double-fist like that. If you wanted to go write a book, you’d have to go on leave and go do your reporting separately from your job as a correspondent. But in these days of waning ad revenue and staff cutbacks, few if any editors are in a position to make that kind of demand.

Politics

CIA’s top spy: U.S. intelligence hasn’t ‘suffered at all’ from banning waterboading.

Almost immediately after taking office, President Obama signed an executive order barring “the CIA from using harsh interrogation methods beyond those permitted by the U.S. military.” Critics, such as former Bush speechwriter Marc Thiessen, have argued that Obama’s order has cost U.S. interrogators “any tools at our disposal” to “compel” information out of terrorist captures. But in a talk at Fordham University last week, Michael Sulick, the director of the CIA’s National Clandestine Service, said the U.S. hasn’t “suffered at all” because of the decision to ban waterboarding:

Sulick followed his lecture with a lengthy question-and-answer session, although he prefaced it by saying he would not comment on any issue that might influence policy. Questions were submitted by Fordham students in advance and read aloud by USG members. When asked if the Obama administration’s ban on waterboarding has had serious consequences on the war against terror, Sulick answered in general terms.

“I don’t think we’ve suffered at all from an intelligence standpoint,” he said, “but I don’t want to talk about [it from] a legal, moral or ethical standpoint.”

The Washington Post’s Jeff Stein writes that Sulick is in charge of “the CIA’s spy handlers, counterspies and covert action specialists — the so-called ‘dirty tricks’ people- — along with some elements of the FBI and Defense Intelligence Agency.” Spencer Ackerman notes that “for the record, it was the Bush administration that actually banned waterboarding after using it to horrific effect, a fact that has caused no end of cognitive dissonance in conservative torture advocates.”

Yglesias

The Big Tent

You’ve probably got the sense that the Democratic political coalition is more ideologically diverse than the Republican coalition. I’d always thought of that previously in terms of its more demographically diverse base. But this fascinating exploration of the issue on the OK Cupid blog manages to not refer to that at all.

Convex-Hull 1

The upshot of their analysis is that the vast majority of Republicans are solid social and economic conservatives, whereas whereas a very large number of Democrats are actually not liberal along one of the two dimensions. This is hardly the last word in analyzing this issue, but it’s an interesting perspective.

Politics

Rove on attempted citizen’s arrest: ‘I wish there wasn’t so much attention paid to it.’

Earlier this week, Code Pink co-founder Jodie Evans approached Karl Rove at a book signing event in Beverly Hills, CA with handcuffs, telling Rove she wanted to make a citizen’s arrest. “You outted a CIA officer; you lied to take us to war,” she said. Seemingly taken off guard, Rove later said to the audience that the event “shows the totalitarianism of the left.” Perhaps feeling shamed, last night on Fox News, Rove expressed regret that the incident has received so much media attention:

ROVE: Well, you know, what was interesting was I thought this was a well-organized event, it was supposed to be a prestige venue as my publisher said and it was the first and it will be the last book tour stop I have where there was not security. But, you know what? I wish there wasn’t so much attention paid to it. Because I had a fantastic swing through California.

Watch it:

Yglesias

Are Unpaid Internships Illegal

In the kind of DC progressive non-profit circles I work in, the problems with unpaid internships have normally been discussed in terms of the potential exclusion of students who don’t have rich parents from opportunities. That’s certainly one reason I’m glad CAP pays its interns and I hope it’s something donors will think about when they give to organizations in the future—groups that are given enough money to pay interns generally pay them, and groups that aren’t generally don’t.

But more recently, I have started to hear about some internships and fellowships and the like that sound an awful lot like straightforward efforts to evade existing wage laws. Steven Greenhouse takes a look at this and says there’s some cracking down under way at the Labor Department.

To an extent this reminds me of the never-ending minimum wage debate, where conservatives point to the theoretical argument for a reduction in employment and liberals point to the empirical evidence that this doesn’t happen. There are actually lots of ways to just skirt these rules (from using interns to employing family members to just breaking the law) and arguably within the range that the minimum wage actually varies you don’t see a decline in employment because people can just find loopholes.

Economy

Geithner: States Have A ‘Crucial Role’ In Policing Predatory Lending

One of the areas of financial regulatory reform which the financial services industry is focusing a considerable amount of effort on is federal preemption of consumer protection law. As the Obama administration proposed it, financial reform would set a floor for consumer protection regulations, which individual states could then add onto if they felt the need to go further. This would give states the flexibility to address particular consumer abuses before they spread to other parts of the country.

Banks, however, want federal regulations to preempt state law, which would enable them to focus on weakening regulation at the federal level, while rendering the states powerless to do anything about it. During the buildup of the subprime lending bubble, several states tried to more aggressively police predatory mortgage practices — particularly in 2002 and 2003 — but they were repeatedly preempted by the federal regulators, until ultimately the bubble burst.

