A Possible Hidden Cost to Obey Chairmanship

The Post Crescent reported on the WI congressional delegation and earmarks. For Steve Kagen's changing attitude toward earmarks, be sure to checkout Lakeshore Laments.

For my part, I want to highlight another piece of the story and ask the question of whether or not David Obey's position as Chairman of the House Appropriations Committee actually cost Wisconsin more than most people realize. From the Post Crescent:

When Obey announced in early May that he would not seek re-election, his staff issued a 14-page document highlighting some of the funding he’s brought home during his 41-year career. He said his absence would leave a big void in that respect — a notion not lost on Andrew Miller of Chippewa Falls.

Miller brought up earmarks during an online town hall meeting hosted by Minnesota Gov. Tim Pawlenty, a Republican, who had as his guest Sean Duffy, the Republican Ashland County prosecutor who wants Obey’s congressional seat.

“Let’s be honest,” Miller wrote. “Dave Obey brought a lot of money in for our district. Sean [Duffy], are you willing to stay in Congress for decades in order to gain a key chairmanship position and secure important funding for our district?”

The notion that Mr. Miller voices here is the typical attitude regarding the impact of having a congressional committee chairman among a state's representatives. While I don't think anyone would be surprised to find evidence that a chairman really can help increase federal funding to his district and state, there may be another side to this. There may be a hidden cost of having a committee chairmanship.

From Tyler Cowen at Marginal Revolution:

Here is an interview with Joshua Coval, of Harvard Business School, about his current research. I would urge caution on interpreting these results, but this is what the data toss back out at us:

...

Q: Perhaps the most intriguing finding, at least for me, was the degree and consistency to which federal spending at the state level seemed to be connected with a decrease in corporate spending and employment. Did you suspect this was the case when you started the study?

A: We began by examining how the average firm in a chairman's state was impacted by his ascension. The idea was that this would provide a lower bound on the benefits from being politically connected. It was an enormous surprise, at least to us, to learn that the average firm in the chairman's state did not benefit at all from the increase in spending. Indeed, the firms significantly cut physical and R&D spending, reduce employment, and experience lower sales.

The results show up throughout the past 40 years, in large and small states, in large and small firms, and are most pronounced in geographically concentrated firms and within the industries that are the target of the spending.

Cowen cautions against a too hasty interpretation of these findings and points us to some smart questions by Megan McArdle on these findings and this certainly isn't to suggest this phenomenon was any kind of a deliberate attempt by Obey.

Still, what if Obey's position as chairman had the unintended effect of decreasing hiring, R & D spending, and sales in Wisconsin. For those of us that also disagree with Mr. Obey's policy prescriptions, his departure may have a double benefit. But even those who agree with Mr. Obey will have to recognize that if these conclusions are correct, then his retirement could have a positive impact on business in Wisconsin.

Exonerating the Community Reinvestment Act (from causing the crisis anyway) - Coordination Problem

The reason why the CRA wasn't a factor is two-fold:  it does not cover non-bank lenders, such as mortgage and finance companies, which means all the high-risk loans originated from those sources (which were many) were taking place without CRA incentives.  They were much more about being able to sell them off to Fannie and Freddie.   Second, in theory, the banks to whom the CRA does apply still had to demonstrate their loans were "within the norms of safe and sound operation."

As Jaffee says, there may be lots of other reasons to not like the CRA, but that list should not include any responsibility for the financial crisis. 

via coordinationproblem.org

This verdict comes from Coordination Problem, a blog written by economists who subscribe to the Austrian school. In other words, a blog even Rand Paul could love doesn't think the CRA played a role in the crisis.

Posted via web from rhymeswithclown's posterous

Successful Blogs Have Links

RIP, Gary Coleman

Grace under friendly fire.

Scary graph of our national debt.

Medal of honor spurs battle between Delafield, WI & Fredonia, NY.

Mick Jagger, economist. Yes, that Mick Jagger.

