Opponents of financial regulatory reform have hit upon a pretty good strategy. Step one is to oppose financial regulatory reform. Step two is to rake in tons of cash from big banks. Step three is to pretend regulatory reform will lead to endless bailouts. Step four is to pretend that simply letting banks fail is an adequate response to market panic. Step five is that when the next panic comes, you do a bailout.

To win the argument, proponents of reform need to hit on an issue that clearly casts themselves as friends of regular people and their opponents as stooges of Wall Street. The beneficiary of this political dynamic seems to be the derivatives side of the regulatory reform package. When the House dealt with finance, this was one of the areas it was weakest on. But things are looking up in the Senate, House leaders seem committed to stronger language, and Greg Sargent reports that Democrats are eager to go to war on this subject:

In an interview, DCCC chief Chris Van Hollen told me Dems will mount a big push to make this case on a new front — derivatives trading — as they make a broad case that the GOP is the party of big banks. “This is a defining issue that tells people which side you’re on,” Van Hollen said.

Dems are seizing on a report in this morning’s Wall Street Journal saying the biggest banks have been trying to dilute the reform legislation by lobbying against restrictions to the hugely lucrative derivatives trading business. The White House and Dems, resisting this push, are moving to squeeze this type of trading. [...]

“This will be a very important issue in this fight,” Van Hollen said. “Derivatives and other exotic financial instruments are part of the story of what got us into this mess. It’s absolutely essential that we have transparency and accounability when it comes to the derivatives market. This is a defining issue.”

The concern I’ve heard about this subject for months from Treasury folks is that derivatives regulation is too obscure (how many people even know what a derivative is) to engage the public in. But it seems that people in the White House and on the Hill believe they can, in fact, make people see why this matters. I hope they’re right.

Tim Fernholz writes about Lawrence Summers’ evolving economic views:

While this is all true, there is a sense that Summers’ views shifted as well. Many observers point to the op-ed columns that Summers wrote for the Financial Times in 2007 and 2008, which presented a more progressive vision of the economy than he had previously articulated. In one from June 2008, after Bear Stearns collapsed, he noted that “self-regulation is deregulation” — a shift from his previous position on derivatives — and called for a new regulatory regime that would end the problem of “too big to fail” by liquidating failing banks.

“One mistake that progressives have made is to not recognize how much the ground has shifted towards progressives in the last 10 years,” Lawrence Mishel, director of the progressive Economic Policy Institute says. “Larry has moved along with the center-left.”

Consider the idea that our long-term deficit problem is one of health-care cost, not entitlement spending. The concept originated among progressives but is now championed by Summers. He was also a strong advocate of rescuing General Motors and Chrysler, an economic necessity that called for productive government intervention in the economy. Geithner and Summers also clashed over dealing with insolvent financial institutions last spring, with Summers advocating that institutions revealed to be insolvent should face harsher consequences; Obama deferred to his treasury secretary.

Fernholz links some of this, rightly in my view, to the fact that Summers is more of a “political” animal than the top Treasury officials are. The impression I get is that Secretary Geithner and his policy advisors didn’t fully grasp the fact that economic crisis-management was something of an iterated game between technocrats and politicians in which one set of actions could create political constraints that foreclosed future options. Consequently, even though the measures taken during the winter of 2008-9 have largely succeeded, they’ve also created a political context in which it’s hard to do anything else. A more punitive, more populist approach back then would have had some downsides, but it might have left the door wider open for measures to deal with the situation we’re now facing.

People have raised a number of concerns about the US government’s increasing use of missile strikes inside Pakistani territory as a counter-terrorism measure, but rarely is the question asked “how valuable is killing terrorist leaders as a means of disrupting their organizations?” Robert Wright says it’s not very effective and you can tell he’s not going to convince anyone because he’s citing actual academic research from Jenna Jordan at the University of Chicago:

There’s no way of answering this question with complete confidence, but it turns out there are some relevant and little-known data. They were compiled by Jenna Jordan of the University of Chicago, who published her findings last year in the journal Security Studies. She studied 298 attempts, from 1945 through 2004, to weaken or eliminate terrorist groups through “leadership decapitation” — eliminating people in senior positions.

Her work suggests that decapitation doesn’t lower the life expectancy of the decapitated groups — and, if anything, may have the opposite effect.

Here’s Table 10 from her paper:

Consistent with the earlier data on organizational type, Decapitation is more effective against ideological organizations than religious organizations (see Table 10). Ideological organizations are more likely to fall apart than religious groups whether or not decapitation is taken into consideration. However, across all types of organizations, groups whose leaders have been targeted have a lower rate of decline. The marginal value of decapitation is negative for ideological groups, while the marginal utility of decapitation is even lower for religious and separatist groups. Ideological groups that had their leaders removed fall apart 7 percent less often than those that did not. Religious groups that have undergone decapitation are 16 percent less likely to fall apart than those that did not. Finally, separatist groups that have had a leader removed are 31 percent less likely to cease activity than separatist groups that have not. This data support the argument that decapitation is not an effective strategy. Given that religious groups are more resilient overall, it is surprising that decapitation has less utility against separatist than religious organizations. The difference between the utility of decapitation against religious and separatist organizations could be due to the fact that separatist organizations have a large base of community support that can ensure a group’s survival in the face of counterterrorism measures.

As a disclaimer, I haven’t personally reviewed the data set or the math that she’s working with, but the paper was in a peer reviewed journal. The first rule of being an American foreign policy practitioner or pundit is something like “ignore all relevant academic research” so I doubt this will make a ton of difference on the debate.

Andrew Exum offers some comments here.