Wednesday, December 31, 2008

Where do Taxes Go?

Here's where your tax money goes:

Item ('07 unless noted)         Amt ($billion)

Social Security Payments       586

Defense (minus Iraq, Afghan.) 548

Medicare      395

Unemployment          294

Interest on nat'l debt '08        244

Medicaid '08        202

Iraq and Afghan wars                186

Stimulus rebates '08 168

Foreign tax loophole discovered Sept '08              100

Education                      89

Transportation                                77

Veterans benefits        73

Justice Dept                                   44

Food Stamps         39

Foreign Affairs                             32

NASA                                  17

Earmarks '08                                                                  16

National Parks                       2

What does this tell us?

Three things. First, the media attention given to issues doesn't accurately reflect their real size in the budget. There are headlines over every wasteful 'bridge to nowhere' pork project, and while they're awful, they're also a small part of the budget.  In fact, a tax loophole the IRS just announced is more than eight times the size of all 'pork' projects combined. We aren't going to balance the budget just by trimming pork.

Second, our National Parks are being shamefully squeezed. We could quadruple its budget and it would still be one of the smallest  national programs. Ditto for NASA. If you think the money we spend on NASA would be better spent on schools, you're looking at the wrong source. NASA is small (half the size it was in 1965, by inflation adjusted dollars), and it's the big items we need to debate.

Third, if we want to balance the budget, it's going to be through defense cuts or tax hikes.

Yes, Social Security, Medicare, and Medicaid are big parts of the budget, but they also have their own tax sources. Social Security is currently in surplus, and while that will change, that's a topic for another time. For now, the items funded by your general income taxes are dominated by defense spending.

Take every other program in this chart - education, transportation, food stamps, and yes, NASA - and add them together. That's less than we spend on defense and the wars in Iraq and Afghanistan. Throw in unemployment expenses. It's still less.

I believe in a strong national defense, but I also believe in fiscal responsibility, and if we don't want higher taxes, we're going to need to rein in spending where it counts. Trimming the National Parks program won't balance the budget, but a careful look at defense just might.

Monday, December 15, 2008

The Bailouts Compared to the Cost of War

Figures in the hundreds of billions of dollars become mind-boggling and difficult to envision. How big are they really?

Here's a useful chart:

Item  Size ($ trillion)     % GDP

U.S. GDP  14.2   100

National debt   5.4   38

Annual gov’t spending   3   21

Revenue   2.5   18

Historical avg revenue   -   17 to 20

Bailout so far   1.6   11

Wars in Iraq and Afghanistan   0.8/yr   3 / yr.

What does this tell us?

First, America has a big economy. We produce nearly $15 trillion worth of goods and services each year. The national debt is big, too - more than the annual federal budget - but it doesn't need to be repaid all at once.

In one sense, the bailout is huge. It's more than half of what the government spends in a year. On the other hand, if people were really worried about debt, they'd be asking every day if we're getting our money's worth from the wars in Afghanistan and Iraq.

There are other ways to shrink the deficit. We could raise taxes slightly, since we're at the low end of the historical average, but that alone won't do it. Nor will cutting spending from the traditional budget, unless the cuts were huge - far deeper than is likely to be politically possible. A ten percent cut wouldn't do it, nor would twenty percent, if we include interest due on the bonds issued.

But there is a way. The gap between spending and revenue is about 3% of GDP, which is also the size of our spending on the wars in Iraq and Afghanistan. Without those, we're in far better shape, with many more financial tools to help our own economy.

We've spent nearly twice on those wars so far than on the entire financial bailout. Another way to think of that is to imagine how much economic stimulus we would have if we spent that money here at home, instead of wasting hundreds of billions on graft and poorly supervised projects abroad.

How you feel about the war is a political issue, of course. But if you care about national finances, it should be an economic one, too.

Friday, November 7, 2008

What Science Offers Politics

Can science help us make decisions?

While science does not tell us what we should do, it can help us gauge the impact of our choices by looking at existing data. But it can do so only if we understand how science works, and too few Americans do.

Sadly, author Michael Crichton is not one of them. After his death earlier this month,  the Wall Street Journal offered an excerpt of his speech("Aliens Cause Global Warming") about the "hoax" of global warming, the premise of one of his final books.