Kaus for Senate

Despite an NPR story this week that didn't even mention Mickey Kaus' candidacy, he carries on the fight.  This time taking matters into his own hands

I will post a full account of my brother Mickey’s debate with Barbara Boxer, who failed to appear and was replaced by a cardboard facsimile

Click here to donate.

Mickey Kaus debates a box that stood in for missing Senator Barbara Boxer.

Posted via email from rhymeswithclown's posterous

It's Hard Out Here for a Laureate

Nobel Laureate and NY Times blogger Paul Krugman, that is.

First, Scott Sumner at The Money Illusion argues that the tax reductions and move toward deregulation of the Reagan/Thatcher era were successful, and that Krugman's argument to the contrary is wrong:

Krugman makes the basic mistake of just looking at time series evidence, and only two data points: US growth before and after 1980. Growth has been slower, but that’s true almost everywhere. What is important is that the neoliberal reforms in America have helped arrest our relative decline.

Then Tyler Cowen at Marginal Revolution weighs in on the tort vs. regulation debate and points out that the current disaster in the Gulf of Mexico provides a case of regulatory failure that doesn't seem to register in Krugman's analysis (italics in original):

There is in fact an agency regulating off-shore drilling and in the case under question it totally failed. How can Lake Erie, an orthogonally related success, be cited but this very directly relevant failure not be mentioned?

Now, it's important to point out that both of these critiques are by professional economists and are arguments about the merits, rather than just some guy with a free blog picking on Krugman for the partisan nature of his analyses. Krugman is still the most popular and influential writer on economic matters in the public sphere, so don't' feel too bad for him.

Besides, DeLong has his back (Saltwaters Unite!) accusing Sumner of not being able to read!

Who knew the dismal science could generate such feisty blogging?

China Syndrome

It seems to me that people who are generally supportive of an activist federal government and of the Obama administration more specifically, really ought to avoid holding up the example of China as a positive role model for government intervention.

Tom Freidman did it on Meet The Press this weekend, though he took pains to point out that he was simply engaging in fanciful speculation. Today, liberal blogger Matthew Yglesias, who is currently in China, offers this:

in the past couple of months the Chinese government has taken regulatory steps to try to cool things down including, most notably, requiring a 50% downpayment on any second homes. The clear intention there is to make it difficult to engage in leveraged real estate speculation, thus preventing too much in the way of mania.

I won’t try to judge how effective that step will be. But it’s a reminder that it’s not as if it’s impossible for regulators to notice that something funny’s happening and then change the rules in response. [EA]

Not allowing governments to have one set of rules for the home country and another for the colonies goes to the very heart of American history. For English speaking people, the notion that capriciousness in government is a bad idea may go back as far as Magna Carta. As bad as the current financial crisis is, upending this tradition now seems like an incredibly bad way to run a country.

More to my point here, it also seems like a bad way to win people to your cause. Just twenty years ago the Chinese government brutally suppressed pro-democracy public demonstrations. Thankfully, no Tea-partier has yet had to face down a tank, but when commentators on the left speak so glowingly of China, it reinforces the idea that worrying about such as possibility may not be all that crazy.

Successful Blogs Have Links

NY Times has WI-8 as leaning Democrat for 2010.

Parents of twins more likely to divorce.

Intro to author David Foster Wallace. What, no The Broom of the System?

Goldman's man in the Senate could be the next Majority Leader.

The Tea Party movement is here to stay.

A Crisis of Vocabulary

Last week, I linked an NPR story that highlighted similarities between the Greek & U.S. financial crises. If you listened to the story or read the transcript, you heard an investment professional say that, "[t]here was a crisis of confidence in Europe that started with Greece."

When people no longer want to lend you money because they don't think you will be able to pay them back, that is NOT a crisis of confidence, it's good underwriting. It is also something that has been sorely lacking in the mortgage market over the last several years.

Austrian Economics, Ipads, & Asphalt Shingles

A few recent posts have sparked some back and forth in the comments regarding the financial crisis and whether or not the Austrian School of economics can provide an accurate description of what happened and how to move forward. My view, based on what I have read, is that what we now call the financial crisis had two related but distinct parts.

