Ezra Klein

TAB DUMP.

• When it comes to health care, economists ignore their own rules. • Slaughterhouse numbers. (Now with animation!) • Tax fantasies of the Right and Left. • How to scare an industry group with one easy parliamentary maneuver.

BAD NEWS FOR THE GEITHNER PLAN.

Remember TALF? Launched by Paulson last November? Crummier name than TARP? Focused on consumers rather than banks? Yeah, that TALF . This was the so-called "consumer bailout" -- $220 billion to kickstart the private market's purchases of consumer asset-backed securities like auto loans, credit-card debt, and student loans. The money would go to magnify the investments of private lenders. A hedge fund, say, would put in a small portion of cash towards the purchase of a given security, and the Federal Reserve would multiply it to complete the transaction. If the asset appreciated, both stood to make money. If it bottomed out, the government absorbed most of the losses. Sound familiar? The problem is, it's not working. "Officials envisioned TALF supporting tens of billions of dollars a month in new lending, saying it could eventually total $1 trillion," reports Neil Irwin. "But in March, when it was launched, it backed only $4.7 billion in auto loans and credit cards. For April, it...

WHERE ARE THE POLITICAL ECONOMISTS?

Simon Johnson is an economist, but he's also, as Tim Fernholz writes , a pretty committed political economist. The core of his approach to the financial crisis has been an analysis of power relations, not mere capital inflows. Some folks argue that the financial crisis is a simple story of bad decisions by poorly incentivized bankers. Johnson believes that the crisis is fundamentally a story of financial elites capturing the political system, convincing it to deregulate their sector, turning deregulation into an ideology of sorts, and then, once it all went sour, using their political power to obstruct needed policy corrections. In other words, power caused the crisis and power prevents a solution to the crisis. But it's not clear where that leaves us. The implication of Johnson's argument is that we should make rich people a lot poorer in order to diminish their capacity to capture the political system. But he has not, to my knowledge, said that. Indeed, I've read a lot from Johnson...

OBAMA ON REGULATING THE CREDIT CARD INDUSTRY.

Obama met with some representatives from the credit industry today in advance of his administration's effort to better regulate the industry. Which is the sort of thing that frequently frustrates Obama's left-leaning critics. But walking out, he gave some quick remarks that should comfort them, including this statement of regulatory principles: First of all, I think that there has to be strong and reliable protections for consumers -- protections that ban unfair rate increases and forbid abusive fees and penalties. The days of any time, any reason rate hikes and late fee traps have to end. Number two, all the forms and statements that credit card companies send out have to be written in plain language and be in plain sight. No more fine print, no more confusing terms and conditions. We want clarity and transparency from here on out. Number three, we have to make sure that people can comparison shop when it comes to credit cards without being afraid that they're going to be taken...

VOLUME AND RISK.

The argument that Wall Street is actually allergic, rather than attracted, to risk brought to mind a quote from Michael Lewis's Liar's Poker: The biggest myth about bond traders, and therefore the greatest misunderstanding about the unprecedented prosperity of Wall Street in 80s, are that they make their money by taking large risks. A few do. And all traders take small risks. But most traders act simply as toll takers. The source of their fortune has been nicely summarized by Kurt Vonnegut (who, oddly, was describing lawyers): "There is a magic moment, during which a man has surrendered a treasure, and during which the man who is about to receive it has not yet done so. An alert lawyer [read bond trader] will make that moment his own, possessing the treasure for a magic microsecond, taking a little of it, passing it on." Lewis, of course, was talking about 80s-era bond traders. This crisis was not really a crisis of 80s-era bond trading. But though the instruments are different, the...

WHAT WILL YOU RISK FOR RISK?

Felix Salmon's in Dallas today giving a terribly depressing speech to the Regional Bond Dealers Association. A terribly depressing speech which, through the magic of the interwebs, can now depress all of us! In particular, I recommend the beginning, which takes on the prevailing wisdom that Wall Street developed an overly high tolerance for risk. As Salmon argues, the problem was precisely the opposite: Wall Street had managed to convince itself that it wasn't taking on risk. I believed along with Alan Greenspan that when it comes to debt instruments in general, and credit derivatives in particular, “These instruments enhance the ability to differentiate risk and allocate it to those investor most able and willing to take it.” But if you look at what happened in practice, the art of securitization always seemed designed to create ever-increasing quantities of risk-free debt. Banks thought they were selling loans and mortgages to people who wanted the risk, but they weren’t: they were...

THE WORLD BANK STIMULUS.

It's good news that the World Bank is going to offer $55 billion in infrastructure stimulus to developing nations. But maybe it's testament to the times that that number seems pretty low to me: $55 billion just isn't much money given the scale of the problem. And this is a bigger issue for developing nations. A couple years of output gap in America means a couple years of pretty unpleasant outcomes. A couple years of output gap in a developing nation means real misery, and a backslide that many families will not recover from.

RETHINKING PELOSI AND HARMAN.

I'm pretty struck by news that Nancy Pelosi was informed that the government was wiretapping Jane Harman. This, it seems, is standard operating practice: According to the Post , "it is a 'tradition' for the top Democrat and Republican in the House to be alerted whenever a member is under surveillance using wiretaps or other methods." We don't know the exact date that Pelosi was informed of the wiretap, but we know it was a couple of years ago, which throws Pelosi's efforts to remove Harman from the chairmanship of the House Select Intelligence Committee into a new light. At the time, that fight was largely seen as Pelosi prosecuting a grudge against Harman. Now it seems possible that Pelosi was simply insulating the Party from a major embarrassment.