In it, Crichton fails to understand how science deals with uncertainty. To him, any admission of uncertainty is tantamount to "mere guesswork," and research filled with uncertainty, like the search for extraterrestrial life, is "unquestionably religion."

He may be a doctor, but he's no scientist.

The kind of "proof" he seeks isn't available to science at all. Proof is reserved for the rarefied world of mathematics, and the best we can ask for in science is evidence.

Is there evidence for global warming? Sure, but that's not the point. If he wanted to argue against the evidence, fine. He could say, for instance, that deep-sea temperature data isn't reliable, or we need to include additional data from such-and-such a source. But to say that because we can't prove a link between cause and effect is to misunderstand the nature of science. Toss it away, and we lose an invaluable tool.

This affects our world in important ways, every day. Here are a couple of rulings that affect what you can buy and the land you live on.

On December 21, 2004, the U.S.  Department of Health and Human Services recommended against allowing the import of prescription drugs from Canada because it  “could not be sure” that the imported drugs would be safe.

The next day, the Forest Service eliminated its policy for preparing Environmental Impact Statements, as well as the requirement for logging to protect all viable species in the National Forests, since such statements could not say "with certainty" what sort of harm would follow logging and development.

The above observations, from a brilliant  paper by Freudenberg, Gramling, and Davidson,  reflect opposing uses of scientific uncertainty for political ends. In the first case, uncertainty prohibited an action that couldn't be proven safe and on the other one that couldn't be proven unsafe.

Science doesn't offer proof. Neither does politics, and to ignore the science altogether is to suggest that politicians and interest groups can make decisions with certainty even when scientists cannot.

What science offers us is evidence, and it can help us answer questions like "If the earth were warming significantly, what would we see?" and "Given our current understanding, which stars in the sky are most likely to have planets in orbit, and which planets are best suited to retaining an atmosphere?" Science can tell us, "These drugs can be easily checked for safety, and these cannot. These drugs are easy to counterfeit and these are not." Science can tell us if you allow x amount of pollutant to a river, y fish are likely to survive.

Science won't decide what is right or wrong. But it can ensure that when we make our choices, we aren't doing it on the basis of "mere guesswork."

Why America Needs Al Franken

Only voters in Minnesota get to choose their senator, but the entire nation should be interested in the outcome.

Not because we need another Democratic senator, but because we need this one. Al Franken is surprisingly insightful and refreshingly direct, so much so that it'd be hard to believe if you haven't read either of his most recent two books.

He's no Michael Moore, swinging a blunt instrument so wildly that he damages anyone in the middle. Al Franken is funny, of course, but also wise.

In Lies, for instance, he lays out several sensible rules for truth-telling that any politician, on either side, would do well to adopt. Here are two:

1) Do your research well.
Ann Coulter complained that when Jesse Jackson gave an unwise speech on Christmas Day in 1994, on British TV, the New York Times did not report his raving about fascism in South Africa.

Her research method? A search of the Times archives for "Jesse Jackson and Fascism and South Africa" produces no documents."

"Well, yeah," say Franken. But searching for "Jesse Jackson and Christmas and Britain" finds the right article.

"Using Coulter's technique, I can prove no newspapaer has ever covered anything. For example I can prove the Washington Times did not cover the incident in which George H. W. Bush threw up on the Japanese prime minister. Searching for 'Bush and Japan and prime minister and lap and cookies and tossed' produces no documents."

2) Compare apples to apples.
In Sean Hannity's atrocious Let Freedom Ring, he includes an chart that should be extraordinary, except that this sort of thing is done all the time. I'll quote Franken:

New tanks requested in president's budget:
Reagan-Bush 1986: 840
Clinton-Gore 1996: 0

New tactical aircraft requested in president's budget:
Reagan-Bush 1986: 399
Clinton-Gore 1996: 34

New naval ships requested in president's budget:
Reagan-Bush 1986: 40
Clinton-Gore 1996: 6

This is a table created by a child for children.

