Chinese Bubbles

I guess you have to keep dancing until the music stops, right?

SHANGHAI — The spacious duplex comes with crocodile-skin bedposts, hand-carved bronze doors inlaid with Swarovski crystals — and a $45 million price tag.

Signs of exuberance are everywhere. An investor in Shanghai recently bought 54 apartments in a single day; a villa sold for $30 million last year; and in December a consortium of developers paid more than $3.5 billion for a huge tract of land in Guangzhou, one of the highest prices paid for any property, anywhere. In the city of Tianjin, in north China, developers have created a $3 billion “floating city,” a series of islands built on a natural reservoir, featuring villas, shopping malls, a water amusement park and what they say will be the world’s largest indoor ski resort.

Floating islands and indoor ski resorts? Sounds a lot more like irrational exuberance than the normal kind.

Those who buy an apartment here tend to be extremely wealthy, like Liu Yiqian, an eccentric Shanghai entrepreneur whom Forbes magazine says is worth about $540 million.

Mr. Liu, 47, got his start driving a taxicab in Shanghai but eventually made a fortune investing in the stock market. In an interview this week, he acknowledged owning hundreds of apartments in Shanghai (he said he could not remember exactly how many), including a 6,000-square-foot apartment in Tomson Riviera, which he bought in 2008 for about $11.5 million.

“I invest in properties,” Mr. Liu said, noting that he also collects art, antiques and jade. “I think in Shanghai in five to seven years the real estate prices will be even higher.”

Of course, everyone who invests in a bubble has to say that, even if they don't believe it.

Despite the fear of a bubble here, Mr. Tong said his prices were just right, particularly because of so much hidden wealth in China. The publicly listed company is controlled by his family.

“I have a friend,” he said. “She makes maternity clothes. Her company has 20 percent of the world’s market share, and they’re not even a listed company.”

And when the renminbi finally does appreciate, as it will, she's not going to have 20% of the world's market anymore.

But a sales agent at Tomson Riviera says this is the future financial capital of the world, not the dying one.

“Look at this bronze door,” said Wang Yaodong. “That costs $50,000! Look at these Gaggenau appliances. They were made in Germany.” The glasses were imported from Belgium, the Jacuzzi from Italy. And don’t worry about losing your key, he said, “This lock can read the palm of your hand.”

Oh, boy.

Banks Take Themselves Hostage

Yves Smith comments on the further weakening of banking regulation:

The notion that makes this guaranteed-to-continue-to-be-weak oversight OK is that the big banks will be permitted to fail. While that may be credible for some of the really big banks (Fifth Third, for instance, is large but not systemically important) any large capital markets player is an integral part of crucial debt market operations. Those large firms in turn are deeply enmeshed via counterparty relationships, most notably repos and credit default swaps. How, pray tell, do you shut down a trading firm in an orderly fashion? You can’t freeze positions, which is what you need to do in an unwind, and not create pain and inconvenience for the counterparties. Are we going to have a firm in default (presumably with emergency credit lines) continue trading? I haven’t heard a credible solution to this rather major conundrum from the officialdom.

There isn't a credible solution, and every time you hear a politician claim that the new regulations will allow for an orderly winding down of any of these institutions you should remember that. Unilateral regulations can never work in the age of globalization; it is essential that the G20 work together to come up with some method of dealing with cross-border resolution issues-as Simon Johnson has pointed out repeatedly, this just isn't going to happen anytime soon. And since it isn't, we need to break these big banks up, because if we don't we will have to bail them out in a couple years when they fail again, and it will only be worse next time.

Also, notice the perverse incentives created by this government guarantee. Fifth Third is not systemically important enough to get saved, therefore it probably won't. What does this tell the CEO of Fifth Third? If it's me, I'm going to get out there and try to make myself systemically important. I'm going to make my bank dangerous so that it won't be allowed to fail. I am essentially going to strap a bomb to my chest and walk around Wall Street daring taxpayers to let me fail.

These are not good incentives.

Oh Danny Boy, The Pipes, The Pipes Are Calling...For A Military Takeover Of A Democratically Elected Government

Daniel Pipes, spends his life dreaming up new excuses to kill men, women and children indiscriminately by constantly promoting war, has found some more violence he can get down with.

The arrest and indictment of top military figures in Turkey last week precipitated potentially the most severe crisis since Atatürk founded the republic in 1923. The weeks ahead will probably indicate whether the country continues its slide toward Islamism or reverts to its traditional secularism. The denouement has major implications for Muslims everywhere.

It certainly does. Those who hate Muslims, and don't believe that they should be allowed to run governments, will be enraged, and probably call for some killings. People like Daniel Pipes.

Turkey's military has long been both the state's most trusted institution and the guarantor of Atatürk's legacy, especially his laicism. Devotion to the founder is not some dry abstraction but a very real and central part of a Turkish officer's life; as journalist Mehmet Ali Birand has documented, cadet-officers hardly go an hour without hearing Atatürk's name invoked.

I don't know about you, but this military sounds sort of like a cult. It reminds me of the North Korean military is devote to Kim Jong Il. But this doesn't seem to faze Pipes.

On four occasions between 1960 and 1997, the military intervened to repair a political process gone awry. On the last of these occasions, it forced the Islamist government of Necmettin Erbakan out of power. 

So now I really don't like this military. I don't know how Pipes feels, but I don't like the idea of any country's army moving in and deposing a democratically elected government. It's undemocratic, you see.

Chastened by this experience, some of Erbakan's staff re-organized themselves as the more cautious Justice and Development Party (AKP). In Turkey's decisive election of 2002, they surged ahead of discredited and fragmented centrist parties with a plurality of 34 percent of the popular vote.

Parliamentary rules then transformed that plurality into a 66 percent supermajority of assembly seats and a rare case of single-party rule. Not only did the AKP skillfully take advantage of its opportunity to lay the foundations of an Islamic order but no other party or leader emerged to challenge it. As a result, the AKP increased its portion of the vote in the 2007 elections to a resounding 47 percent, with control over 62 percent of parliamentary seats.

That's a pretty impressive vote total in a country with multiple parties. It kind of sounds like they were the people's choice.

Repeated AKP electoral successes encouraged it to drop its earlier caution and to hasten moving the country toward its dream of an Islamic Republic of Turkey. 

Turkey is 98% Muslim. We probably shouldn't be too surprised if they choose to live in an Islamic Republic.

The party placed partisans in the presidency and the judiciary while seizing increased control of the educational, business, media, and other leading institutions. It even challenged the secularists' hold over what Turks call the "deep state" – the non-elected institutions of the intelligence agencies, security services, and the judiciary. 

This, of course, is exactly what any political party with widespread public support would do. Remember how the Republicans tried to get McCain elected? Remember how they nominated right-wing justices to the Supreme Court and the federal courts? How about when they installed a Republican Education Secretary, let the banks buy the the Treasury Department, entered into a full-spin zone with Fox News, and basically took over the country for most of the last decade. I didn't like it, but I wasn't about to call up General Patraeus and have him develop battle plans for the Capitol.

Only the military, ultimate arbiter of the country's direction, remained beyond AKP control.

Why is the military the ultimate arbiter of the country's direction? Is this something to strive for? Military dictatorships? It sounds like it is, in Daniel Pipes' world.

Several factors then prompted the AKP to confront the military: European Union accession demands for civilian control over the military...

Those crazy Europeans. They have this strange aversion to out-of-control armed forces. Maybe they remember this, or this, or this.

a 2008 court case that came close to shutting down the AKP; and the growing assertiveness of its Islamist ally, the Fethullah Gülen Movement. An erosion in AKP popularity (from 47 percent in 2007 to 29 percent now) added a sense of urgency to this confrontation, for it points to the end of one-party AKP rule in the next elections.