The first part was the subprime crisis and it is here that the Austrian view of the business cycle has great success at describing events. The (really) short version goes something like this. An increase in the money supply, without an increase in productivity, will result in inflation. This is a standard monetarist view. The problem, the Austrians note, is that the inflation doesn't occur equally throughout the entire economy. It's just not possible to drop money from a helicopter evenly over an entire country.

So the expansion of money occurs and it flows more to some sectors of the economy, like housing, than to others. The problem with this is that the people making decisions in the marketplace, aren't able to tell whether or not the increased prices in a sector are the result of real changes in the market, like greater demand, or if they are just the result of inflation. When people see the higher prices, capital naturally flows to those sectors. If the high prices are the result of real changes, then this is a good thing. The increased capital will increase supply and eventually drive down prices in that sector. If, on the other hand, the higher prices were the result of inflation then a bust is sure to follow. The expanded supply has no corresponding demand and the sector collapses.

The transition after the collapse is painful because capital has specific uses and can't always be easily converted from one sector to another. High home prices might mean we get more capital devoted to making asphalt shingles than we need. This means we have less capital available for making things that people want, like iPads. And let's face it, if you were stuck in an airport for two hours which would you rather have to pass the time?

The change in prices due to an expansion in money supply is what is called a nominal change. Through the mechanism of distorted signals that I just described, the Austrians demonstrate how nominal changes can have real effects in an economy. This is an important insight and one of the reason Austrians are opposed to inflationary policies by governments and central banks.

The second part of the financial crisis was a bank run. In this case, I don't just mean the institutions that give you a toaster when you open an account. I mean any institution that was in the business of borrowing money for the short term and lending for the long term. This is what many of the major financial institutions were doing. Lehman Brothers, by borrowing in the short term commercial paper markets, then buying long term housing backed bonds was doing exactly this. The problem came in when the folks lending to Lehman no longer wanted to do so and the bonds that Lehman was holding were suddenly recognized as being worth much less than they paid for them.

The Austrian critique of this part of the story has to do with our fractional reserve banking system (where only a portion of deposits have to be kept on hand) that is itself a monetary expansion. Austrians will argue for 100% reserve banking, but I don't think even this would stop bank runs in times of crisis. Additionally, isn't it at least possible that our banking system, even with its expansionary fractional reserves, has resulted in real economic gains when capital is provided to an entrepreneur who takes out a loan in order to bring a new product to market, develop a better way to make a new product, or meet an increase in demand?

GM's Coincidental Profit Number

NPR featured a report yesterday on the first quarter profit report by GM in which included this observation:

Which isn't to say GM has arrived, but the bankruptcy did give the company more of a fighting chance. Just consider that $865 million profit GM reported. Last year, before bankruptcy wiped out most of the company's debt, that was almost exactly the amount GM was paying in interest costs alone.

Of course, this is probably just a coincidence.

On the other hand, it doesn't exactly lead me to believe that the GM bankruptcy resulted in a fundamental restructuring of its business model. As I noted previously, there are billions in outstanding GM pension obligations that have to be funded, which will make a long term return to profitability incredibly difficult.

Important Things I Read Today

First, from the Director of the Congressional Budget Office:

The United States faces a fundamental disconnect between the services that people expect the government to provide, particularly in the form of benefits for older Americans, and the tax revenues that people are willing to send to the government to finance those services. Changes of the magnitude required to make fiscal policy sustainable could have important economic and social effects—but they also provide an opportunity to address existing concerns about tax and spending policies. Given the time required to implement significant policy changes, determining those changes is an urgent task for policymakers.

Then this from New York Times columnist Ross Douthat:

If Robert Rubin’s mistakes helped create an out-of-control financial sector, then naturally you need Timothy Geithner and Lawrence Summers — Rubin’s protégés — to set things right. After all, who else are you going to trust with all that consolidated power? Ron Paul? Dennis Kucinich? Sarah Palin?

