Ezra Klein

CNBC'S STRANGE RELATIONSHIP TO CREDIBILITY.

Maureen -- sorry, Mo -- Tkacik's feature-length takedown of CNBC is a really elegant entry into the genre. The lede, in particular, is gorgeous and cruel. Read it. But I'm a bit less convinced by her conclusion: Isolated moments of introspection don't really show that the network is "reevaluating what it thinks is good for the Dow ergo America." It simply suggests that CNBC cannot be literally so detached from the realities of recession that it loses viewers. As Mo persuasively argues earlier in the piece, the key to CNBC's success is their claim that the information they offer is rapidly "actionable." But for their information to be actionable, it must first be credible. Which is how you get a network that invites Nouriel Roubini and Nassim Taleb onto the show and then demands they offer investment advice. Their presence is anathema to the network's beliefs, but they add credibility. But what CNBC wants is for them to use their credibility to articulate a get-rick-quick scheme for...

DEAN BAKER IS NOT IMPRESSED WITH THE STRESS TESTS.

Here's why: Unemployment -- in their negative scenario, the stress tests assumed a year-round average unemployment rate of 8.9 percent for the 2009 and 10.3 percent for 2010. The economy is on track to have a much higher unemployment rate, as it is likely to hit 9.0 percent in April. My best guess for a year-round average would be 9.4 percent for 2009 and probably around 10.5 percent for 2010. (These numbers assume no second stimulus, but of course Congress will not sit back and just let the unemployment rate go through the roof.) House prices -- the negative scenario assumes that house prices, as measured by the Case-Shiller 10-City index fall 22.0 percent in 2009. Prices in this index have been falling at a 24 percent annual rate in recent months. Given the massive inventory of unsold homes, It is reasonable to expect that this rate of price decline could continue at least through 2009. What difference would harsher assumptions make? The projected loss rate on first mortgages...

TAB DUMP.

• In defense of fanboy movies. • Does bank capital even matter anymore? • The other Baby Boomer crisis. • What you should be looking at instead of the stress tests. • Doug Elmendorf's exciting regulatory proposals!

TESTING THE STRESS TESTS.

For more stress test commentary, check out this roundtable the New York Times held with an array of financial system experts, including Yves Smith, Simon Johnson, and William Black. The assessments range from furiously negative to grimly unconvinced. It's, err, stressful* reading. *Sorry, sorry...

DAY OF STRESS.

The results of the Supervisory Capital Assessment Program -- sorry, the stress tests -- are out. You can download the full release here . I've actually gotten the feeling in recent days that there's a bit of confusion over what the stress tests actually represent. In short, the stress test was an examination of how the bank would perform under further, well, economic stress. It's not how much capital the bank is expected to need. It's how much capital the bank is expected to need if things get worse. To quote the official release, the government set out to "measure how much of an additional capital buffer, if any, each institution would need to establish today to ensure that it would have sufficient capital if the economy weakens more than expected." That "more than expected" gets you to the ambiguity. Expected by whom? The Federal Reserve argues that their "adverse scenario" was, quote, "deliberately stringent." In other words, the Federal Reserve says it was being, if anything, too...

THE WASHINGTON HOUSE FOR UNEMPLOYED TRADERS LOOKING TO SAVE THEIR SOULS.

I had an interesting e-mail exchange yesterday with a finance expert thinking of moving to DC. Come, I said. There's work for you. And there is! Too much, in fact. One of the problems bedeviling Washington's response to the financial crisis is that there's very little financial expertise outside Wall Street. There's some in the regulatory sector. But just about none in the ideas industry. And there's a reason for that. I'm not going to say finance is boring , but the sort of people who are interested in it tend to be the people who are interested in making money in finance, not in moving to DC and taking an entry level job at Brookings for $32,000 a year. And it's not as if Wall Street has been picky about hiring in recent years. That's a problem, though. For instance: Everyone knows that the coming fight is on the shape of financial regulation going forward. But the think tanks and advocacy groups have been curiously silent on how that should look. An administration official...

THE SEC (YEAH YOU KNOW ME!).

It's sort of received wisdom that the Securities and Exchange Commission is irredeemably captured by the financial industry and totally incapable of conducting its daily affairs. But what you didn't know was how comically incompetent it was. Moe Tkacik -- with an assist from a GAO report -- explains .

IN DEFENSE OF MALCOLM GLADWELL.

Sorry for the slow blogging today. Meetings are the enemy of the blog. But I did want to say a word on Malcolm Gladwell, who's coming in for a lot of semi-deserved flack for his article on underdogs. In the piece, Gladwell offers up a puff job on Silicon Valley parent who coached a team of 12-year-olds to championship by spurring them to employ full court press. Gladwell uses this to make his point about the tactics of the underdog: The weaker power can only win if it aggressively defines the rules of the conflict in a way that disadvantages the stronger power. This isn't exactly a new insight: It's called asymmetric warfare. And it makes no sense in terms of basketball. If full court press were really a fail-safe strategy for weak teams, more of them would use it. It's not a new concept. But Gladwell isn't an academic and he's not a traditional reporter. Insofar as he has a beat, it's modern fables. Stories with a point. He's like Aesop for the corporate class. To wit, the...