Well, that sounds like the Turkish people are working this out in a non-violent, democratic fashion. Good for them.

The AKP devised an elaborate conspiracy theory in 2007, dubbed Ergenekon, to arrest about two hundred AKP critics,including military officers, under accusation of plotting to overthrow the elected government. The military responded passively, so the AKP raised the stakes on Jan. 22 by concocting a second conspiracy theory, this one termed Balyoz ("Sledgehammer") and exclusively directed against the military.

Why would these conspiracy theories appeal to people? Why might they even be true? Could it be because the Turkish military has overthrown the civilian government four times since 1960?

The military denied any illegal activities and the chief of general staff, İlker Başbuğ, warned that "Our patience has a limit." Nonetheless, the government proceeded, starting on Feb. 22, to arrest 67 active and retired military officers, including former heads of the air force and navy. So far, 35 officers have been indicted.

Ok, well I guess they'll have trials. They'll probably be given lawyers, since this is Turkey and not the United States, and then they'll have a verdict and so forth. Why is this any of our business?

Thus has the AKP thrown down the gauntlet, leaving the military leadership basically with two unattractive options: (1) continue selectively to acquiesce to the AKP and hope that fair elections by 2011 will terminate and reverse this process; or (2) stage a coup d'état, risking voter backlash and increased Islamist electoral strength.

So they could respect the democratically elected government, or they could go in with guns and take over the country. As a man who believes in exporting democracy, even at the point of a bayonet if necessary, one would think that Pipes would want the Turkish military to butt out.

Turkey's Islamic importance suggests that the outcome of this crisis has consequences for Muslims everywhere. AKP domination of the military means Islamists control the umma's most powerful secular institution, proving that, for the moment, they are unstoppable. But if the military retains its independence, Atatürk's vision will remain alive in Turkey and offer Muslims worldwide an alternative to the Islamist juggernaut.

Given that Pipes has already said that there are only two options, it's pretty clear he's calling for the coup. 


I guess democracy is great, but what's even better is making sure that Muslims don't get to run governments. And if people and democracies need to die to fulfill Pipes' racist and fear-driven vision, too bad.

Why We Will Pursue The Wrong Strategy With Iran

Roger Cohen, in an excellent piece on how to approach Iran, says this about sanctions:

I’m told that’s how Obama, who remains intellectually committed to the idea of an Iran breakthrough, views them: a necessity in the light of Congressional and Israeli pressure, but not a likely means to get sanctions-inured Iran to change course.

Now sanction for Iran are worse than useless. They serve mainly to enrich the political leadership which can get around them and profit by selling things ordinary citizens can't get. It's a perfect way to further alienate the Iranian people. This is widely known. But we're going to get them anyway. Why? Because Israel and their allies in Congress (who put Israeli interests before American) want it. 


When it comes to foreign policy in the Middle East, Congress no longer serves the American voter. It serves Israel.


Stratfor has a very interesting suggestion on how to deal with Iran. I'll excerpt a little, but you should really read the whole thing. (Stratfor is a leading global intelligence consulting company.)

Iraq, not nuclear weapons, is the fundamental issue between Iran and the United States. Iran wants to see a U.S. withdrawal from Iraq so Iran can assume its place as the dominant military power in the Persian Gulf. The United States wants to withdraw from Iraq because it faces challenges in Afghanistan — where it will also need Iranian cooperation — and elsewhere. Committing forces to Iraq for an extended period of time while fighting in Afghanistan leaves the United States exposed globally. Events involving China or Russia — such as the 2008 war in Georgia — would see the United States without a counter. The alternative would be a withdrawal from Afghanistan or a massive increase in U.S. armed forces. The former is not going to happen any time soon, and the latter is an economic impossibility...

It is said that Ahmadinejad is crazy. It was also said that Mao and Stalin were crazy, in both cases with much justification. Ahmadinejad has said many strange things and issued numerous threats. But when Roosevelt ignored what Stalin said and Nixon ignored what Mao said, they each discovered that Stalin’s and Mao’s actions were far more rational and predictable than their rhetoric. Similarly, what the Iranians say and what they do are quite different.

When it comes to foreign policy in the Middle East, Congress no longer serves the American voter. It serves Israel.

Rapprochement with Iran, and an acceptance of that nation's desired position of relative power in the Middle East could have great benefits for Iran and the United States. But it will never happen, at least not anytime soon, because Israel doesn't want it. And Israel, ultimately, decides what American policy will be-not Americans.

Why NYC Is Randomly Arresting People To Meet Quotas

NYC local ABC affiliate has this story:

When Officer Adil Polanco dreamed of becoming a cop, it was out of a desire to help people not, he says, to harass them.

"I'm not going to keep arresting innocent people, I'm not going to keep searching people for no reason, I'm not going to keep writing people for no reason, I'm tired of this," said Adil Polanco, an NYPD Officer.

Officer Polanco says One Police Plaza's obsession with keeping crime stats down has gotten out of control. He claims Precinct Commanders relentlessly pressure cops on the street to make more arrests, and give out more summonses, all to show headquarters they have a tight grip on their neighborhoods.

"Our primary job is not to help anybody, our primary job is not to assist anybody, our primary job is to get those numbers and come back with them?" said Officer Polanco.

Polanco goes on to describe how the NYC police department's quotas result in officers routinely arresting people on trumped charges, explaining that they are often arrested for "engaging in tumultuous and violent conduct that caused public alarm, given a summons for unlawful assembly and locked up overnight."

Engaging in tumultuous conduct, of course, is a catch-all charge that officers use when they want to arrest you. It's similar to our old friend "disturbing the peace," which last made headlines after being used on Harvard Professor Louis Gates, Jr. It's also the charge which is sometimes known as "contempt of cop."

And think of how outrageous arrest quotas are. It is a policy that literally promises to arrest a given number of people for crimes, regardless of whether crimes are actually committed! This cannot be constitutional, and yet it exists, right here in the United States.

What's apparently happening is NYC is that the Bloomberg administration is pressuring the police department to keep up the arrests, because their rich, white voting base likes to be reassured that all the colored people are being kept in check. And the other tool they use to do this is the NYC "stop and frisk" policy. As Bob Herbert wrote in the local NY rag:

From 2004 through 2009, in a policy that has gotten completely out of control, New York City police officers stopped people on the street and checked them out nearly three million times, frisking and otherwise humiliating many of them.

Upward of 90 percent of the people stopped are completely innocent of any wrongdoing. And yet the New York Police Department is compounding this intolerable indignity by compiling an enormous and permanent computerized database of these encounters between innocent New Yorkers and the police.

Not only are most of the people innocent, but a vast majority are either black or Hispanic. There is no defense for this policy. It’s a gruesome, racist practice that should offend all New Yorkers, and it should cease.

It is hard to describe how wrong all of this is. The NYC Police Department is literally forcing its officers to arrest people for no reason. These people are having their civil rights grossly violated (can you imagine being arrested off the street for no reason being thrown in jail for the night?), are being saddled with an arrest record, and are then often simply let out the back door with no reason given for their arrest or for the lack of charges. It's a heinous crime against innocent people which harms them, makes them afraid and resentful of our "criminal" justice system and cops, wastes money, and makes the people of NYC less secure, not more. And it is representative of a pattern of police behavior all over this country.