This week, Treasury Secretary Tim Geithner emphasized that states will have a “crucial role” in policing predatory lending. But already, the regulatory reform bill passed by the Senate Banking Committee gives regulators the option of preempting state law on a case-by-case basis, and the banking lobby is pushing for complete and total preemption. So was Geithner saying that the Senate needs to take a stand here?

Via Marcus Baram, the University of North Carolina’s Center for Community Capital has two new studies, which should be very helpful for this debate. The first found that anti-predatory lending laws (APLs) resulted in better mortgage loans and fewer foreclosures:

At the loan-level, state APLs are found to be associated with a 13 percent reduction in prepayment penalties and may also reduce the incidence of option adjustable-rate mortgages (ARMs). These laws also reduced the likelihood of a loan becoming 90+ days delinquent by 13 percent. At the neighborhood-level, the presence of an APL is found to reduce the foreclosure rate up to 18 percent.

The second study looked specifically at laws that were preempted by the Office of the Comptroller of the Currency, and found that “preemption resulted both in deterioration in the quality of and in the increased default risk for mortgages”:

More narrowly, they show that OCC-preempted lenders increased their share of loans originated with risky subprime characteristics. Similarly, they show that loans originated by OCC-preempted lenders were more likely to default in APL states after the OCC preemption. Finally, the results show that in the refinance market the increase in default risk among OCC lenders often outpaced that of independent mortgage companies that remained subject to stronger APLs after 2004.

“Our research confirms that state consumer protection laws work, but that when one group of lenders is handed a regulatory free pass, they are going to take advantage of it,” said Roberto Quercia, the Center for Community Capital’s Director. Indeed, going forward, any efforts to strengthen preemption and take more power away from the states should be resisted. And if some intrepid congressman wants to try and prevent preemption entirely, as the administration initially proposed, that would be good too.

Yglesias

“Legal Realism”

Reading Dylan Matthews’ influential books list I was reminded that the name for the cynical approach to thinking about the law that I believe everyone who doesn’t have a law degree understands is correct is “legal realism.”

I’ve always found this a little bit confusing because coming from a philosophy background, it seems like this should be the name for the reverse view. Normally in philosophy the idea of being a “realist” about something (morality, numbers, possible worlds) is associated with the idea that it’s possible to make determinant answers to questions about the subject matter. It really is wrong to kill babies and it’s not just some convention you and I happen to believe in is a realist sort of thing to say. A legal realist, however, is the reverse of that.

Anyways, I think this is confusing and there should be some kind of legal theorist / philosopher summit at which it gets cleared up.

Politics

Kansas Attorney General Refuses To Sue Federal Government Over Health Care Reform

Steve Six Yesterday, Kansas Attorney General Steve Six announced that his office would not be joining other states’ attorneys general in suing the federal government on the allegation that the new health care law is unconstitutional. From his statement:

The attorney general’s office has completed its legal review of the Patient Protection and Affordable Care Act. Based on that extensive analysis, I do not believe that Kansas can successfully challenge the law. Our review did not reveal any constitutional defects, and thus it would not be legally or fiscally responsible to pursue this litigation. [...]

Legal precedent demonstrates that throughout our nation’s history, the U.S. Supreme Court has been reluctant to overturn legislative acts unless a clear and direct constitutional violation is shown. Article I, section 8 of the U.S. Constitution expressly gives Congress the power to legislate on matters affecting interstate commerce. The Supremacy Clause makes these laws supreme, regardless of any state laws or state constitutional provisions to the contrary. No serious argument may be advanced that the healthcare industry and all those who participate in it — including doctors, nurses, patients and insurers — are not part of interstate commerce. [...]

I do not believe it is in the best interest of Kansas to divert resources from these vital legal matters to pursue a lawsuit driven by political differences and policy debates, a lawsuit that I believe has little to no chance of success and will squander scarce resources in a time of severe budget shortfalls.

Six has been under tremendous pressure by conservatives in his state to join in the right-wing lawsuit over health care reform. Rep. Lynn Jenkins (R-KS), who sent a letter to Six urging him to sue last week, called yesterday’s announcement “extremely disappointing.” More on the opposition that Six faces within his state:

[Republican state Rep. Aaron] Jack and 21 other Republicans in the Kansas House are sponsoring the resolution requiring Six to file a legal challenge. A 1975 state law allows one chamber to direct the attorney general to challenge the constitutionality of a state or federal statute. [...]

Some GOP legislators want to amend the state constitution to prohibit Kansas from requiring individuals or businesses to buy health insurance. It’s designed to block implementation of the federal law in Kansas and put the state in a better legal position for a challenge.

Six, however, joins an increasingly vocal block of state-level public officials who are calling out the political stunts conducted by the attorneys general suing the federal government. Attorneys general from Kentucky, Georgia, Nevada, Ohio, Iowa, and Arizona have all refused to join the suit, saying it would be a frivolous waste of scarce taxpayer dollars. Additionally, in Oregon, both Gov. Ted Kulongoski (D) and Attorney General John Kroger (D) have have promised to “take legal action to defend the constitutionality” of the law.

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