Where to start? First of all, in 1996 we didn't need any new tanks. The end of the Cold War had reduced the likelihood of an enormous tank battle across the plains of Central Europe to below zero. How many tanks do you think were requested in the Bush-Cheney budget? Let's make a new chart, keeping Reagan but also comparing the final Clinton-Gore defense budget with the first Bush-Cheney budget.


New tanks requested in president's budget:
Reagan-Bush 1986: 840
Clinton-Gore 2001: 0
Bush-Cheney 2002: 0

New tactical aircraft requested in president's budget:
Reagan-Bush 1986: 399
Clinton-Gore 2001: 52
Bush-Cheney 2002: 58

New naval ships requested in president's budget:
Reagan-Bush 1986: 40
Clinton-Gore 2001: 6
Bush-Cheney 2002: 5

Got it, kids? The contrast could not be more stark. Bush-Cheney ordered 11 percent more tactical aircraft than Clinton-Gore, but Clinton-Gore ordered 20 percent more ships than Bush-Cheney.

Did you know that in 1986 we were still fighting the Cold War? In current dollars, we spent $273 billion on defense in 1986 and $266 billion in 1996. Yes, that's 2 percent less, but then again, the Soviet Union no longer existed. The Clinton budget in 1996 was larger than the outgoing budget of the first Bush administration - a budget developed by then DOD Secretary Dick Cheney.

Quickly, let's compare the budgets of Lincoln and Reagan.


New horses requested in president's budget:
Lincoln 1864: 188,718
Reagan 1984: 3

Why did Reagan gut our military?

It's more than just funny: it's smart, persuasive, and clear. Couldn't we use more Senators like that?

Will Obama Gut Defense?

That's the headline to a grossly misleading column by Bret Stephens, in the Wall Street Journal.

He's taken the old Republican premise that Clinton slashed military spending and therefore left us trembling and vulnerable. But while his rant isn't useful, his chart is.

Note that for the last 30 years, defense spending has been about 5% of GDP. It was up to about 6% under Reagan and down to 4% under Clinton, but there hasn't been a lot of variation since the end of the Vietnam War.

What has changed is the planet. There isn't a Soviet Union anymore, which matters a great deal. Yes, there are still enemies to defeat, but none with two million tanks threatening to overrun Europe. That's how many there were in East Germany alone at the height of the Cold War, not to mention the significant buildup in warheads, tactical field nukes, and ground forces.

We still need planes, and ours should be the best in the world. And we need precision missiles and enough troops to flatten the Taliban. But there's a fundamental difference between today's world and the one of the Cold War, and shouldn't our budget reflect it?

Even if you bought the dubious premise that as an economy grows, it needs to continue spending a proportional percentage on defense (once a country is twice as rich, does it need twice as many warheads to be safe?), you can believe Stephens' own chart: we're still spending quite a bit on defense, and that hasn't changed in 30 years.

Who Benefits from the Electoral College?

Is the Presidential election fair?

In the Electoral College, there are two distortions to the “one-person, one-vote” principle.

The best known is that small states still get 3 votes (one for each congressman and senator).

Less known but also significant is that voter registration varies significantly. The population size of New Jersey is roughly the same as that in North Carolina, but in New Jersey, a lot fewer people can vote. So each voter there has proportionally less weight.

The chart below shows in increasing order the states that benefit most from the Electoral College system, with Florida getting the worst deal and Wyoming getting the best.

Conservatives often reject calls to eliminate the Electoral College with the reasoning that it would increase the importance of California and New York. It would, but not nearly as much as for Texas, North Carolina, and Georgia.

State E.C. votes voters for 1 E.C. vote (‘000’s)

Florida                     27                   480

Pennsylvania            21                   456

Texas                      34                   452

North Carolina          15                   445

Michigan                  17                   438

Georgia                   15                    437

Ohio                         20                   434

Virginia                     13                    433

Illinois                      28                    429

New York                  31                   428

Tennessee                11                    426

Washington              11                   425

Wisconsin                10                    420

Arizona                   10                    419

California                 55                    410

Alaska                      3                    180

North Dakota             3                   166

Vermont                   3                    166

D.C.                       3                    148

Wyoming                 3                   134

This means that voters in Florida should be most upset about the Electoral College, as they have the least voice per-voter. While Californian's shouldn't be particularly happy, either, there are fifteen other states ahead of them in line to complain.