It should hardly be surprising. We live in a country where those in power believe that security is more important than freedom-especially when they aren't the ones whose freedom is in jeopardy. Consider the policies that this country has adopted over the last few decades: an unconscionable war on its own citizens who use drugs, the use of incarceration for non-violent crimes (especially drug crimes), arrest quotas, stop and frisk, three-strikes, and so on. We are far and away the world leader in imprisoning people, both in absolute numbers and on a per capita basis. Over 2.3 million Americans were in prison in 2008. 

These numbers are staggering. We imprison people at rates that countries like Iran and China (who we deride for their lack of freedom) can only dream about. 

But these policies affect primarily black, brown or poor people. If you steal a pair of sneakers, you're going to jail. But if you steal a trillion dollars from the taxpayers, you'll probably just get flown to Washington and treated to lunch and a casual Q&A with Congress. 

Look, I realize that there has always been a different system of justice for the elite. It's been that way throughout history, and in every country. The promise of America was that there would be liberty and justice for all, not just for the few who could afford lawyers. But this promise has never been fulfilled, and it is now slipping further and further from our grasp. 

We should certainly stop lecturing the world on freedom. But more importantly, we should do something to change this. Vote for politicians that have a record of supporting civil rights. Vote for people that support ending the drug war. Vote against extra funding for police and prisons. Vote for people that oppose the use of Tasers. If these people aren't running, then go find one and encourage them to run for office. If you can't find someone suitable, do it yourself.

But if you don't want to live in the police state that this country is rapidly becoming, do something.

Bankrolling Gamblers

From WSJ:

The biggest banks in the U.S. and Europe set aside almost 10% more money for compensation and benefits in 2009 than a year earlier, according to an analysis of their full-year results.

Global banking giants, including Morgan Stanley, Citigroup Inc. and Goldman Sachs Group Inc. paid out $275.54 billion in compensation and benefits in 2009, a year in which they faced intense scrutiny from regulators, governments, shareholders and the public over their pay practices in the wake of the financial crisis. In 2008, these banks set aside about $251.16 billion for compensation and benefits.

Just a reminder-these bankers are all making money gambling with taxpayer dollars. You won't get a cut when they win, but when they inevitably lose, you'll be the one paying off the bet.

I hope you're ok with that.

Useful Idiots or Dangerous Fools?

The NYT has a profile of the first Tea Party activist, and it's quite illuminating:

SEATTLE — Keli Carender has a pierced nose, performs improv on weekends and lives here in a neighborhood with more Mexican grocers than coffeehouses. You might mistake her for the kind of young person whose vote powered President Obama to the White House. You probably would not think of her as a Tea Party type. 

Apparently, having a pierced nose is now some sort of liberal marker. Also, living in a neighborhood that doesn't have coffeehouses makes it likely you are not a liberal. I have to admit, I'm a little confused. If you're going to use stereotypes, then you should at least know what the prevailing stereotypes are.

But leaders of the Tea Party movement credit her with being the first. 

A year ago, frustrated that every time she called her senators to urge them to vote against the $787 billion stimulus bill their mailboxes were full, and tired of wearing out the ear of her Obama-voting fiancé, Ms. Carender decided to hold a protest against what she called the “porkulus.” 

And here is the first sign of ignorance. Making up names for policies, positions, or people that just sound bad is a hallmark of, well, kindergarten reasoning. It's also a hallmark of conservative (ignorant) politics, because it's a way of showing disapproval for something which you do not understand well enough to oppose on factual grounds. "Porkulus", of course, was coined by Rush Limbaugh.

If someone asks you to explain your opposition to the stimulus bill, and you don't know anything about Keynesian economics, or what an output gap is, you can just say "porkulus" over and over again. And your uncurious and similarly ignorant friends will laugh and think to themselves "Wow! She's so clever! 'Pork' and 'Stimulus' put together make a funny sounding word! I don't really know what a stimulus is, but I think in politics pork is bad, so this must be bad! Plus, she has a pierced nose, so she's cool and edgy!" And as childish as that sounds, it works.

Debating the pros and cons of policy decisions is hard work, you see. It much easier to just call health care reform "Obamacare" then to actually discuss a piece of legislation that you know nothing about, other than the fact that it will set up "Death Panels."

The Times notes that many Tea Party activists are new to politics, and have never voted before. Are these people in any way qualified to say anything intelligent about what is going on in the world around them? At the risk of sounding like a condescending liberal, these people don't even know enough to realize they don't know anything.

The daughter of Democrats who became disaffected in the Clinton years, Ms. Carender, 30, began paying attention to politics during the 2008 campaign, but none of the candidates appealed to her. She had studied math at Western Washington University before earning a teaching certificate at Oxford — she teaches basic math to adult learners — and began reading more on economics, particularly the writings of Thomas Sowell, the libertarian economist, and National Review. 

Here is a perfect example. She became interested in politics less than two years ago. Her introduction to political economy came by way of Thomas Sowell, a libertarian economist whose free-market theories have been thoroughly discredited by real world experiences, and National Review. Has she ever read anything else? Has she ever bothered to understand the arguments made by either Sowell or NR? The answer is no, because it is simply not possible to understand and/or judge the validity of an economic theory less than two years after making the startling discovery that we live in a participatory democracy.

Reading about the stimulus, she said, “it didn’t make any sense to me to be spending all this money when we don’t have it.

She should have just stopped at "It didn't make any sense to me." Because the second half of that statement demonstrates a thorough lack of even basic familiarity with the concepts involved.

“It seems more logical to me that we create an atmosphere where private industry can start to grow again and create jobs,” she said. 

"And even though I know nothing about this issue, I'm going to take this talking point that 'seems' logical and start a national movement that advocates against a policy that I don't even begin to understand."

Ms. Carender is less certain when it comes to explaining, for instance, how to cut the deficit without cutting Medicaid and Medicare. 

“Well,” she said, thinking for a long time and then sighing. “Let’s see. Some days I’m very Randian. I feel like there shouldn’t be any of those programs, that it should all be charitable organizations. Sometimes I think, well, maybe it really should be just state, and there should be no federal part in it at all. I bounce around in my solutions to the problem.” 

So one day she thinks we should live in an anarcho-capitalist state where the strong devour the weak, and the next she thinks government should handle all health care - just not the federal government. The incoherence is breathtaking.

Here she is on Sarah Palin. "She will have to campaign on Tea Party ideas if she wants Tea Party support. And if she were elected, she’d have to govern on those principles or be fired.”

What principles? One moment she's daring government to tax her to pay for someone else's health care, the next she's worried about cutting Medicare.

Look, I'm not trying to pick on Carender, who I'm sure is a very nice woman. But the last thing we need here are more useful idiots. This is what I'd like to tell her: I know that the spotlight is great, and I realize that you want to do something, but please go away for a while and learn something about the issues you say you care about.

I realize that all Tea Party people don't think alike. But if there's one thing that stands out when thye are interviewed is their complete ignorance of the way the world around them works.

This doesn't mean they're evil, of course. But people like this are profoundly uncurious, and are more interested in having some sort of narrative to hang their hats on. And the reason that they gravitate towards right-wing or libertarian economics and politics is because the the hallmark of those theories is simplicity. And simplicity appeals to people who just want a narrative right now, and don't have the time, patience, ability, and/or desire to actually try to find out the truth.

It wil be interesting to see whether people like Carender are curious enough about the contradictions in their positions to explore them further. Will their anger at bank bailouts push them to discover the truth about class warfare? Will this in turn lead them to question their free-market ideology? Will a curiosity about Medicare inefficiency lead them to learn more about how health care markets work, both here and in other countries? Will their anger at "porkulus" lead them to gain a rudimentary understanding of Keynesian economics?

