Psyche, Science, and Society

Krugman says more on bailout

Paul Krugman has elaborated on his reason for rejecting the Obama giveaway-to-bank plan:

More on the bank plan

By Paul Krugman

Why was I so quick to condemn the Geithner plan? Because it’s not new; it’s just another version of an idea that keeps coming up and keeps being refuted. It’s basically a thinly disguised version of the same plan Henry Paulson announced way back in September. To understand the issue, let me offer some background.

Start with the question: how do banks fail? A bank, broadly defined, is any institution that borrows short and lends long. Like any leveraged investor, a bank can fail if it has made bad investments — if the value of its assets falls below the value of its liabilities, bye bye bank.

But banks can also fail even if they haven’t been bad investors: if, for some reason, many of those they’ve borrowed from (e.g., but not only, depositors) demand their money back at once, the bank can be forced to sell assets at fire sale prices, so that assets that would have been worth more than liabilities in normal conditions end up not being enough to cover the bank’s debts. And this opens up the possibility of a self-fulfilling panic: people may demand their money back, not because they think the bank has made bad investments, but simply because they think other people will demand their money back.

Bank runs can be contagious; partly that’s for psychological reasons, partly because banks tend to invest in similar assets, so one bank’s fire sale depresses another bank’s net worth.

So now we have a bank crisis. Is it the result of fundamentally bad investment, or is it because of a self-fulfilling panic?

If you think it’s just a panic, then the government can pull a magic trick: by stepping in to buy the assets banks are selling, it can make banks look solvent again, and end the run. Yippee! And sometimes that really does work.

But if you think that the banks really, really have made lousy investments, this won’t work at all; it will simply be a waste of taxpayer money. To keep the banks operating, you need to provide a real backstop — you need to guarantee their debts, and seize ownership of those banks that don’t have enough assets to cover their debts; that’s the Swedish solution, it’s what we eventually did with our own S&Ls.

Now, early on in this crisis, it was possible to argue that it was mainly a panic. But at this point, that’s an indefensible position. Banks and other highly leveraged institutions collectively made a huge bet that the normal rules for house prices and sustainable levels of consumer debt no longer applied; they were wrong. Time for a Swedish solution.

But Treasury is still clinging to the idea that this is just a panic attack, and that all it needs to do is calm the markets by buying up a bunch of troubled assets. Actually, that’s not quite it: the Obama administration has apparently made the judgment that there would be a public outcry if it announced a straightforward plan along these lines, so it has produced what Yves Smith calls “a lot of bells and whistles to finesse the fact that the government will wind up paying well above market for [I don't think I can finish this on a Times blog]”

Why am I so vehement about this? Because I’m afraid that this will be the administration’s only shot — that if the first bank plan is an abject failure, it won’t have the political capital for a second. So it’s just horrifying that Obama — and yes, the buck stops there — has decided to base his financial plan on the fantasy that a bit of financial hocus-pocus will turn the clock back to 2006.

KJrugman doesn’t comment on the fact that it will spend many humdreds of billions guaranteeing more ultra-rich investors against losses.

March 22nd, 2009

Costco, Starbucks and Whole Foods form alliance to undercut unions

Costco, Starbucks and Whole Foods have united in an anti-uion alliance, pretending to be pushing a “compromise” on the Employee Free Trade Act:

Like other businesses, the three companies are opposed to two of the Employee Free Choice Act’s components — a provision that would allow workers to form a union if a majority sign pro-union cards, without having to hold a secret-ballot election, and one that would impose binding arbitration when employers and unions fail to reach a contract after 120 days.

But the companies’ chief executive officers say they also recognize that just opposing the legislation, commonly called “card check,” is not enough because of the widespread perception in Democrat-dominated Washington that there is not a level playing field between labor and business. So the CEOs have come up with ideas they hope will form the basis of new legislation.

The effort is led by Lanny Davis, infamous for his outrageous antics during the Democratic primaries.

March 22nd, 2009

NYT: Obama, stop acting like Bush!

The New York Times editorial board now joins those who see far too many parallels between the Obama and Bush administration policies on the role of law and transparency in the “War on Terror.” They also join those calling for a Commission of Inquiry to investigate Bush administration actions:

Mr. Obama and the Rule of Law

New York Times Editorial

As much as it needs to happen, we never expected President Obama to immediately reverse every one of President George W. Bush’s misguided and dangerous policies on terrorism, prisoners, the rule of law and government secrecy. Fixing this calamitous mess will take time and care — and Mr. Obama has taken important steps in that direction.