It also means that Democrats and Republicans shouldn't see elimination of the Electoral College as a partisan issue. Affected states cover a broad geographic and political range, so that enacting direct elections by popular vote wouldn't favor any candidate... except the one best liked by the voters.

Wednesday, October 29, 2008

Full Court Shuffle

Concern about federal court appointees has reached a crackling pitch.

In his recent op-ed, Stephen Calabresi warns against an Obama presidency that could, he says, shift federal courts dramatically to the left. But that's not the whole story.

He begins by noting that while Reagan appointed 8 judges to the D.C. Court of Appeals, George W. Bush was able to appoint only four. That's true. But it's no loss of conservative influence, given that Clinton appointed only two.

In the past 30 years, that court has received a dozen Republican appointees and only two Democratic ones, both older judges likely to retire soon. The existing two vacancies, plus replacement of at most four older Republican retirees, is hardly going to swing the conservative tilt of the past 30 years.

Calabresi also overlooks that of the 13 courts of appeal, only one has a majority of Democratic appointed judges. George W. Bush bragged about appointing more than
 a third of federal appeal judges now serving. When he began his time in office, a majority of federal judges were already Republican appointees.

Yes, I know the above the link is to the New York Times, which conservatives like to trash. But I'm citing it for factual reference, not opinion. If you feel the Times is wrong about the above facts - that George W. Bush actually did not speak with pride about his large number of appointments, or that most appellate courts actually have more Democratic appointees - feel free to speak up.

In truth, it's extremely rare for any of the major papers to have their facts wrong, whether the Wall Street Journal or the New York Times. What's common is to get only part of the story, and that's what the Calabresi offered in his op-ed.

He even went so far as to imply that Obama could tip the balance of the Supreme Court, noting the advanced age of several justices. But he doesn't cite them by name, a convenient oversight when you realize that by far the oldest justice is the most liberal, John Paul Stevens (age 88). If Obama replaces him with a liberal, the court balance changes not one bit.

The next oldest: liberal Ruth Ginsburg, age 75. The only other Democratic appointee on the court, Stephen Breyer, is 70. (The recent slew of 5-4 decisions include a fourth 'liberal' vote from David Souter, a Reagan appointee. He's 69.) Kennedy and Scalia are 72, though in such health that very few expect either of them to retire soon.

How old are the most recent Republican appointees? Clarence Thomas, 60; Samuel Alito, 58; and Chief Justice John Roberts, 53.

The plain truth is that a McCain win could dramatically alter the balance of the courts by pushing it to the right, while an Obama win can only check the swing, not reverse it.

Calabresi's colleague, David McIntosh, the other co-founder of the Federalist Society, is more complete in his assessment, saying that the nation's appeals courts were more conservative "than certainly any other time in my life."

So call a spade a spade: what an Obama win really risks is bringing the federal appeals courts a little closer to the Reagan era.

Saturday, October 4, 2008

A Mighty Brief History of Bailouts

The forgotten bailout of my post of Sept 30th  is just the most recent in a long line of government interventions.

Here are the three largest bailouts of the past,  (financial figures from a related Wall Street Journal article), and it's easy to see a pattern: they work.

At least they do if done early, with substantial support. They don't seem to fail even when large - look at the incredible credit extended by the RTC - but they do need to happen quickly enough to restore confidence.

-       The S&L Crisis

It cost $124 billion, but an FDIC historian notes, “Perhaps a measure of the Resolution Trust Corporation’s success is that little more than a decade after it closed, this agency that provoked so much debate is now largely forgotten.” 


-       Mortgage defaults of the Great Depression

By 1933, a thousand Americans a day were losing their homes to the bank. Creation of the Home Owners’ Loan Corporation handled 1.9 million applicants, about half of whom had monthly incomes below $150.

 One in ten Americans eventually secured aid from the agency, and since there was no secondary market for securitized mortgages, the agency had to hold the loans for the full terms.

 When it closed in 1951, 80% of borrowers had paid off their loans on time or early, and it even earned a small profit.

 Economist Alan Blinder has cited it as a model to be considered today.