I think for the most part the answer is no. People who haven't taken the time to learn anything about these issues until now are probably just not naturally curious, and will probably always be susceptible to simplistic, but wrong ideas. They will be the useful idiots that the Republican party needs.

Our best and only hope may well be to introduce doubt at every opportunity.

The United States Of Surveillance

Wired.com has a story about the biggest threat to the open internet, and a threat to democracy in general:

When he was head of the country’s national intelligence, he scared President Bush with visions of e-doom, prompting the president to sign a comprehensive secret order that unleashed tens of billions of dollars into the military’s black budget so they could start making firewalls and building malware into military equipment.

And now McConnell is back in civilian life as a vice president at the secretive defense contracting giant Booz Allen Hamilton. He’s out in front of Congress and the media, peddling the same Cybaremaggedon! gloom.

And now he says we need to re-engineer the internet.

"We need to develop an early-warning system to monitor cyberspace, identify intrusions and locate the source of attacks with a trail of evidence that can support diplomatic, military and legal options — and we must be able to do this in milliseconds. More specifically, we need to re-engineer the Internet to make attribution, geo-location, intelligence analysis and impact assessment — who did it, from where, why and what was the result — more manageable. The technologies are already available from public and private sources and can be further developed if we have the will to build them into our systems and to work with our allies and trading partners so they will do the same."

Re-read that sentence. He’s talking about changing the internet to make everything anyone does on the net traceable and geo-located so the National Security Agency can pinpoint users and their computers for retaliation if the U.S. government doesn’t like what’s written in an e-mail, what search terms were used, what movies were downloaded. Or the tech could be useful if a computer got hijacked without your knowledge and used as part of a botnet.

The importance of the internet to democracy in this country cannot be overstated. It is virtually the only place where people can get decent information on what their government is actually doing. The mainstream media has for some time now served the corporate and government elite, and the main thing that is keeping them from putting the finishing touches on an alternate reality is the internet, which keeps them from having a stranglehold on the free flow of information.

It is no accident that the Chinese government, which brooks no political dissent, has a zero-tolerance policy when it comes to internet freedom. In fact, if one were to design a totalitarian state from scratch, there would be no question that the internet as we know it would have to be banned completely. 

In the United States, of course, such drastic measures would be met with fierce resistance. And so if there was an effort to restrict internet freedom, it would have to be done gradually. What McConnell is proposing is one of the first steps.

We can debate whether this is some secret conspiracy by the ruling elite to consolidate control of political speech,  or just another way to keep the "Defense" department cash flowing, or a benign but misguided attempt to "secure" the nation at the expense of our basic freedoms. (I tend to avoid unproven conspiracy theories.) But for the purposes of deciding on a course of action, the distinction is largely academic. We absolutely must fight this.

I expect progressives and libertarians to fight this. But I'm really curious to see if this becomes an issue for Tea Party types, who say that they are opposed to big government and to government intrusion. I can't think of a more appropriate issue for them to take up.

Now is the time to put an end to this. Once the government is given these powers, it will be impossible to take them back. We are faced today with a choice: We can continue along the path towards an Orwellian media state, in which the government controls what the people think by controlling the information they receive and in which the government knows nearly everything you do, or we can accept that we will never live in a perfectly secure world, and at least fight for our freedom to think and act.

Update

Let's hope everyone is ok down in Utah:

FARR WEST -- Hazmat crews were called to the IRS building in Farr West Monday.
The crews arrived sometime after 11 a.m. at 1973 N. Rulon White Blvd.
Two people were removed from the building on stretchers.
Details are few right now. Phone calls to the IRS are being directed to the FBI, which has not yet released any information.

Hopefully this isn't related to the terror attack on the IRS in Austin.

Deficit Fear-Mongering Is Just Class Warfare

It seems like all you ever hear about these days is the deficit or our massive national debt. But here's a question:

Can the United States ever be forced to default on its debt? 

The answer to this would seem to be important, since there are a lot of people out there who believe that the United States is heading towards bankruptcy, and that we could one day be forced to default on our debt. 

Representative Barney Frank recently posed this question to Fed Chairman Ben Bernanke:

Frank: Do you think there is any realistic prospect of America’s defaulting on its debt in the near future?

Bernanke: Not unless Congress decides not to pay….

So how is this possible? We know that nations can and do default on their debt, as Argentina notably did in 2001. Why couldn't the same thing happen to the US?

The reason is that, unlike Argentina in 2001 and Greece today, the debt that the United States owes is in a currency which it can simply print more of. The United States is borrowing dollars. In fact, the United States can print as many dollars as it wants to, and this ability is literally limited by the supply of paper in this country. 

Greece, on the other hand, owes a lot of debt in Euros. It does not have the ability to print euros, and so if it runs out of them, its only other options are to create its own currency, or to default. And while it can create its own currency, there are two big issues with that option. The first problem it would have to withdraw from the European Union, and the second problem is that that it would have to use its new currency to buy euros so it could pay back its euro debt. And its new currency wouldn't be worth very much. 

The United States does not face this problem. All of its debt is in dollars, and it can simply print as many of them as it wants. 

This may seem unbelievable. It's rather hard to believe that the US can just make its debt go away tomorrow by printing new dollars. But it can.

Why doesn't it? Because printing $12 trillion new dollars would make the dollars that we already have worth far less. In other words, it would lead to massive inflation. 

And here is where we should realize that the debt is simply a political issue, and in fact concern over debt is nothing more than disguised class warfare.

There are currently 20 million unemployed people in the United States today. This means that 20 million people are sitting around doing nothing, when they could be doing something productive like working on badly needed infrastructure projects. Roads, bridges, broadband access, public water systems, etc -the list goes on. We could print more money and pay these people to work, and the country as a whole would be better off for it. So why don't we do that?

Again, the fear is that printing more money would make the money we already have worth less. But this effect is a class-based effect. Simply put, if you have no money, you aren't worried about inflation, because you have nothing to lose. And if you have no job, you'd far rather have inflation and a government job building bridges than no inflation and no job.

If you have $58 billion like Bill Gates, 10% inflation (far above anything we've seen since 1979-1981) means that after one year, your money will be worth $5.8 billion less in today's terms.

On the other hand, inflation means that nominal wages will rise, while fixed payments like mortgages will not. So if you have a mortgage and a job, you'll get paid more money for work, but you won't have to pay more for your mortgage. It's kind of like getting a raise. 

But, if you own a lot of bonds (your average American does not), inflation is terrible, as the interest rate on these bonds can suddenly become far less than the rate of inflation, which means that bondholders will lose money.

So the point is that government spending is not intrinsically good or bad. In fact, whether the level of government deficit spending is good or bad depends on two things:

• What it's being spent on, and 
• Who you are.

What It's Being Spent On

Deficit spending on useless projects is a bad idea for everyone. Building bridges to nowhere does not add much to the overall wealth of the United States, and deficit spending should add exactly that. (It might be better than paying people to do nothing, but that depends on whether people would be more productive on their own, or whether the work experience and dignity afforded by being employed is adds more value than say, staying at home and blogging.) Other things that add no real wealth are:

• Bailouts of the massive banking industry, a large portion of which adds no value, but which can properly be viewed as parasitic.
• Large portions of our "defense" budget, which serve no purpose other than to enrich defense contractors and which encourage us to invade other countries so as to justify the expediture.
• The War on Drugs, which is a horribly destructive waste of money.
• Medicare/Medicaid waste and fraud, and all government waste and fraud in general. (I am certainly not advocating an end to Medicare/Medicaid, just pointing out that waste in that sector is unproductive and adds no value. There are other considerations.)