But we did not expect that Mr. Obama, who addressed these issues with such clarity during his campaign, would be sending such confused and mixed signals from the White House. Some of what the public has heard from the Obama administration on issues like state secrets and detainees sounds a bit too close for comfort to the Bush team’s benighted ideas.

There are times when the president seems to be making a clean and definitive break. On his second day in office, he ordered the closing of the prison at Guantánamo Bay and directed his cabinet to formulate new policies on detaining and interrogating people suspected of terrorist acts or of supporting terrorists.

Last week, the administration notified a federal court hearing appeals by Guantánamo inmates that it was dropping Mr. Bush’s absurd claim that he could declare anyone an “enemy combatant” and deprive that prisoner of judicial process. The administration affirmed its commitment to the laws of war, the Geneva Conventions and long-standing military doctrine.

But the break does not always seem complete enough. Even as they dropped the “enemy combatant” terminology, Mr. Obama’s lawyers did not seem to rule out indefinite military detentions for terrorism suspects and their allies. They drew a definition of association with Al Qaeda that is too broad (simply staying in a “safe house,” for example). Worse, they seemed to adopt Mr. Bush’s position that the “battlefield” against terrorism is the planet. That became the legal pretext for turning criminal defendants into lifelong military captives.

On Thursday, we were delighted to see Attorney General Eric Holder reverse the Bush policy on releasing documents under the Freedom of Information Act. Mr. Bush’s first attorney general, John Ashcroft, directed the government to assume that documents should not be released and to find pretexts to keep them secret. Mr. Holder directed all agencies to presume that “in the face of doubt, openness prevails.” And he said the policy applied to pending lawsuits against the Bush administration for refusing to disclose information.

It was great news, but also recalled our distress that the Justice Department had abandoned transparency just last month in a case before the United States Court of Appeals for the Ninth Circuit. The case involves five men who were seized and transported to American facilities abroad or countries known for torturing prisoners.

The Obama administration advanced the same expansive state-secrets argument pressed by Mr. Bush’s lawyers to get a trial court to dismiss the case without any evidence being presented. Even the judges seemed surprised, asking whether the government wanted a delay to reconsider its position.

The Obama team should have taken the delay. It should now support bipartisan legislation to fix this problem by expanding judges’ powers to examine evidence the government wants to keep secret and decide whether to admit it based on facts rather than claims of presidential power. It is hard to fathom what signal Mr. Obama is trying to send by stifling cases that must be heard.

On the filing in the Guantánamo appeals, administration officials say — quite rightly — that they took an important step by declaring that their treatment of prisoners would be based on the law and not theories about executive power. They said that they had a deadline to file the document and that its discussion of prisoner policies pertained only to the Guantánamo inmates.

These arguments are persuasive for now. The test is whether they will be fully reflected in the results of the continuing policy reviews — and we assume they will. It is vital for Mr. Obama’s team to be as thorough and detailed as possible, ensuring that American policy respects the limits so clearly laid out by the nation’s laws and Constitution.

Mr. Obama also should stop resisting an investigation of Mr. Bush’s policies on terrorism, state secrets, wiretapping, detention and interrogation. We know he is struggling with many Bush-created disasters — in the economy, in foreign policy and on and on. But understanding all that has gone wrong is the only way to ensure that abuses will truly end. That investigation should be done calmly rather than under the pressure of some new, shocking revelation.

Former Vice President Dick Cheney is still proclaiming that waterboarding detainees prevented another attack. Among other things, an investigation would examine that assertion — for which Mr. Cheney offers no evidence, and which others have challenged.

Everyone wants to move forward. The only way to do that, and make sure the system of justice is working properly, is to know exactly how Mr. Bush broke it.

March 22nd, 2009

Remaining OLC memos coming soon

Newsweek reports that three of the still secret Office of Legal Counsel memos  will soon be released. These apparently are the memos specifying exactly which torture techniques the CIA could “legally” use. The list and the rationales should be horrifying.

Coming Soon: Declassified Bush-Era Torture Memos

By Michael Isikoff and Mark Hosenball

Over objections from the U.S. intelligence community, the White House is moving to declassify—and publicly release—three internal memos that will lay out, for the first time, details of the “enhanced” interrogation techniques approved by the Bush administration for use against “high value” Qaeda detainees. The memos, written by Justice Department lawyers in May 2005, provide the legal rationale for waterboarding, head slapping and other rough tactics used by the CIA. One senior Obama official, who like others interviewed for this story requested anonymity because of the issue’s sensitivity, said the memos were “ugly” and could embarrass the CIA. Other officials predicted they would fuel demands for a “truth commission” on torture.