This is the perverse logic of meritocracy. Once a system grows sufficiently complex, it doesn’t matter how badly our best and brightest foul things up. Every crisis increases their authority, because they seem to be the only ones who understand the system well enough to fix it.

But their fixes tend to make the system even more complex and centralized, and more vulnerable to the next national-security surprise, the next natural disaster, the next economic crisis. Which is why, despite all the populist backlash and all the promises from Washington, this isn’t the end of the “too big to fail” era. It’s the beginning.

I wanted to title this post Depressing Things I Read Today, but thought that would be grossly irresponsible. Reminders of the challenges ahead that come in the form of thoughtful analysis are far more difficult to dismiss than talk radio antics designed to generate ad revenue. If these aren't the kind of wake-up call we desperately need, then I don't know what is.

If Only Scott Walker Read This Blog

Late last week Republican candidate for governor Scott Walker indicated he had serious concerns about Arizona's immigration law. A stance that was very surprising since the Walker campaign appears to be centered on reflecting the views of Wisconsin Republicans rather than shaping them.

For a moment there it looked like we might be witnessing one of those moments when popular notions about a politician are so entrenched he is able to stake out unpopular positions without incurring a political cost.

Alas, it was not to be.

Walker quickly shifted his position once the unpopularity of his first stance became clear. If only someone from the Walker campaign read this blog, they could have saved themselves a lot of trouble over the last few days. From Tuesday, 5/11:

candidates just about everywhere should be warned that comprehensive immigration reform is a campaign killer. The ONLY thing you should say when asked about immigration is that we need to secure the border. The ONLY thing you should say when asked about Arizona's new immigration law is that we need to secure the border. Period.

Instead, Walker has become the latest member of the "against it before I was for it club", and it couldn't have come at a worse time, right before the state party convention. The site of which will now be witness to the Walker camp reassuring suddenly jittery party activists rather than the triumphant sendoff they may have been envisioning just a few short days ago.

Successful Blogs Have Links

Extreme vending machine.............with lobsters!

Reviving the Reformation. New Calvinism. (h/t Mrs. RWC)

Giant carp photograph.

The alchemy of collateralized debt obligations.

I like this guy's style.

TARP Doesn't Extend to Small Business

The Congressional Oversight Panel for the TARP program released their latest report covering the TARP and small business lending and the findings are depressing to say the least:

Although the Troubled Asset Relief Program (TARP) has launched several initiatives aimed at restoring general credit availability, the Panel found little evidence that the TARP has spurred small business lending...

Small business credit remains severely constricted. Data from the Federal Reserve show that lending plummeted during the 2008 financial crisis and remained sharply restricted throughout 2009. Although Wall Street banks had been increasing their share of small business lending over the last decade, between 2008 and 2009 their small business loan portfolios fell by 9 percent, more than double the 4 percent decline in their overall lending portfolios.

TARP has done little to restore stability to the smaller banks that provide the bulk of small business credit.

With results like these it's surprising that that the populist outrage in this country is as minimal as it is.

The situation appears to be one in which irresponsible lenders (Goldman, Citi, etc.) get bailed out by the taxpayer while irresponsible borrowers (individuals with mortgages they had no hope of paying) do not. As if the arbitrariness of this state of affairs wasn't galling enough, now responsible firms and individuals find it difficult to access the reasonable credit they need to conduct business.

Gore Declares Threat from Sea Level Rise is Over

At least that's what his behavior is saying:

It is reported that former Vice President Al Gore just purchased a villa in Montecito, California for $8.875 million. The exact address is not revealed, but Montecito is a relatively narrow strip bordering the Pacific Ocean. So its minimum elevation above sea level is 0 feet, while its overall elevation is variously reported at 50ft and 180ft.

At the same time, Mr. Gore prominently sponsors a campaign and award-winning movie that warns that, due to Global Warming, we can expect to see nearby ocean-front locations, such as San Francisco, largely under water. The elevation of San Francisco is variously reported at 52ft up to high of 925ft.

...it is impossible for a rational person to both believe in imminent rise of sea levels and purchase ocean-front property with their own money, as Mr. Gore has just done.