The list goes on. 

However, deficit spending on other things is good. 

• Necessary national defense.
• Necessary health care.
• Necessary infrastructure (roads, bridges, rail, etc)
• Useful Government research programs.
• Necessary environmental protections.
• Financial regulation.
• Air Traffic Control.

Etc...

These things add real value. You may think that the private sector can do some of them better, and in some cases you may be right. But when the private sector is not putting those 20 million people to work, that question is moot. 

Who You Are:

Whether or not the spending adds value isn't the only question. There is always a cost, and that cost is inflation. Inflation affects people in different ways. 

If you're Bill Gates, it might not be that important to you that the government creates jobs building bridges. And the possibility that you will lose 10% of your net worth is probably very important.

On the other hand, if you're a restaurant owner whose business has been cut in half because your customers are all out of work, and you have a fixed 10-year lease, then the benefits of full employment are probably pretty big, and the cost of inflation isn't that big of a deal, since while you'll be paying more for food, you'll also have more customers and the value of your lease payment is going down by 10%.

Or, if you're unemployed and broke, the cost of inflation is negligible to you and the benefits of employment are immense.

Now, I'd like to pause to recognize that it's not just as simple as rich vs poor. Pension funds get hurt in inflationary periods, and rich people benefit from improved infrastructure. But the dynamic here is basically rich versus poor. Full employment/high inflation is bad for corporate profits, bondholders, and the rich, and good for your average American working stiff. (It's also good for the long-term debt outlook, because unless we get people back to work, the massive drop in people paying income taxes is going to explode the deficit anyway.)

But here's the thing: you never hear any of this in the media. You hear this constant fear-mongering about our out-of-control debt that has no basis in reality. You hear about how government should be forced to balance its budget just like American families do, which is ludicrous, as there is no semblance of a similarity between a sovereign government with a fiat currency and your family (most notably, because your family cannot print more money when it needs to.)

And the sad thing is that millions of Americans, who don't really understand monetary policy, are being talked into voting against their best interests and in favor of the interests of the elite. And it is the elite who are convincing them to do this.

We have 20 million people out of work in America today. These people will suffer permanent career damage. They are losing their homes. They are losing their health insurance. They need jobs. Inflation in the United States last year was negative .034%. I realize that Lloyd Blankfein and the rest of the bankers will scream bloody murder if we print some more money to put the unemployed to work doing something useful, but they've had their way with this country for long enough.

It's time we get America back to work.

Hear, Hear

I'm really on a roll here with this mulitmedia blitz. Here's Senator Dick Durbin pointing out that the only real idea that Republicans have for health care reform is at best useless, and at worst enormously unjust:





Malpractice reform has one thing going for it-you get to bash lawyers. And if there is one thing that uneducated, knee-jerk right wingers hate more than Congress, it's lawyers. They can't tell you why, really. It's just been drilled into their heads over and over again. So naturally they believe that all lawyers are out to destroy the economy by filing billion dollar lawsuits every time someone burns themselves on a McDonald's product.

What these people forget is that in a purely free-market environment (which I realize is a fictional concept, not unlike unicorns, leprechauns and free birthday ponies for all), lawsuits are how you get the compensation you deserve. It is a terribly inefficient and inequitable system in which a small percentage of the total number of injured people get most of the money, while most of the injured get none. But this is a by-product of free-market philosophy.

I would gladly trade the malpractice litigation system we now have for an out-of-court, no fault system like the one in France- if I could have a single payer health care system. But as long as I am forced to buy insurance on the open market, I want my right to sue when I don't get what I paid for.

Racist Proponent Of Genocide Calls For Ethnic Cleansing Of Gaza

This man is quite literally claiming that the way to end terror by radical Islam is by denying Muslims the ability to reproduce.

Who is this genocidal lunatic, this philosophical heir to Nazi eugenic ideology?

He's none other than Martin Kramer, a visiting scholar employed by Harvard University.

Marc Theissen Justifies 9-11

Marc Thiessen continues his dishonest and disgusting attempts to legitimize the use of torture. First, he simply decides to re-define torture

“There’s a standard of torture in civil law,” he said, “which is severe mental pain and suffering. I also have a common-sense definition, which is, ‘If you’re willing to try it, it’s not torture.’ ”

Thousands of American soldiers have been willing to undergo waterboarding as part of their resistance training, Mr. Thiessen notes; therefore, it stands to reason that it is not torture.

This is total bullshit. The fact that somewhere there is someone who is willing to undergo waterboarding has absolutely no bearing on whether on not waterboarding is torture. There are people who are willing to endure all sorts of things for all sorts of reasons, and that does not give us the right to inflict anything on anyone. People have shown a willingness to douse themselves in gasoline and light themselves on fire as a means of protest; does this mean that that would be acceptable treatment as well? 

Second, he invokes Catholic teaching to defend what he calls “coercive interrogation.”

The catechism states, “the defense of the common good requires that an unjust aggressor be rendered unable to do harm,” and Catholic tradition accepts that this might involve killing. And, Mr. Thiessen writes: “If this principle applies to taking human life, it must certainly apply to coercive interrogation as well. A captured terrorist is an unjust aggressor who retains the power to kill many thousands by withholding information about planned attacks.”

A captured terrorist most certainly is not an unjust aggressor. He is in custody, and can do no more harm. Theissen is not just claiming that you can kill someone who is trying to kill you. He is saying that you can do anything you want if you feel like your life is being threatened. You can kill the person who is threatening you. You can kill someone who might know something about someone who is threatening you. You can torture someone if you feel threatened. In other words, as long as you feel as though you are threatened, there is literally nothing you cannot do.

Worried that you might be struck and killed by a drunk driver? According to Thiessen, you can just pre-emptively kill all drunk drivers. Or all drunks, or even all drivers. 

Worried that some Muslim might know something about a terrorist attack? Just torture him to death. Maybe you'll find something out, maybe you won't. But it's your right!

Are you a Muslim that's worried that the United States is planning to invade another Muslim country? I guess you're justified in flying passenger jets into skyscrapers. See how that works?

Basically, Theissen is arguing that governments or individuals can justify ANY behavior, no matter how evil, by claiming that they felt as though they were in danger. And make no mistake about it, he is not arguing that we can only do this to people who are guilty of committing terrorist acts. He is arguing that the guilt of the person is irrelevant; all that is needed is some belief, however misguided, that one's life is in danger.

This is face of the Neo-Con movement. It is a movement that is doing everything it can to destroy a century's worth of advancement in human rights and international law. Its justification is self-defense, but its ultimate goal is absolute power, and the domination of the world. It uses fear to consolidate its power; in this sense, it is no different from, and in fact acts in concert with, Al Qaeda. 

Morally, its goals are repugnant. Strategically, they are stupendously foolish. But they are moving ahead anyway, and Marc Theissen is doing anything he can to further the cause.

Paul Ryan: Government Spends Too Much! Also, Stop Government From Killing Wasteful Spending!

Investors.com is still waiting for rebuttals to points made by GOP Rep. Paul Ryan at Thursday's health care summit. They have a list of points, some of which I would concede. I don't support this bill, and there are obviously problems with it. I would just like to point out that Ryan has no solutions other than to get rid of Medicare altogether. But one of his points just illustrates Ryan's basic dishonesty:

"Millions of seniors who have chosen Medicare Advantage (Medicare through a private insurer) will lose the coverage that they now enjoy."

I'll let Ezra Klein explain the Medicare Advantage ripoff.