THE VAST MAJORITY DOESN'T MATTER.

I'd missed this the other day, but Tim Geithner apparently comforted the markets by assuring them that the “vast majority” of banks are well capitalized. But this, as Paul Krugman says , is meaningless. "There are 1,722 institutions on the Fed’s list of 'large commercial banks'....But the big guys are where the money is. The top 10 institutions on that list have 58 percent of the assets. (If we looked at bank holding companies rather than only commercial banks, assets would be even more concentrated.) So it’s perfectly possible that the 'vast majority' of US banks are well-capitalized, but that banks with, say, a third of the system’s assets are insolvent." In effect, it's like me saying a vast majority of your meal isn't poisonous. Not good enough. In fact, Geithner's wording actually unsettled Krugman. "Treasury knows the difference between raw numbers of banks and asset holdings, even if the press seemed to miss the distinction, and if he’d meant to say that the vast majority of...

POST POST.

The news is true: On May 18th, I'll be moving about two blocks east and two blocks south to the Washington Post 's massive building. I will have part of a desk rather than much of an office. I will not have natural light. This blog, too, will change its home, moving to the " columnists and blog s" area of the Post 's Business section. It will have a gray and white color scheme rather than a red one. It will have a .com address rather than a .org. For all that, the site won't change much. As now, the core subject area will be domestic and economic policy issues. That means the financial crisis, health care policy, cap and trade, the budget, the congressional process, and all those other fine topics that let me deploy the charts and graphs I so adore. It will still have posts on, say, Clarissa's little brother, and why people applaud at the opera, and what the tea parties means. That is to say, it will still have opinions and conclusions and reporting and emotion and concerns. It is,...

FERGUSON!

As a sort of follow-up to the title of the last post, I became interested recently in what happened to Ferguson from Clarissa Explains It All. (This blog, as you know, is not afraid to engage the big questions.) Turns out that after Clarissa, Jason Zimbler , the actor who so brilliantly portrayed Ferguson, left the business and went to college at Notre Dame. No more acting. But he did found a support group for child actors called Been There, Done That. The more you know.

DOUG ELMENDORF EXPLAINS IT ALL.

I don't think CBO Director Doug Elmendorf is quite the blog enthusiast that Peter Orszag was. But week by week, his blog is rediscovering its rhythm. In particular, Elmendorf has a useful post today summarizing a lecture he gave to Greg Mankiw's famed Intro to Econ class. It's as clean a breakdown of the contributors to the coming fiscal crackup as you're like to see. This bit, in particular, deserves a wide audience: The aspect of the budget that is anomalous by the standards of the past several decades—under both the baseline and the President’s budget—is outlays for Social Security, Medicare, and Medicaid. Specifically, under CBO’s estimate of the President’s budget for 2019: • Revenues would be close to their pre-recession share of GDP and historical average share of GDP. •Spending on all programs except Social Security, Medicare, and Medicaid would be below their pre-recession share of GDP and historical average share of GDP. • While at the same time, spending on Social Security...

RECESSIONS AND SUICIDE.

The suicide of Fannie Mae's chief financial officer reminded me of an old stat I'd read about the Great Depression being a historic apex for suicides. That, it seems, is correct. The peak was in 1933, with 17.4 out of every 100,000 Americans killing themselves. So can we expect to see a sharp rise in suicides again? Happily, the rest of the century hasn't demonstrated any relationship between recessions and suicide. There are a variety of potential explanations for this: The welfare state renders recessions less hopeless and painful. Mental illness is better recognized and more easily noticed. The weird point in the data is that unemployment is positively associated with suicide. But recessions aren't. That's a bit strange considering that unemployment increases amidst recessions. The answer appears to be that chronic unemployment is associated with other ailments -- mental illness, substance abuse, etc -- that also increase the risk of suicide. In recessions, the newly unemployed are...

BEING BEN NELSON.

If you were Ben Nelson, wouldn't you be loudly signaling that you're “ fully prepared " to vote against health reform? A historic transformation of a $2 trillion industry and you are the hinge vote that might decide passage. A simple public servant like, say, Carl Levin, just votes for the package because it's a good thing to do and it won't pass the Senate without a lot of simple "yes" votes. But if you're lucky enough to be one of the complicated "yes" vote -- and there can only be a couple of those -- you get to decide what the final bill looks like. You get to decide the shape of American health care. And you're not even on the Finance Committee! It's a helluva gig, if you can get it.

USING ANTITRUST LAW TO BREAK UP THE BANKS.

Looks like Simon Johnson is advocating using the antitrust laws to limit the size of banks before members of Congress. I'm glad to see the aproach getting some attention. I agree with Mark Thoma that the laws would require some reform in order to apply -- this is about the intrinsic dangers of size rather than the anti-competitive dangers of size -- but I've been convinced since March that the antitrust rubric is the correct way to think about the issue. The basic principle, after all, should hold for both spheres. Antitrust law is concerned with the dangers that size poses to markets. It offers regulators a usable mechanism for breaking up corporations that grow too large and thus threaten continued competition -- which is to say, threaten the market's continued capacity to function. This crisis has taught us that size can endanger the very survival of the market through means that have nothing to do with noncompetitive behavior. But we're still dealing with the problems that result...

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