-       The Panic of 1792

When the federal government assumed obligations that states owed from the Revolutionary War, it added $18 million to a domestic debt of $65 million, held in debt securities attractive to speculators. 

One speculator in particular cornered the market on government 6% bonds, so-called Sixes, and then prompted a selling frenzy that led to a 25% drop in value. 

Working without a historical blueprint, Alexander Hamilton engineered an innovate response. The Treasury borrowed money from banks and used to buy the bonds, lifting the market price. He also told banks to accept the bonds as collateral for loans, with the government guaranteeing their worth.

 The financial system stabilized quickly, and not a single bank faired for fifteen years, a remarkable outcome for such an unproven strategy, says economic historian Robert Wright. He named his son Alexander Hamilton Was Wright.


San Francisco Gets Health Care Backwards

Who needs health care coverage?

People without it,  and preferably those least able to afford it. That's what makes San Francisco's recent moves on health care all the more perplexing.

When the city fought in court to charge businesses for employee health care coverage, it turned the whole program upside-down, placing the burden on those at the bottom of the economic ladder.

No, not businesses, who are only the most visible contributors. I'm talking about employees, especially the ones in need of health care.

They'll be hit hard by the foolish flat-rate payment to the city. The nearly $2/hr charge is minor only for those with large salaries. For the poorest employees, it's a significant portion, more than 20% of San Francisco's substantial ($9.36/hr) minimum wage.

 The employees at your nearest retail store, and the dishwasher at your favorite restaurant, the gal who stocks the shelves at the corner grocery and the guy who hangs your dry-cleaning -  they're all earning minimum wage, and now each of their employers sees labor costs leap 20 percent.

Guess what happens to the price of milk at the corner store.

And to the cost of your dry cleaning, and your meals out, and everything else you buy. Those price increases may not matter much to the wealthiest, who already have health care, but they will to the very people who need the new  coverage.

Yes, businesses with fewer than 20 employees are exempt, but that hardly helps. They often need health care options anyway - I do, at my own business - and companies just over the limit face a terrible set of choices. Any company with 30 employees that sees its labor costs leap has got to consider layoffs, and that's the worst kind of coverage of all.

Far better is the Massachusetts plan: spread the cost through all participants, subsidize for the poorest, and make sure the burden doesn't break the very people you're trying to help.

Tuesday, September 30, 2008

the Bailout Congress Forgot

The shameful failure of Congress to pass the bailout hurts an awful lot of Americans, not just wealthy bankers.

Have a retirement account? Own a home? Need a business loan? Whether or not you made any mistakes at all this year, you're getting pummeled by a fractured market and a government that is failing to help.

No one needs a handout - not even failing banks - but we do need restoration of confidence. It needs to be prompt, clear, and sufficient.

Remember the Mexican bailout under the Clinton administration? Maybe not, since it turned out so well. When Mexico was facing financial ruin in a deepening spiral, the Treasury stepped up to offer $40 billion in credit. The amount was considered huge, but that was intentional: it was meant to reassure the markets that more than enough was being done.

It worked. Creditors relaxed, and Mexico was able to get more loans from other sources. It needed little of the money offered by the Treasury and paid back all that it took.

But Congress voted against it, days after promising support. Dissenting Republicans said we couldn't spend our money helping an irresponsible nation, and they yanked their votes.

At that time, the Treasury exercised a little-known option to bypass Congress, and all went well. But Congress later passed a law to close that approach, so now we need their support.

And they've failed to give it.

This isn't about 'principle' or 'voting your conscience,' as  Rep. Jay Inslee (D-WA) claims. How did that kind of reasoning work in the 2000 election?

Whether or not you think we need protection for homeowners and tighter regulation of credit default swaps (as both Inslee and I do),  we need swift action, even if the bailout package is imperfect.

The longer we delay, the more it costs us. Look at the effects of  allowing Lehman to fail, which then hurt AIG, which then weakened Merrill Lynch, which led to a run on Washington Mutual, which increased worry about Wachovia.

Compare that to the swift and comprehensive protection during the Mexican bailout. By acting decisively, the crisis passed quickly and at less cost.