That's from Sub Specie Æternitatis. (H/T The Big Questions)

Maybe the whole thing was an elaborate rouse to depress the prices of oceanfront property, and now that Gore's got his, he will tell us what he really thinks about global warming.

The bailout problem in a nutshell

Professor James Hamilton writing at Econbrowser:

And, as was the case in the 2008 difficulties, one can either view this primarily as a liquidity problem, for which we simply need the central banks to step in boldly to arrest the jitters, or as a solvency problem, in which case the policy decision is how to allocate the unavoidable capital losses among bank owners, bank creditors, and the government so as to minimize collateral damage to innocent bystanders. The fundamentals facing Greece suggest there is an overwhelming solvency component to the current problems. And the policy response so far seems to be choosing to allocate 100% of losses to the European and U.S. taxpayers.

It is not the role of the ECB, IMF, or Federal Reserve to bail out banks. These measures are profoundly unpopular with voters in countries such as Germany and the United States. I think it is incumbent on the architects of these measures to communicate what is the structural defect in banking regulation that made such intervention necessary, and what reforms have been implemented to ensure that such measures won't be needed again.

I have yet to see a convincing case that the financial reform legislation in Congress accomplishes such a task. Go read the whole (short) thing.

Alpha Iota Gamma

NPR had a story (embedded below) this morning on the parallels between the unfolding financial crisis in Europe and the U.S. situation of late 2008.

Namely, that many banks purchased Greek debt that is now in doubt of ever being paid back and this threatens the solvency of the banks. So the European Central Bank and European Governments have stepped in with money to buy up the Greek debt, which has become Europe's own toxic asset.

While the bailout may directly help Greece, it will surely help it's counterparties, that is, the people who lent it money. This is not unlike the bailout of banks like Goldman Sachs and others, some of whom are also exposed heavily to Greek debt, that was funneled through AIG. The insurance company that couldn't make good on the policies it wrote.

There are really two problems here. The first being the Greek fiscal situation and the second is that the banks have done a terrible job is assessing credit worthiness. This is from the NPR story:

MIT Professor Simon Johnson is the former chief economist of the International Monetary Fund. He recently wrote a book about the banking bailout in the U.S., and he says basically the Europeans are making the same mistakes that policymakers here made - namely, they're rewarding the very banks that helped to create the problem.

Professor SIMON JOHNSON (MIT): The cost in terms of distorted incentives is huge because the banks are taking away from this the message that they can lend to anyone and get bailed out.

Since we went first with the bailout, I would hope that we would also be the first to address this particular problem. As of yet, I'm not convinced that has happened.

For it before they were against it - Audit the Fed Edition

In case you didn't hear, an amendment to the financial reform legislation by Senator Bernie Sanders (I-VT) passed today. The amendment allows for a one time audit of the the activities of the Federal Reserve that are currently not audited (such an audit is prohibited by law).

The problem is that the amendment that passed is a weakened version of Sanders' original amendment that would have allowed for future audits as well. It is reported that the request to weaken the amendment came from the White House as well as other sources.

Open Congress notes how Senator David Vitter (R-LA) sought to revive the tougher version:

Thanks to Sen. David Vitter [R, LA], something very similar to the original Sanders amendment is going to get a vote today as well. In addition to removing the special protections from audits for the Fed from U.S. code, the Vitter amendment adds new language to help preserve the Fed’s political independence

Open Congress also notes that Tom Harkin (D-IA) and Ben Cardin (D-MD) were both co-sponsors of the original Sanders amendment. The both voted no on the Vitter version.

Ron Wyden (D-OR) was also a co-sponsor of the original and voted yes on the Vitter version.

Notes from the WI-8 candidate forum

I attended the WI-8 candidate forum last night with about forty other people. McCormick, Savard, Ribble, and Roth were in attendance. For now, I just want to offer two observations.

First, candidates just about everywhere should be warned that comprehensive immigration reform is a campaign killer. The ONLY thing you should say when asked about immigration is that we need to secure the border. The ONLY thing you should say when asked about Arizona's new immigration law is that we need to secure the border. Period. This is not based on anything the candidates said last night, it is based on my observations of the audience.

