Ezra Klein

FROM THE ED SCHULTZ SHOW.

Lawrence O'Donnell was co-hosting, and O'Donnell wanted to talk about the problems with using budget reconciliation. And so we did. I think he's probably right about the problems of using reconciliation for health care policy, but he's underplaying its importance as a threat. It makes a bipartisan bill more, not less, likely. I make this point a bit fuzzily on the program, but think of it like this: A legislative process has two basic outcomes. Bill or no bill. The majority wants bill. The minority wants no bill. And the Senate, as an institution, is built to favor the no bill position. Reconciliation introduces a third outcome. It's a quasi-bill. No one knows what the Senate parliamentarian will leave in it. This is an outcome that, fundamentally, no one wants. It's worse for the majority than a bill they've written and worse for the minority than a bill they've killed. But it closes off the normal exit: There's no longer hope of an outcome that's good for only one side. Either you...

TAB DUMP.

• Does the world need defense spending (or at least this much of it)? • Why technology doesn't make education cheaper. • Noam Scheiber considers the stress tests. • The 1994 scenario -- on cap and trade. • This campaign is over before it began, I'd imagine. And remember, I'll be on MSNBC's Ed Schultz program at 6:35 Eastern.

THE FEDERAL RESERVE AND THE IMF AGREE.

I'd been hearing that the Federal Reserve's estimates for how much capital the banking system would need were quite a bit lower than the IMF's. More evidence that the stress tests are optimistic and that Geithner is a Wall Street stooge! But James Surowiecki digs deeper into the numbers and finds that they're actually quite close. "Unless you think the I.M.F.’s estimates are unrealistic or softballed," he concludes, "it’s simply wrong to call these results a whitewash."

WHAT SORT OF BANKERS DOES WASHINGTON NEED?

In response to yesterday's post suggesting that Washington do more to attract out-of-work finance types, a smart financy type who recently came to Washington e-mails: I totally agree with you that the progressive community needs to be pushing ahead much more aggressively on reg reform. One thing you didn't mention is that the fin. services community has basically largely been dusting off their old "competitiveness"/deregulation proposals from 2004-7 and recasting them as "regulatory reform" proposals now. Paulson's original blueprint was totally cut from this cloth, and contained a number of wishlist items. But while I agree that more resources ought to be directed towards getting top notch financial folks, I think you're glossing over a couple of real issues with taking folks from Wall Street. His e-mail continues below the fold:

MEDIA ME.

I'll be on Ed Schultz's MSNBC show tonight around 6:30 Eastern. It will be a milestone in television history, and you don't want to miss it.

CAN TWITTER SATISFY OUR DEEPEST NEEDS?

Maybe some of them. I rather like Ruth Reichl's take on Twitter: Twitter is a sort of public diary; figurative scraps of paper. Are you enjoying it? Enormously. As I wrote in my first book, privacy is overrated. My mother’s scraps of paper were shouts into the void, and I think she would have been much happier if she could have sent them into the world instead of sticking them in a box. We all want, very much, to be seen and understood. That's a nice thought. And it's true that Twitter, like blogs, democratizes access to the means of recognition. It's not so much that people want to be watched as that they want to be seen. People -- including, sadly, me -- mock all the trivia that makes it onto Twitter -- "I'm at the gym, and hate the elliptical machine!" -- but that stuff isn't trivia to the people experiencing it. It's the stuff of life. And the ability to share it helps to make it matter.

FRANK LUNTZ TELLS REPUBLICANS TO HIT "REPEAT."

A bunch of readers have written in to ask why I haven't commented on pollster Frank Luntz's "leaked" memo advising Republicans on their efforts to oppose health reform. The basic answer is I don't think it's an important document. I could have written the whole thing myself just by reversing-engineering one of Rudy Giuliani's speeches. And it's "leak" feel a bit meta to me. It's theoretically a strategy document for Republicans, but it's being used less to inform their approach than to give the press a reason to write that they have a strategy. And so they do. "Healthcare denial horror stories from Canada & Co. do resonate," Luntz advises. That means, I guess, that conservative politicians will continue using them, as they have for the past two decades? Elsewhere, Luntz suggests that Republicans "define the crisis in your terms...If some bureaucrat puts himself between you and your doctor, denying you exactly what you need, that’s a crisis." Attacking bureaucrats! Where does Frank...

THE NEW YORK FED THINKS THE BANKS REPRESENT THE PEOPLE.

Eliot Spitzer expounds on one of my favorite topics: The astonishing composition of the New York Federal Reserve: who selected Geithner back in 2003? Well, the Fed board created a select committee to pick the CEO. This committee included none other than Hank Greenberg, then the chairman of AIG; John Whitehead, a former chairman of Goldman Sachs; Walter Shipley, a former chairman of Chase Manhattan Bank, now JPMorgan Chase; and Pete Peterson, a former chairman of Lehman Bros. It was not a group of typical depositors worried about the security of their savings accounts but rather one whose interest was in preserving a capital structure and way of doing business that cried out for—but did not receive—harsh examination from the N.Y. Fed. The composition of the New York Fed's board, which supervises the organization and current Chairman Friedman, is equally troubling. The board consists of nine individuals, three chosen by the N.Y. Fed member banks as their own representatives, three...