I know that some people feel banks deserve to fail - see my 'moral hazard' blog from last week, and several of the comments after the Inslee link above (and this  thoughtful response from blogger Ken Smith) -  but this is a market crisis that affects all of us.

I'm not out to punish any bank, or hedge fund, or C.E.O.  I don't care about them. I do care about my family, and my friends, and my neighbor, and the rest of Americans hurt by the crisis.

And we deserve a Congress that does, too.

Friday, September 26, 2008

the Hidden Vaccine Debate

If you're a parent of small children, you've heard the usual vaccine debate: one side claims vaccines have suspicious links to autism, while the other claims vaccines are safe. I've never met anyone in the middle.

But the middle is home of the real debate, one hidden from the current yelling about autism. The real question is, 'How much do parents know about the ingredients and effects of vaccines used for their children?'

The answer is: not much. We deserve a debate that asks whether we're adequately weighing risk vs reward, regardless of whether or not a given vaccine contains mercury.

Few childhood vaccines now contain mercury (a very few do, including flu shots), but they do contain other ingredients worth asking about.

The recommended course of childhood vaccines often include about 1875 micrograms of aluminum, for example - astounding in light of the the FDA recommendation that premature babies get no more than 10 to 25 micrograms a day.

Are non-premature babies at risk? We don't know, but we do know aluminum builds in the brain for neurologic damage.

Aluminum is just one ingredient with effects worthy of study. Formaldehyde in vaccines is common, as are odd animal derivatives (like the fetal cow's blood and monkey kidney cells in the rotavirus vaccine).

That doesn't mean vaccines are bad. My kids are vaccinated. Robert Sears recommends vaccines in his excellent Vaccine Book, the most informative and debate-neutral book I've found.

But we do deserve to know more about the ingredients of injectables for our children, and both parents and the medical community deserve a thoughtful debate.

Yelling, 'Vaccines are autism potions!' or shouting, 'Vaccines are perfectly safe!' reduces the discussion to mere bleating. Neither is quite true.

Vaccines offer terrific benefits to children, but they do carry some risks.

Shouldn't parents be well informed about both?

Monday, September 22, 2008

Goodbye, at Last, to David Foster Wallace

Though David Foster Wallace surely meant people to take notice last week, when he hanged himself where his wife would find him, the sentiment is nothing new.

He's always been the center of his writing, and perhaps that's reason enough to move on. Newspapers have been littered with paeans to the lost post-modernist, calling him not just 'brilliant' but 'the best mind of his generation.'

While Wallace was indeed smart,  he was always the center of his own spotlight, a light he held steady with obsessive focus. Instead of using his intellectual gifts to illuminate the outside world - and he wrote on many subjects, from lobsters to infomercials - he compulsively returned to himself, so that all of his books deserved not just the byline but the title 'David Foster Wallace.'

Fans rave about how smart he was, how facile and erudite. But they don't talk about what they as readers gain from him. The whole intellectual exercise, from start to finish, is about the maker of the puzzle. It's a game of see-how-smart-I-am hidden behind literary screens, ever protected by the ready response of 'you-don't-see-after-all?'

Let's look at the passage the New York Times selected as 'exemplary':

At first glance, it's incomprehensible, a miniature display of literary fireworks that threaten to burn you if you come too close. Taken slowly, it's not so daunting.

Read as a writer's notepad entry, it gains its thickness through abbreviation, like an unfamiliar text messaging that gradually makes sense.  'Narrative intrusion: exposition on Jeni Roberts, in the same flat and pedantic tone as in paragraphs three and four.' 

Fans would tell you that the passage gets ironic heft from its content, since Wallace is writing about a life-changing realization, but one that is here reduced to a near-laundry list notation, giving as much weight to the color of her car as to the details of her epiphany. According to Wallace, stories are 'falsies': what you see is not what you get.

He's entitled to the view, as is Ezra Pound, T.S. Eliot, Barth, Pynchon, Borges, Nabokov, and a whole generation of English departments. It's not a new perspective.

What's different is its unrelenting focus on the writer, this particular writer, so that instead of musings on how our minds work, we get still more on how David Foster Wallace's mind works.

It's a sharp mind, and an observant one, but for all its acclaimed ability, it was rarely brave enough to venture far from its own home, its flesh-and-bone encasing of personal anxiety and guilty condescension.