Second, it's tough to get up in front of an audience and give coherent and thoughtful answers to questions in two minute segments, even when you can anticipate some of what the questions will be. Audiences have a hair trigger for nonsense answers, so being substantive and understandable is important, but not all that easy. All of the candidates last night did this to one degree or another.

I don't think candidates that do this well get enough credit. While this ability is no guarantee of success in office, it is something that voters trying to make a decision with limited information can use as a signal.

WI-8 Candidate Forum Tonight

Two upcoming events from the Fox Valley Initiative:

MONDAY, MAY 10TH AT 6:30PM: 8TH CONGRESSIONAL CANDIDATE FORUM

Please join us next Monday for a candidate forum for the 8th Congressional District. We will be co-hosting this event with the Lawrence College Republicans. All candidates have confirmed that they will be attending. The event is going to be held at Lawrence University in the lower level of the new student center. Your best bet for parking are the side streets across College Avenue, or on Meade St just south of College. The student center sits alongside Lawe Street just south of College Ave. Everyone is welcome to attend and the event is free.

WEDNESDAY, MAY 12TH AT 6:30PM: FOX VALLEY INITIATIVE MEETING W/MARK NEUMANN

We would love to have you at our first public meeting of the Fox Valley Initiative. There will be two parts to the meeting. First on the agenda will be candidate for Governor Mark Neumann. Mark will be talking to us about his campaign and what he sees as the major issues. We will also reserve some time for questions from the audience. Primary season is just around the corner, so come get informed!

Krugman's Consistency Deficit

In the comments to my Greece post, J. Strupp and I had a little back and forth about economist Paul Krugman's attitude toward deficits. I want to assure Strupp that while unfounded assertions make up a large percentage of discourse on the internet, I try really hard not to traffic in them.

I accused Krugman of not having a problem with deficits, as long as they are being run by Democrats. My accusation was based on an article from Econ Journal Watch that I had recently read. From the abstract:

Economists affiliated or aligned with one of the parties may be suspected of changing their positions on budgets deficits to serve their favored party or win favor with its constituency. This paper investigates selected economists, to see whether their tune changes when the party holding the White House changes. Six economists are found to change their tune—Paul Krugman in a significant way...

And from the paper:

Upon the 2006 Democratic victory in Congress, Krugman reverted to favoring deficits. In a column entitled “Democrats and the Deficit” he wrote:

One of the biggest questions is whether the party should return to Rubinomics—the doctrine, associated with former Treasury Secretary Robert Rubin, that placed a very high priority on reducing the budget deficit. The answer, I believe, is no...And the lesson of the last six years is that the Democrats shouldn’t spend political capital trying to bring the deficit down. They should refrain from actions that make the deficit worse. But given a choice between cutting the deficit and spending more on good things like health care reform, they should choose the spending. (Krugman 2006)

So deficits are OK, as longs as they are for what Krugman perceives as the "good things". I think we really ought to expect more from someone who is cited with such authority on these matters.

Successful Blogs Have Links

Is Facebook dying?

Top baby names.

Who will be the next Supreme Court Justice?

Mankiw offers a picture of the federal budget in 2020.

Is Portugal the next Greece?

Health Reform's Credibility Problem

In the course of making a point about Fannie Mae & Freddie Mac, Matt Yglesias offers this:

Meanwhile, no matter what you do aren’t you going to be left with a major credibility problem? congress can pass a law saying “we promise we’re not guaranteeing these debts” but will that be credible? After all, they were never officially guaranteed in the first place. Yet when Congress voted in spring 2008 to lay the groundwork for bailing them out, it was barely even controversial. And there’s just no way for the 111th Congress to ensure that the 118th won’t change the law and authorize new bailouts.

The idea that you simply can't count on future Congresses to live up to commitments made today seems eerily similar to claims made by many on the right over the tax on high cost health plans. That's the one that doesn't kick in until 2018, and is extremely unpopular with Labor, a major Democratic constituency.