BAILOUT MATH.

Felix Salmon writes : When the government announced its stress tests on February 23, Bank of America stock closed at $3.91 a share. At that level, if the government converted $34 billion of preferred stock into common equity, it would have received 8.7 billion shares in Bank of America. There are 6.4 billion shares outstanding right now, which means the government would have ended up with a controlling 58% stake in the company. Today, BAC is trading at $14.64 per share. At that level, the conversion of $34 billion of preferred stock would mean the creation of 2.3 billion new shares, which would give the government ownership of “only” 27% of the company — a large stake, but very much a minority stake. It seems like Bank of America should engage in some short-term blustering and rumor-starting to hype its stock price and then beg Treasury to announce a conversion before the market has a chance to respond, no? In theory, of course, you'd say that Treasury doesn't want to buy high. But my...

BIG CUTS, SMALL PLATES.

Peter Orszag lists off a couple of the programs the administration is eliminating. Included among them is this winner of an expenditure: Educational attaché, Paris, France ($632,000). The Department of Education can use e-mail, video conferencing, and modest travel to replace a full-time representative to UNESCO in Paris, France. Some enterprising reporter should figure out who the last educational attache was and ask what was costing them $600,000. But snark aside, it's no real surprise that these cuts are minimal -- about one-half of one percent of the budget. The Obama administration has been in office less than four months. They've not had the time to rigorously evaluate every federal program, and probably haven't had time to rigorously evaluate the rigorous evaluations of every federal program. Moreover, we don't sufficiently fund the analysis arms of the government: We've got the Government Accountability Office, but it's not funded at the sort of levels that would allow for a...

CAN LOCAL BLOGGERS REPLACE LOCAL NEWS COVERAGE?

"Not only is it going to be intrinsically difficult to ever find a viable revenue model for paying a reporter to cover the zoning board if people don’t want to read about the zoning board," writes Matt Yglesias, "[but] I’m not actually sure how much social value is created by unread articles about zoning boards. If an article about proposed modifications to the Purple Line falls in the wilderness and nobody’s there to read it, are we really making a difference?" He goes on to suggest that neighborhood bloggers and other forms of amateur local coverage are stepping ably into this gap and aren't confined by revenue models. But this is exactly where the deterioration of newspapers gets worrying. An unread article on the Purple Line in The Washington Post is still an article in The Washington Post . No one really knows how many people read it. There's always the chance that those readers might read it. And if the paper really wants to emphasize the point, they can throw the article on A1...

BAUCUS ON CAP AND TRADE: "COSTS OF INACTION WOULD BE FAR GREATER."

The Senate Finance Committee is holding hearings on cap and trade today. And Baucus starts it off with a nice point. "Action would not be without cost," he admits. "But the costs of inaction would be far greater." That's really the key insight. No one advocates a cap and trade program or a carbon tax because it seems like fun. No politician pushes these proposals because they're a surefire ticket to reelection. It's simply that if we don't do something, the consequences could prove disastrous. There are, of course, some opponents of action who simply deny the reality of global warming altogether. Asking for their cooperation is like asking a Christian Scientist to help reform the health care system. But then are those who admit the reality of global warming but spend their time talking up the downsides of all the policies that would actually reduce carbon emissions. Of all the positions on the table, that one's actually the most dishonest and nakedly opportunistic. Baucus's full...

HAPPY BUDGET DAY!

That's how Obama's aides are signing their e-mails today. And why not? It's a big day! The full budget ! "Financial information on individual programs and appropriation accounts"! "The proposed text of appropriations language"! Extremely trivial cuts that the administration is nevertheless selling as a painful effort in belt-tightening. Join the fun!

THEORY VS. PRACTICE.

When you're arguing policy, you have to decide whether you're arguing in the perfect world or the real world, and then you have to hold that constant. There's no use arguing a textbook policy against a piece of legislation, or vice-versa. You see this pretty clearly in debates between supporters of cap-and-trade and supporters of a carbon tax. If you're interested in determining the elegance of the policy, you can compare a textbook cap-and-trade program to a textbook carbon tax. If you're interested in determining the likely real-world shape of a policy, you can try and game out the likely compromises and horsetrades that would allow cap-and-trade legislation and carbon tax legislation to pass through through Congress. But what you can't do is compare the cap-and-trade legislation to carbon tax theory. These things are not alike. But that's the argument you tend to get. Which gets at the problem with Andrew Sullivan arguing that a carbon tax is superior to cap-and-trade because it "...

TAB DUMP.

• The financial crisis hits Portugal. Portugal hits back. • "[A]lthough the Austrian School was at the forefront of business cycle theory in the 1920s, it hasn’t developed in any positive way since then." • The parochialism of ignoring Karl Marx. • I forgot to link to this very good Brad DeLong column arguing that our future is as a large colony that's been occupied by the financial capital of other country's. • Is the EPA about to crack down on ethanol? Sort of!

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