STEALTH SUBSIDIES CONTINUE.

Tim Geithner's announcement that banks who wanted to repay their money early would have to also leave the FDIC's low-interest lending program received a pretty favorable response the other day. Banks shouldn't be able to leave only those government programs that impose regulatory constraints. No banks with benefits ! But as Binyamin Appelbaum and Neil Irwin explain , they'll still be getting government help: While the banking industry will remain on federal aid for the foreseeable future, officials also said they would now allow some of the healthiest banks to repay the government's initial capital investments. Nine of the 19 banks were found to have sufficient capital reserves. Firms that repay the government no longer face restrictions on executive compensation. Applicants will first be required to show that they do not need the shelter of a Federal Deposit Insurance Corp. program that helps banks raise money at lower interest rates. But banks may continue borrowing from the Federal...

YOU CAN'T FIGHT CITY HALL.

I never understand the fuss over Supreme Court nominations. The president holds all the power. That's even more true if his party controls the Senate. So when conservative groups "concede that they have little chance of derailing Obama's choice, barring a scandal," what does it mean? If they derail Obama's choice, he'll just make another choice. It's not like defeating his first nominee would make him lose a turn, or let Mitch McConnell choose the next candidate. Bush, for instance, got beat on Harriett Miers, and then nominated a more conservative justice in her stead. The hubbub is baffling. The opposition can't win. They can only delay losing.

WHO'S REPRESENTING GLOOM?

There's been a lot of speculation over reports that the administration held the stress test results while the banks argued for more lenient treatment. But the Washington Post is the first paper I've seen with specifics on those conversations. Citibank, for instance, "successfully pushed to lower the amount of common equity it needs to raise to $5.5 billion by applying $52.5 billion from capital it has not yet reworked. It also was able to get a credit for the sale of a unit that has not been completed." Those aren't particularly crazy arguments. But they're unbalanced arguments. There are basically three poles in this debate: Independent analysts, who tend to think the situation is darker than the government does, but who arguably have some tendency to err on the side of gloom because they don't bear the downside risk of their solutions. The banks, who argue that the situation is much better than the government projects, but who have a strong tendency to err on the side of optimism...

YOUR STRESS TESTS IN GRAPHS: HOW STRESSFUL ARE THEY?

The administration's argument for the stress tests' stringency is made on page seven of the results . There's even a helpful graph: In short, the stress tests are assuming a loan loss rate -- that is to say, the percentage of loans a particular firm has written-off as non-recoverable -- higher than that of the Great Depression. An adverse scenario, in other words, that makes Franklin Delano Roosevelt look like a wimp. That seems comfortingly stringent. On the other hand, it's not clear that the two periods are directly comparable. Administration critics will tell you that Depression-era loans were less heavily leveraged. Mortgages had 50 percent downpayments. There was no housing bubble. This downturn won't be worse than the Great Depression in its total effect on society, but the loss rate is a misleading indicator. And in pushing that indicator, the administration is being a bit slippery. (And it's worth noting that some metrics in this recession have outperformed similar measures...

ARLEN SPECTER AND HIS ZOMBIE HORDES FIGHT FOR THE CURE.

Of late, Arlen Specter has been engaged in something of a crass-off against, well, himself. His argument for switching parties was that he'd lose the Republican primary. His argument for consistency was that he would still oppose the interests of the very voters he was now courting. But www.SpecterfortheCure.com is something of a new low. The site promotes "a bold new initiative to reform our government's medical research efforts, cut red tape and unstrangle the hope for accelerated cures." That "bold new initiative?" Arlen Specter's reelection campaign. "Senator Arlen Specter," we're told, "intends to build a bridge over the valley of death," which sort of implies that if he loses the Democratic primary, he might decide he's "simply not going to subject my 29-year record in the United States Senate to a primary electorate of living humans," and return with a mighty zombie horde who will look more favorably on his candidacy (Arlen Specter, D-Hades). But later on, the web site gives a...

NOT-AS-BAD JOBS NUMBERS.

I wouldn't call the new jobs numbers good economic news, per se. They're more like not-as-bad economic news. Recently, we've average 650,000 jobs losses a month. April saw a "mere" 539,000 lost jobs. And a lot of the jobs created were on the federal-side of the ledge. The private sector lost 611,000 jobs in April. So we lost a lot of jobs. But not as many jobs as we've been losing. Which is to say that the news is bad but the trend is good.

JOHN MAYNARD KEYNES ON THE PROBLEM WITH "SKILLED" INVESTORS.

I should probably make up some tenuous connection to the stress tests so it seems that I have some reason for quoting this bit of Keynes' General Theory , but really I just think it a brilliant point: [T]here is one feature in particular which deserves our attention. It might have been supposed that competition between expert professionals, possessing judgment and knowledge beyond that of the average private investor, would correct the vagaries of the ignorant individual left to himself. It happens, however, that the energies and skill of the professional investor and speculator are mainly occupied otherwise. For most of these persons are, in fact, largely concerned, not with making superior long-term forecasts of the probable yield of an investment over its whole life, but with foreseeing changes in the conventional basis of valuation a short time ahead of the general public. They are concerned, not with what an investment is really worth to a man who buys it “for keeps”, but with...

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