Now that Yglesias is on board with this notion, it would be nice if both the left and the right could simply stipulate it and we could move on. Perhaps even move on to talking about whether or not foisting the cost of current consumption on future generations is a good way to run a country.

Maybe we could even ask the Greeks since it seems for them at least, the future is now.

Blog Post on the Grecian Burn

So little beauty and truth, what would Keats make of it?

(Reuters) - Greek protesters set fire to a bank, killing three people, on Wednesday in the most violent reaction to date to the government's austerity plan.

Groups of masked youths hurled petrol bombs, stones and sticks at riot police as nearly 50,000 striking workers and public servants marched to parliament, where a bill dictating pay cuts and tax hikes was due for debate.

Eyewitnesses said marchers chanted "Thieves!"...

Do Greece citizens really believe their problem is that the government has stolen from them?

Paul Krugman apparently sees it differently:

Consider what Greece would get if it simply stopped paying any interest or principal on its debt. All it would have to do then is run a zero primary deficit — taking in as much in taxes as it spends on things other than interest on its debt. But here’s the thing: Greece is currently running a huge primary deficit — 8.5 percent of GDP in 2009. So even a complete debt default wouldn’t save Greece from the necessity of savage fiscal austerity. [E.A.]

Rather than shouting about theft, the Greeks might want to acknowledge they simply spend too much. They've been financing this through borrowing, but no one wants to lend to them anymore. At least not at rates they can afford.

Burning down all the banks in Greece won't change that.

Obey Retirement & WI-8 CD

Wisconsin congressman David Obey has decided not to seek re-election. I don't think this can be called anything less than stunning. For those who might dismiss this as a Wisconsin phenomenon, remember that Obey has been in the House for over 40 years. And his influence and activity has been increasing, rather than fading in the last few years. He played key roles in the stimulus and health care bills, essentially the entire Obama presidency up to this point.

What, if anything, does this portend for us here in WI-8? Kevin offers this:

4) Kagen Must Really Be Scared Now.

Admittedly, this demand by Marc Savard for Kagen to follow Obey's lead and resign from Congress is about the dumbest thing I've read today, but the adding on from a number of 8th Congressional campaigns (WisPolitics links to press releases by Trager and Ribble) is just a reminder to Kagen that it's going to be a tough year for Democrats on the Congressional level.

When you have Dave Obey bailing on re-election, what does it say about Kagen's chances?

I'll admit I had the same thought at first, but on the other hand I'm not convinced this would automatically be a good thing.

I believe Kagen is beatable, but it's far from a sure thing, especially given his large fundraising advantage. Perhaps having a well-funded incumbent to run against helps to focus what has been a somewhat unwieldy Republican field up to this point.

If Kagen decided not to run, I can only imagine what the next six months would look like. I wonder if all those labor PAC's would ask for their money back?

A Day in the Life of the Walker Bloggers

Republican Gubernatorial candidate Mark Neumann received the endorsement of Oklahoma Senator Tom Coburn, a nationally known conservative lawmaker.

Over at the Scott for Gov blog, the one and only Billy Shears offers this response:

If a federal office holder from a state that is frequently trying to steal jobs from your state endorses someone running for a state office, does it really matter?

He or she says this apparently with a straight (type)face despite this item reported by the JS back in November:

Milwaukee County Executive Scott Walker is among the Republicans lining up for an endorsement from Sarah Palin, the 2008 vice presidential candidate and former Alaska governor.

Billy also offers a link to a WPRI post where Christian Schneider chides Neumann for stating that Coburn "strongly endorses" him. Schneider then offers some fanciful methods for testing the relative strength of endorsements by requiring those offering them to perform disgusting or degrading acts.

Apparently, Jeb Bush has amazing gifts of foresight and anticipated Schneider's proposal. The Walker press release described Bush's involvement as follows:

The campaign for Scott Walker, Milwaukee County executive and candidate for governor, today announced that former Florida governor, Jeb Bush, will headline an event in support of his candidacy.