It's time to give that, and him, a rest.

The Phantom Moral Hazard

There are a thousand theories about why American markets are in such turmoil, and ten times as many about what we need to do. Here's one of the craziest.

Some economists and many conservative pundits say we should let financial giants fail, because if we save them, future executives will feel safe with even more risky behavior.

This so-called 'moral hazard' is a principle of economics that applies in some cases, but it's awfully hard to see it here. Let's see what's happened to the wealth of these executives as their firms prepare for bailout.

Stock value for CEO's of rescued firms ($ millions)

CEO Firm 2007 value Last Friday
Greenberg AIG 1,250 50
Fuld Lehman 827 2
Cayne Bear Stearns 1,060 61
Sullivan AIG (ex-CEO) 3 0.1
O'Neal Merrill (ex) 128 40
Mudd Fannie Mae 26 0.4
Syron Freddie Mac 11 0.1

Look at, say, James Cayne, former head of Bear Stearns. I'm not asking you to feel sorry for him - he's still got $61 million in stock there - but note that up until last year, he was worth nearly a billion dollars.

Can you imagine a CEO saying, after the bailout, "I know I should do more to manage risk, or I might lose 95% of my personal worth, my job, my title, control of the company, and the respect of my peers, but at least the government will keep things from getting too bad" ?

Sounds silly, doesn't it? So is the argument that the government is doing too much.

No one is removing the risk from the financial markets. We're just taking steps to ensure that when Wall Street stumbles, the rest of us lose less than, say, some CEO's.

Saturday, September 20, 2008

Talk then Drive

More and more data show the danger of chatting on the phone while driving, but it's a hard societal habit to break. It's convenient, and the danger isn't immediately apparent.

Yet society has moved beyond other convenient behaviors in the past. Spitting on the street was once common, as was relieving oneself on the side of a building. That still happens here and there, but it's not generally seen on every block each day.

In many areas, public bathrooms reduce trouble on the street. Would more frequent rest-stops or cell-phone side-lots encourage people to talk, then drive?

Friday, September 19, 2008

Wall Street's Fall Guy

The market isn't the only thing in turmoil this week; so is honesty in politics.

As recently as two months ago, the head of the Securities and Exchange Commission was considered a top contender for the Republican vice presidential nomination. Christopher Cox has been long appreciated by conservatives, and he'd done a surprisingly good job of reassuring liberals, who feared he would be too passive in his post. 

Cox reinvigorated the S.E.C. and the conservative American Spectator called him "the best [VP] choice, bar none."

Now John McCain is saying Cox "has betrayed the public trust," and "If I were president today, I'd fire him."

What happened?

Nothing that Cox did, or didn't do. He moved actively to address market problems, and weeks ago, increased criticism of "naked" short sellers seeking to profit from a falling market... the very problem that prompted McCain's comments. Cox's fault here was being in the line of fire.

The McCain criticism is all the more disingenuous because Republicans have been clamoring for less market intervention, not more. It's hard to pick up a newspaper - before today, at least - without reading about conservatives moaning about 'moral hazard' (the presumption firms will assume even more risk if they believe the government will save them. See my next blog entry for more on this canard). 

It's even worse when you consider how Cox arrived at the S.E.C.. The first Bush appointee, Harvey Pitt, resigned under universal criticism of his passive approach (called a "patsy for accounting firms," even the Wall Street Journal called on him to step down.) His replacement, William Webster, wasn't much better. Remember that when President Bush spoke on Wall Street during the first market crisis of his administration, markets fell on news that he wanted to reduce regulation.

Today's Republicans (my apologies to anyone who, like me, believed in the values of Goldwater or the early Reagan years) believe that government action is always bad. But Wall Street does not. When things are going well, firms want the government to keep a safe distance, but in times of crisis, they want America's safety net to be a strong one.

Cox has been the most forward-thinking S.E.C. chairman in several years. He's no Arthur Levitt (Clinton's brilliant appointee), but he's a huge step ahead of his immediate predecessors and a market supervisor who has played a more active role than most Republicans have endorsed.

And now they're attacking him for doing too little?