Philip Rucker takes a good, hard look at the scam that is Medicare Advantage. Essentially, it works like this: Congress allowed private HMOs to compete for Medicare patients under the rationale that they could offer better service at lower cost than the government. They couldn't. So Republicans in Congress began boosting their payments, to the point that Medicare Advantage gets paid 114 percent what Medicare gets paid to care for a patient. That leads to some fun perks, like free gym memberships and complimentary aspirin and band-aids, which in turn leads seniors to defend the program because they like their perks. But it also means a lot of unnecessary expense for taxpayers.

And it's important to remember that those free perks do not account for the whole of Medicare Advantage's overpayments. Rather, economists have estimated that for every extra dollar we pay the program, 14 percent is passed on to seniors and 86 percent goes to profits or other costs. In other words, we're getting only 14 cents of obvious value for every dollar of overpayment.

So Ryan is complaining that the bill will kill off this scam, which is basically just welfare for his rich buddies in the corporate world. Ryan pretends to be in favor of free-market, private sector solutions, but what he's really in favor of is just giving taxpayer dollars to rich, private sector corporations. And then, of course, trying to scare the "millions of seniors who now get Medicare Advantage" into turing against health care reform, even though he knows they won't lose health care, but will simply be required to use regular Medicare instead of the tax-payer ripoff known as Medicare Advantage.

It was irresponsible and dishonest for him to not say that. But political dishonesty and irresponsibility works, because now a bunch of people are going to waste their correcting him, when they could be fighting for single payer.

Crazy Dick

Bloodthirsty warmonger and raving lunatic Richard Cohen tries to start another war:

A question relating to Iran's suspected nuclear weapons program: Is Iranian President Mahmoud Ahmadinejad crazy like Adolf Hitler, or is he crazy like, of all people, Richard Nixon?

Is Richard Cohen suffering from dementia, or does he have a massive drug and alcohol problem? Does Richard Cohen beat his wife for fun, or just out of rage? These are legitimate questions. 

(And before anyone protests that these unfounded accusations are rude, consider that Cohen is doing the same thing in an attempt to start a fucking war. The last time he did that, a million people died.)

Nixon had a term for his own sort of craziness: "I call it the Madman Theory, Bob," he said to his aideH.R. "Bob" Haldeman during the 1968 presidential campaign. Nixon was talking about how he would deal with the Vietnam War. "I want the North Vietnamese to believe I've reached the point where I might do anything to stop the war. We'll just slip the word to them that, 'For God's sake, you know Nixon is obsessed about communism. We can't restrain him when he's angry -- and he has his hand on the nuclear button.' " The strategy, while cunning, didn't work on the North Vietnamese. Maybe they were crazier than Nixon.

So, even though this strategy didn't work on the North Vietnamese, because they were crazy, we should use it Iran because...Ahmadinejad is crazy?

How did you get a job working for a newspaper, Dick?

Ahmadinejad is some version of crazy, too. His denial of the Holocaust is either proof of a drooling sort of insanity or a kind of Nixonian craziness designed to keep enemies and adversaries off balance: What will this guy do next?

Or maybe he's just trying to get the Iranian voters scared shitless of Jews, so that they won't notice how bad the Iranian economy is. You know that trick, right Dick? You and your neo-con friends do the same thing with Muslims. Does it make you crazy? No, it just means that you're power hungry, warmongering assholes. The difference between them and Ahmadinejad, of course, that the neo-cons actually start wars, while Ahmadinejad just talks a lot.

NATO: Dragging Innocent Children From Their Beds And Murdering Them "Probably" Not Justified

This is why war should avoided at all costs:

Dec 31, 2009: American-led troops were accused yesterday of dragging innocent children from their beds and shooting them during a night raid that left ten people dead.

Afghan government investigators said that eight schoolchildren were killed, all but one of them from the same family. Locals said that some victims were handcuffed before being killed.

Western military sources said that the dead were all part of an Afghan terrorist cell responsible for manufacturing improvised explosive devices (IEDs), which have claimed the lives of countless soldiers and civilians.

“This was a joint operation that was conducted against an IED cell that Afghan and US officials had been developing information against for some time,” said a senior Nato insider. But he admitted that “the facts about what actually went down are in dispute”.

At the time NATO sources insisted that it was a legitimate operation that may have gone badly. But if this is true-if American troops are dragging children from their beds in the middle of the night and murdering them, how much longer can we continue to claim that we are on some humanitarian mission in Afghanistan? Because we clearly aren't there to fight Al Qaeda.

Let's not kid ourselves. This kind of thing happens all the time in war, and it's usually covered up or excused. The massacre at Mai Lai in Vietnam, for example, is notable only because it was publicized. But it makes it no less evil, and is not a reason to wage a more humanitarian war, but a reason to avoid war altogether.

And if we are going to pull children from their beds in the middle of the night and shoot them, we might as well print up a few hundred leaflets begging people to join Al Qaeda in their epic struggle against the evil West. And who could blame them?

What would you do, if you were in their shoes?

Today, NATO admits what they did, sort of:

(NEWSER) – When a NATO raid killed 10 children and teenagers at a remote mountain compound in Afghanistan last December, troops claimed to be targeting a “known insurgent group responsible for a series of violent attacks.” But after a lengthy investigation by the Times of London, NATO now admits that the boys killed—all of them between 12 and 18, eight of them members of the same family—were innocent civilians without connections to insurgent activity.

Innocent civilians, who were summarily executed because...we didn't bother to find out who they were? And even if they were insurgents, when did we decide that it's ok to just execute enemy combatants? I realize we've always done it, but we've also always tried to hide it. Apparently, we don't even bother with that anymore.Here's the saddest quote:

“Knowing what we know now, it would probably not have been a justifiable attack,” a NATO official said. 

It "probably" would not have been justified to drag a bunch of innocent kids out of their family home and shoot them? Really? That's the best you can do?

It's A Little Late Now, Alan

Just in:

WASHINGTON (Reuters) - Former Federal Reserve Chairman Alan Greenspan said on Tuesday the U.S. economic recovery was "extremely unbalanced," driven largely by high-income people benefiting from recovering financial markets and large corporations.

Of course, he leaves out the fact the the "high-income people" are really just benefitting because the middle class just handed over a fifth of its wealth to the banks. Still, when even free-market cultists like Greenspan (a grown man whose ideology is ripped from trashy political romance fantasies like "Atlas Shrugged") is starting to think there's a problem, you things are bad.

Edit: "Handed over" is not the right phrase. "Got defrauded out of" is more appropriate, while still restrained.

The End Is Not Quite Near

The new Senator from Massachusetts, Republican Scott Brown, was one of only 5 Republicans to vote for an urgently needed jobs bill. (The others were two retiring senators and the two moderates from Maine.)

So much for all the talk about how that election was going to mean the end of the Obama administration. And honestly, it's been kind of chilly in DC lately, so there's a good chance Martha Coakley wouldn't have made it out of the house to vote.

Sure, People Are Dying, But Reconciliation Is Just...Rude!

Megan McCardle on why the Democrats shouldn't use reconciliation to pass the bill:

If the Democrats use budget reconciliation to bypass the Republicans, they will be making a big mistake.

Reconciliation is not meant to handle these sorts of problems; it’s meant to help Congress get revenues in line with outlays without letting protracted negotiations push us into a budget crisis.

Well, guess what, Megan? The filibuster was never meant to be used every single time the majority party, which represents a huge majority of Americans, tries to pass legislation. But it is. So quit your whining about the grand reconciliation use traditions of the Senate. Democrats were elected to reform health care, and the 45,000 people a year who are dying because they don't have insurance don't really give a damn about tradition. 

Edit: This bill is still a turd sandwich.