Neither "support" or fundraising for a candidate seemed to require self-humiliation on the Shneider scale of endorsement.

Let me say plainly that if Walker is the nominee in November, I will support him. (Remember Barrett's record on partial birth abortion.) But at some point, can't Wisconsin voters expect a vigorous debate on the issues between the two major Republican candidates and their various camps?

Anonymous sniping about non-issues doesn't help bring jobs to this state, repair the fiscal time bomb left behind by the Doyle administration, or restore confidence in Wisconsin government, and at some point may in fact start to hurt the Walker campaign. I honestly wish the gang at Scott for Gov would elevate the debate, but I'm not hopeful.

Now we know how many blog posts it takes to fill Shank Hall.

Unsafe At Any Price

This week, the Senate considers financial reform legislation. There will be discussion about leverage limits and capital requirements, whether we should break up the banks, and the powers of a consumer financial protection agency. One question that I have, that doesn't seem to be prominent in the congressional debate, is whether or not there are just some financial products that ought to be banned outright.

This American Life radio program had a great story a few weeks ago about a hedge fund that made millions of dollars after the housing collapse. They did this by buying credit default swaps (CDS). Those are the insurance policies on whether a pool of mortgages will default. The pools of mortgages are gathered together and then bonds are sold based on the income from those mortgages. The CDS is insurance against the bond losing value.

So far, so good. There is a solid case in favor of being able to bet against certain assets or firms. This act can spread information to the market and result in prices that more accurately reflect the value of a firm or a security. For example, if you thought an SEC civil case against Goldman Sachs was big trouble as soon as it was announced, you could bet against Goldman stock. When a subsequent criminal investigation was announced and the stock price dropped dramatically, you could make a lot of money.

What happens, though, if the securities in question wouldn't otherwise exist? In the case of a firm, there are people in the firm working to make it profitable. In the case of a bond backed by mortgages, that isn't always the case. In fact, it may be the case that some of these mortgage backed securities were built just so people could bet against them. In essence, they were built to fail.

That is the accusation against the hedge fund, Magnetar, that was featured in the This American Life show. Magnetar was involved in the creation of billions of dollars of mortgage backed securities through their willingness to buy a piece, the most risky piece in fact, of these securities. Without this willingness, it is doubtful that some of these securities would ever have come into existence. If the mortgages continued to pay, the bonds remained valuable, and Magnetar makes money on their investment. If the mortgages default, Magnetar makes money, a lot of money, on the credit default swaps (the insurance) they bought.

This American Life discusses how Magnetar was active in selecting the pool of mortgages that were bundled to make the securities they bought and that they bet against. In fact, some of their activity in selecting these securities suggests they were looking for quite risky pools of mortgages to be included. Risky pools that an investor whose main concern was the continued value of the bond might not want included. On the other hand, someone who had a financial interest in the failure of these bonds, might be perfectly happy to have such mortgages included in the pool.

The possibility that some securities were made just to fail, and then sold to investors without this fact being revealed is at the heart of the case against Goldman Sachs. Whether or not the non-disclosure of this fact is material, in a legal manner of speaking really doesn't matter to me at this point. It seems to defy common sense that someone selling a security that was built to lose value wouldn't have to disclose this to potential buyers.

But even more than that, is there any compelling case for the economic or social value of such securities? The fact that a few guys got rich seems little compensation. Did the existence of such securities dampen enthusiasm about housing and help to minimize the effects of the bubble? Maybe, but from our current perspective this seems like way too little, way too late. On the other hand, maybe such activity actually increased the size of the bubble by causing additional housing related securities to be created even as the market was collapsing.

Perhaps such securities are of little value while at the same time posing a substantial danger to the economy as a whole. If so, maybe they just shouldn't be allowed to exist at all.

Successful Blogs Have Links

Big families are green families.

The revolution will not be tweeted.

How to fix Blockbuster Video.

Folkbum sees green shoots.

Looking at the pictures, even I think $46.5 million was a bargain.


Sometimes, dire predictions about the effect of innovation on the existing order turn out to be less than accurate.