Because of an executive order signed by President Obama on Jan. 22 banning such aggressive tactics, deputies to Attorney General Eric Holder Jr. concluded there was no longer any reason to keep the interrogation memos classified. But current and former intel officials pushed back, arguing that any public release might still compromise “sources and methods.” According to the administration official, ex-CIA director Michael Hayden was “furious” about the prospect of disclosure and tried to intervene directly with Obama officials. But the White House has sided with Holder. Faced with a court deadline in a Freedom of Information Act lawsuit regarding the memos filed by the ACLU, Justice lawyers asked for a two-week extension “because the memoranda are being reviewed for possible release.” (White House, Justice and CIA spokesmen all declined to comment.)

The debate about torture ramped up again last week with an account in the New York Review of Books about a secret International Red Cross report that was delivered to the CIA in February 2007. The report, according to journalist Mark Danner, quotes detainees describing, often in gruesome detail, how they were locked in coffin-size boxes; swung by towels around their necks into plywood walls; and forced to stand naked for days while their arms were shackled above their heads.

“I now know we were not fully and completely briefed on the CIA program,” Senate Intelligence Committee chairwoman Dianne Feinstein told NEWSWEEK. A U.S. official disputed the charge, claiming that members of Congress received more than 30 briefings over the life of the CIA program and that Congressional intel panels had seen the Red Cross report. But the CIA insisted that the report be treated as if it had higher than top-secret classification, precluding any public discussion of its contents. That’s why declassification of the memos is significant, administration officials say: it would remove, at long last, the veil of secrecy about how detainees in the war on terror were actually treated.

March 22nd, 2009

Wall Street and the Al Capone plan for America

Matt Talbi in Rolling Stone analyzes the economic crisis and bailout.His subtitle tells all: “The global economic crisis isn’t about money – it’s about power. How Wall Street insiders are using the bailout to stage a revolution.” Here is his conclusion, which includes just how deserate the situation is:

As complex as all the finances are, the politics aren’t hard to follow. By creating an urgent crisis that can only be solved by those fluent in a language too complex for ordinary people to understand, the Wall Street crowd has turned the vast majority of Americans into non-participants in their own political future. There is a reason it used to be a crime in the Confederate states to teach a slave to read: Literacy is power. In the age of the CDS and CDO, most of us are financial illiterates. By making an already too-complex economy even more complex, Wall Street has used the crisis to effect a historic, revolutionary change in our political system — transforming a democracy into a two-tiered state, one with plugged-in financial bureaucrats above and clueless customers below.

The most galling thing about this financial crisis is that so many Wall Street types think they actually deserve not only their huge bonuses and lavish lifestyles but the awesome political power their own mistakes have left them in possession of. When challenged, they talk about how hard they work, the 90-hour weeks, the stress, the failed marriages, the hemorrhoids and gallstones they all get before they hit 40.

“But wait a minute,” you say to them. “No one ever asked you to stay up all night eight days a week trying to get filthy rich shorting what’s left of the American auto industry or selling $600 billion in toxic, irredeemable mortgages to ex-strippers on work release and Taco Bell clerks. Actually, come to think of it, why are we even giving taxpayer money to you people? Why are we not throwing your ass in jail instead?”

But before you even finish saying that, they’re rolling their eyes, because You Don’t Get It. These people were never about anything except turning money into money, in order to get more money; valueswise they’re on par with crack addicts, or obsessive sexual deviants who burgle homes to steal panties. Yet these are the people in whose hands our entire political future now rests.

Good luck with that, America. And enjoy tax season.

Either we take power away from these Al Capones, or they will screw us and our children and grandchildren, who will still be paying for their greed. A first step is to take economic decision-making away from the Bernankes, the Summers, and and the Geitners, who know only waht Wall Street wants. Unfortunately for us, this is an enormous first step. By the time its done, they will have given away untold trillions to our detriment.

March 22nd, 2009

Change you don’t need to believe

Religion declining, survey finds:

[H/T Effect Measure.]

March 22nd, 2009

Global warming mug (c)

A new gift idea:

[H/t Americablog.]

March 22nd, 2009