Zwicki: Why Change The Financial System? We Had One Little "Mishap"

It's time to mock Todd Zwicki! He devotes a column in the WSJ to arguing against a consumer financial protection agency

Regulatory reform that can improve competition and consumer choice in financial services is long overdue. But no new federal bureaucracy such as the Obama administration's proposed Consumer Financial Protection Agency (CFPA) is needed to bring that about.

Of course not. The agencies that we already have in place, such as the Federal Reserve and the Treasury, which are owned by the financial services sector, are doing such a fantastic job that only 2.8 million Americans lost their homes in foreclosure last year.

Also, there's no evidence at all that Todd Zywicki's home was one of those, so I think everything is just fine.

More importantly, the administration is incorrect in claiming that such an agency would have prevented the present financial crisis and is necessary to prevent the next crisis. On the contrary, such an agency might be the first step toward more problems.

Who has made this claim? It would certainly have helped mitigate it somewhat, but the reason to have a consumer financial protection agency is because the financial services sector employs thousands of lawyers and "innovators" who dream up better and better ways to scam the public, most of whom are too busy doing productive things like inventing real products, or teaching children, or well, pretty anything other than writing up seven pages of legalese designed to obscure the fact that your credit card interest rate is going to triple if you forget to fill out a form opting out of the rate increases you were promised you wouldn't get.

During the housing boom bankers made a raft of extraordinarily foolish loans. Some were the result of lenders defrauding borrowers; probably at least as many were the product of borrowers defrauding lenders. But there is no evidence, as Elizabeth Warren (a champion of CFPA and chair of the TARP Congressional Oversight Panel) recently asserted on these pages, that lender fraud was the overriding cause of the crisis.

And since lender fraud was not the overriding cause of the ongoing Great Recession, well, let's just not worry about it. Is that the plan, Todd?

And Todd - borrowers were not defrauding lenders; they were encouraged by lenders to submit applications that were less than truthful. Why? Because as soon as those loans were signed, they were packaged up by the big banks, disguised as good securities,  and sold to investors. (Pension funds for retirees, for example.)

Let's get this straight right now: lenders were not defrauded. Lenders, who knew better, actively sold these loans to homeowners who may or may not have known better. And Todd either knows this and is lying about it, or he doesn't and he's incompetent.

The bank loans were not foolish because borrowers didn't realize what they were doing. They were foolish because of the incentives they created for borrowers, especially when housing prices turned south.

Actually, the bank loans weren't foolish at all, at least not from the standpoint of the banks. They quickly sold them and make tons of money doing it.

There were three distinct stages of the housing crisis. In the first, the Federal Reserve's extremely low interest rates from 2001-2004 induced consumers to switch from fixed to adjustable rate mortgages and drew short-term speculators and house-flippers into the market in certain cities. The Fed's increase in short-term interest rates over the next two years increased homeowner payments and precipitated a round of defaults.

Also, there was a completely unregulated financial sector which was making a killing by turning mortgages into CDO's. And these guys needed more mortgages to feed into the money making machine, which led them to do everything possible to convince homeowners to refinance, or for unqualified borrowers to buy homes.

My own research confirms the analysis provided by University of Texas economist Stan Leibowitz on these pages last July: The initial onset of the foreclosure crisis was a problem of adjustable-rate mortgages, whether prime or subprime. It was not initially a subprime problem.

Oh. Well, maybe we should look into these adjustable rate mortgages. Maybe a consumer financial protection agency could do that?

In the second phase, falling home prices provided incentives for owners whose mortgages were under water to walk away from their houses. 

Because, in the absence of a consumer financial protection agency, people who couldn't afford it were allowed to buy homes with no money down and interest only loans, which meant that ANY drop in home prices would leave them underwater and give them an incentive to walk away.

And in the third phase, which we are now experiencing, traditional macroeconomic factors like unemployment led to more foreclosures—especially where homeowners' mortgages are already underwater. Reflecting this situation, the Mortgage Bankers Association reports that the fastest-rising segment of foreclosures in recent months has been traditional prime, fixed-rate mortgages.

So now the problem is worse, and this...is an argument against a consumer financial protection agency?

None of this analysis has anything to do with fraud or consumer protection problems. Consumers rationally switched to adjustable-rate mortgages when their prices fell relative to fixed-rate mortgages—a pattern that has repeated itself numerous times since the 1980s.

Why was this rational? It's only rational if people wrongly believed that taking out adjustable rate mortgages which they didn't understand was a good idea. And a consumer financial protection agency might have helped, no?

And when housing prices fell, underwater homeowners rationally responded by walking away from their houses. The proliferation of mortgages with minimal downpayments, interest-only or even negative amoritzation terms, and cash-out refinances meant that many consumers fell into negative equity territory much more rapidly than they would have otherwise.

Again, these are exactly the kinds of loans that a consumer financial protection agency would discourage.

Regulators may want to limit mortgages that provide so many borrowers with such strong incentives to walk away when housing prices fall. They may want to prohibit lenders from making loans with minimal downpayments or interest-only loans that result in consumers having minimal equity in their homes. But that's an issue of safety and soundness, not protection against fraud. 

What regulator is going to do this? The Fed and the Treasury have shown no interest because they are owned by the banks.

With respect to ARMs, the obvious solution is a less-erratic Federal Reserve interest rate policy. 

Yes, in a perfect world, the Fed would never change interest rates, and I would have a pony. In the real world, it happens all the time.

ARMs have been in widespread use for 25 years (and are common in the rest of the world) without mishap like in the current cycle.

Other than this slight mishap (the greatest recession in 70 years, tens of millions out of work, massive government bailouts of rich people, and the greatest wealth transfer from the middle class to the rich in the history of the world), things have worked out just fine. And the funny thing is, no one is even talking about banning ARMs.

So the problem isn't consumer gullibility or ignorance. Borrowers have shown they understand, and act on, the incentives they face all too well.

No, Todd. Borrowers have shown that they are just smart enough to realize after the fact that they made a mistake. But that's a little late, isn't it? What if we could find a way to prevent them from making the mistake in the first place? Maybe a consumer financial protection agency could help.

It is worth remembering that, although the banking crisis was a national crisis, the foreclosure crisis is concentrated in four states—Arizona, California, Florida and Nevada—that comprise almost half of the mortgages in foreclosure. Even within those states, foreclosures are concentrated within a handful of hot-spots such as Las Vegas, Miami, Phoenix and the Inland Empire region of California. It is unlikely that borrowers in these cities are more gullible than borrowers elsewhere. Evidence does suggest, however, that there were a larger number of speculators and home-flippers in those cities than elsewhere.

Do you know how bubbles work, Todd? They feed on themselves. It is completely predictable that there would be hot spots. Are you saying that the fact that some places were hurt worse than others is somehow a reason to oppose consumer financial protection?

This is not to deny that we are overdue for a comprehensive reform of consumer credit regulation.

Todd isn't going to deny that we need it. He's just saying that he doesn't want it, because his banking buddies don't like it.

Over the years, federal laws governing disclosures have become encrusted with an ever-thickening coat of litigation- and regulation-imposed barnacles.

Right. Even though in the real world, the financial services sector has succeeded in dismantling much of the regulatory system over the past 20 years, has literally written many of the regulations that we have, and actively does everything in it's power to avoid the little that's left, in Todd's fantasy land there is too much regulation.

One example, according to Federal Reserve economists Thomas Durkin and Gregory Elliehausen in a book to be published this year, involves the Truth in Lending Act, which has grown from a simple effort to standardize disclosures on consumer credit to a morass.

This morass has been largely created by the industry itself, which craves complexity, because it can afford to understand complex things, and consumers cannot. Also, you'll have to excuse me if I don't just take the Fed's word that the Truth In Lending Act caused the crisis. That is just blatant blame-shifting.

Regulatory mandates and lawsuit fears are largely responsible for the mind-numbing length of a typical credit-card agreement and monthly statement. The most recent mandate-induced clutter requires the monthly statement to disclose how long it would take to repay the balance by making the minimum payment while making no new charges. According to a Federal Reserve Study by Mr. Durkin, only 4% of consumers would even consider this option.

No, no, and no. Credit card statements which are designed so that only a lawyer can understand them are designed that way because banks know that most people don't have lawyers, and therefore can't understand them. And just because most people aren't going to just make the minimum payment doesn't mean that they shouldn't be able to see what the effects of credit card debt are. But of course banks don't want you to know that; otherwise, you might not use your credit cards so much.

Similarly, a 2007 Federal Trade Commission staff report by economists James Lacko and Janis Pappalardo documented the convoluted nature of current mortgage disclosure rules (which fail to convey key costs) and presented prototype disclosures that significantly improved key mortgage cost disclosures. Yet such common-sense proposals remain buried in the bureaucracy.

Maybe a brand new agency, which is not owned by the banks, could actually do something with these worthwhile proposals. Maybe a consumer financial protection agency?

What's needed is simplified and streamlined regulation, not another agency.

And you think you're going to get this from the Treasury or the Fed? Please.

Policies based on a misdiagnosis of the true nature of the problem might actually lay the seeds for the next crisis. For example, Ms. Warren rails in her op-ed about "tricks and traps" such as "universal default" provisions in credit-card contracts, where a failure to pay one credit-card bill can trigger a default on another one. Yet it is obvious that a consumer's failure to pay some of his bills provides valuable information about the likelihood of default on his credit-card bill (universal default provisions are common in commercial loans for this reason).

Really? The banks are being given trillions of dollars to inflate the next bubble, and they pretty much own the government. But you think that banning banks from hiding universal default provisions in credit card statement which no one can read is going to sow the seeds for the next crisis?

Thus a lender's elimination of universal default will have to be offset by higher interest rates or fees. To the extent that a CFPA makes access to credit cards less available, excluded borrowers will inevitably shift to more expensive alternatives such as payday lending or pawn shops. If the CFPA were to impose bans on efficient risk-based pricing by lenders in the name of vague claims about "fairness," the likely result will be to increase overall risk and make the next financial crisis more likely.

Yes, a consumer financial protection agency is going to make credit cards less available. And it should! Consumers debt is at an all time high. People should use their credit cards less. And at least if you go to a pawn shop, you are aware of what it's going to cost you.

The financial crisis resulted primarily from the rational behavior of borrowers and lenders responding to misaligned incentives, not fraud or borrower stupidity. Policies that fail to appreciate the difference will not protect, and may hurt, the very consumers they are intended to protect.

This is so wrong, I don't know where to begin, and would need another post to fully explain how wrong this is. But suffice it to say that the crisis was a result of big banks being allowed to do whatever the hell they wanted, and part of what they wanted to do was take advantage of borrowers who were absolutely did not have any idea about how our complex financial system worked. And since they don't know, we need an agency to take their side against the banks. A consumer financial protection agency.

On top of all of this is the fact that the need for consumer financial protection is not just limited to mortgages, but to credit cards, insurance, and any number of financial interactions in which the consumer is operating at a huge disadvantage to corporate interests that do nothing but sit around and try to figure out ways to deceive consumers.

And Todd Zywiki apparently thinks this is the way the market should work.

Dick Cheney's Bloodlust

Here's Dick Cheney, quoted recently in the WSJ:

Mr. Cheney said interrogators should have had the option to use the "enhanced interrogation techniques" his administration approved—including the use of simulated drowning, or "water-boarding." He called himself "a big supporter of water-boarding," which critics say amounts to torture.

"Now, President Obama has taken [those techniques] off the table," Mr. Cheney said. "He announced when he came in last year that they would never use anything other than the U.S. Army Manual which doesn't include those techniques. I think that's a mistake."

Cheney was roundly criticized by the left, and cheered on by the right, who apparently get very excited by the idea of torturing people, and whose masochistic and authoritarian streaks are obviously closely related. Today, the New York Times reported General Patraeus as saying this:

General Petraeus also reiterated his strong opposition to using torture to gain information from important captives like Abdul Ghani Baradar, the Taliban’s top military commander, who was seized recently in Karachi, Pakistan.

“Whenever we have, perhaps, taken expedient measures, they have turned around and bitten us in the backside,” he said. In cases that lack the approval of organizations like the International Committee of the Red Cross, he said, “we end up paying a price for it ultimately. Abu Ghraib and other situations like that are non-biodegradable. They don’t go away. The enemy continues to beat you with them like a stick.”

Interrogation methods approved by the Army Field Manual, he said, work well to gain significant information.

So who are you going to believe-the head of US Central Command, or an admitted war criminal who was a key figure in the most disastrous presidency of all time- a man who said this:

"In Iraq, a ruthless dictator cultivated weapons of mass destruction and the means to deliver them. He gave support to terrorists, had an established relationship with al Qaeda, and his regime is no more." –Dick Cheney, Nov. 7, 2003 

What's really scary is that we know that torture doesn't work, and that you get bad intelligence from it, and that you only succeed at infuriating our enemies, justifying terrorism in the eyes of many and isolating the United States even further. 

It is simply not possible for Cheney to be unaware of this fact, and yet he wants it even more! 

It's obvious that his uncontrollable urge to torture other human beings-in the most excruciating ways possible-is so strong that Cheney is willing to sacrifice the security of the United States (and risk being prosecuted as a war criminal) in order to satisfy his bloodlust.

He truly is an evil, evil man.

A Frightened Nation Is A Dead One

Here are a couple things to think about (courtesy of George Washington at Naked Capitalism

“This and no other is the root from which a tyrant springs; when he first appears he is a protector.”- Plato

“If Tyranny and Oppression come to this land, it will be in the guise of fighting a foreign enemy.”- U.S. President James Madison

“Why of course the people don’t want war … But after all it is the leaders of the country who determine the policy, and it is always a simple matter to drag the people along, whether it is a democracy, or a fascist dictatorship, or a parliament, or a communist dictatorship … Voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is to tell them they are being attacked, and denounce the pacifists for lack of patriotism and exposing the country to danger. It works the same in any country.”                          - Hermann Goering, Nazi leader.

An easily frightened nation like ours will be impossible to keep free. It's almost as though the last administration used this quote from Goering as the basis of its terror policy. And the current administration seems loath to abandon the policy.

When did Americans stop caring about whether its government spied on it, or about basic constitutionally-guaranteed civil rights? When did the desire for false security become more important than liberty and justice?

Perhaps it has always been this way, and we've spent so much time talking about liberty and justice that we've never really stopped to think about whether we actually have it, or deserve it. America has a long and sordid history of abusing the rights of its own citizens after whipping them up into a froth of frenzied paranoia. The internment of over 120,000 American citizens during WWII, the blacklists and purges of the McCarthy era, Jim Crow, the War on Americans Who Use Drugs, racial profiling, and the current War on Islam are just some of the more recent examples.

So maybe asking "what happened to us?" is the wrong question. Maybe we should ask ourselves why we  ever thought we were any better than every other country on earth-that we were so courageous that we would not be bullied and terrorized by our own government into giving up the freedom and justice we supposedly value more than anything.

Because deep down, we really aren't any different from the people of Germany in the 1930's.