Monday, June 15, 2009

Neither The New York Times Nor The Red Cross Settle the Question

Last week, I replied to copithorne's claim that conservatives offer no public policy perspectives. I argued that copithorne closed his ears to conservatives by relying on false premises, then demonizing his opponents for starting from a different world-view.

A score of comments later, copithorne still insists he's right. This post replies to two specific points.
  1. The effect of Bush's tax cuts on the economy: I never said I supported deficits or Bush's spending policies--he spent too much. I did say that tax cuts can stimulate the economy and increase tax receipts. Again, I note that the Bush tax cuts helped to reduce the Federal deficit about 65 percent between 2003 and 2007 (when the credit crisis started). I note he hasn't responded, except to deny suggesting that Bush intended "to enrich the wealthy." But he said Bush's policy "was to give tax cuts to the wealthy." I've showed he gave tax cuts to all. Contrary to copithorne's assertion that recent economic gains were confined to the wealthy, the poor have thrived--middle class stagnation is a fantasy of class-warfare partisans.

    The New York Times chart that copithorne cites--which blames Bush for much of the deficit--is seriously flawed, as Alex Tabarrok, Von at Obsidian Wings, Megan McArdle, Arnold Kling, Burton Folsom, EconomistMom, Gateway Pundit and Wolf Howling have detailed. As the Economist says:
    Bad as the deficit was under Mr Bush, it will quadruple this year, from $459 billion in 2008 to $1.845 trillion (from 3.2% of GDP to 13.1%), according to the non-partisan Congressional Budget Office (CBO). Mr Obama vows to slash it in half within four years, but that will still leave it bigger than the deficits for which he once lashed Mr Bush.
    See also Megan McArdle again, Gateway Pundit again and Donald Marron.

    If deficit reduction is copithorne's priority, Obama's projected annual budget deficits will exceed the largest deficit of any year during the previous Administration:


    source: March 21st Washington Post

    Since then, of course, spending plans have multiplied -- which will require higher taxes or more borrowing -- far out-stripping the relatively low amount spent on the Iraq war. On that subject, copithorne is silent--better, at least, than the reliably over-dramatic Andrew Sullivan.


  2. The applicable law defining prohibited interrogation techniques: copithorne says that Bush's policy was to torture. Uh, no. As I've already explained, the fact that the Bush Administration carefully examined the law shows per force that it did not decide to torture--had it, such examinations would have been unnecessary.

    In comments, copithorne says that the fact that the Red Cross accuses the United States of torture establishes "a moral authority" that we have. Uh, no. As commenter Jess says, the Red Cross doesn't make such determinations. That organization's self-description is a "humanitarian protagonist" (only the British Labour party considers the Red Cross anti-Islamic). copithorne apparently favors adopting plaintiffs' view without regard to the other side's argument. Uh, no. Whether we've committed torture depends on the law: the words of the relevant treaty, statute, regulations and interpretations in the cases.

    The United States has ratified the Convention against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment (S. Treaty Doc. 100-20, entered into force for U.S. Nov. 20, 1994, albeit with a relevant reservation). The key provisions are the definition of torture in Article 1(1):
    For the purposes of this Convention, the term "torture" means any act by which severe pain or suffering, whether physical or mental, is intentionally inflicted on a person for such purposes as obtaining from him or a third person information or a confession, punishing him for an act he or a third person has committed or is suspected of having committed, or intimidating or coercing him or a third person, or for any reason based on discrimination of any kind, when such pain or suffering is inflicted by or at the instigation of or with the consent or acquiescence of a public official or other person acting in an official capacity. It does not include pain or suffering arising only from, inherent in or incidental to lawful sanctions.
    Article 4 requires that state parties to the agreement criminalize torture. Finally, Article 16(1) requires that state parties "undertake to prevent in any territory under its jurisdiction other acts of cruel, inhuman or degrading treatment or punishment which do not amount to torture as defined in article I, when such acts are committed by or at the instigation of or with the consent or acquiescence of a public official or other person acting in an official capacity."

    Most criminal law is state law. The United States implemented Article 4 for U.S. officials acting outside the United States in 18 U.S.C. Section 2340A. The statutory definition of torture is at 18 U.S.C. Section 2340. Under Federal regulations (8 C.F.R. Section 1208.18) and U.S. case law, torture requires the specific intent "to inflict severe physical or mental pain or suffering." Pierre v. Attorney General, 528 F.3d 180, 189 (3d Cir. 2008) (en banc).

    The Bush Administration legal analysis -- particularly the August 1, 2002, and May 30, 2005 memos -- fully examine the applicable international and domestic constraints and definitions to derive a set of interrogation methods that would not constitute torture. These were applied to unlawful combatants, which are neither POWs nor civilians.

    Even Bush administration detractors concede the memos are "a serious attempt to stay within the bounds of the law, while defining the law as liberally as possible. That may be wrong, but it doesn't seem to be criminal." The Administration carefully attempted to preserve American lives and national security while walking a fine line of avoiding criminal behavior. And they were bound by the requirement, echoed in the Senate reservation, that "U.S. obligations under international law are subordinate to, and cannot override, the Constitution."

    copithorne blithely derides the Bush memos:
    If I get my lawyer to write a note saying it is OK to steal your car, will it then be morally acceptable to steal your car?

    Is that how moral reasoning works in your tribe?
    His analogy is false. The question is what constitutes stealing (or in this case, torture). Under copithorne's quip, lawyers could transform bumping a fender while parallel parking into grand theft auto.

    As I said initially, copithorne "may disagree with the outcome . . . and dispute the reasoning" of the Bush memos. But that doesn't make his view settled law. There's little precedent and ample scope for debate. Indeed, copithorne's reasoning may represent only a minority of Americans. Yet copithorne's repeated and mocking reference to the conservative "tribe" show how unwilling he is even to credit the good faith of his opponent--which borders on Paul Krugman-ism.

    And much of the problem lies in blaming lawyers for political policy. As is happening in San Francisco. As I already pointed out to copithorne, that's the function of elections and popular sovereignty--the core of democracy. But to him, winning the election means not having to say your opponent is serious.
Conclusion: I'm always willing to debate the rational. But copithorne says I deny objective reality and promote moral relativism. Uh, no. It is copithorne who presumes his opponents have nothing to offer. Again, like Samuel Johnson, "I refute it thus."

30 comments:

OBloodyHell said...

The problem with copi is that you could refute it thus with the thus being a kick in the head and all you'd do is hurt your foot for kicking a block of solid concrete.

It was obvious from arguing with him that he had a position, had no arguments to support that position, and refused to actually use proper rhetorical techniques for establishing why he was right and everyone else was wrong. He'd throw out irrelevant and immaterial links as "justification" for his claims, and, when you rejected those, he'd switch to claiming the high ground as being morally superior to everyone else. The most obvious example was his claim that cutting taxes did not stimulate the economy, for which claim his justification was a link to a proposal for stimulating the economy which had no data and no arguments in actual support of his point.

In the end, it comes down to:
"He was right, and that was all there was to the issue."

It was worse than arguing with bobn. Bobn gets stuck on things, often annoyingly so, but once in a while you get through to him. I saw no hope of that with copi.

copithorne said...

FY 2009 begins in August 2008. So that figure is largely George Bush's work. $1.3 trillion to be exact. I mean obviously George Bush signed the $700 billion TARP package. And yet your chart attributes it to the Obama administration.

I documented that in my prior post. Perhaps you didn't read it. But it is there for you if you want to get a clear picture.

Republicans signed off on all the spending for six years. So, they didn't find anything they wanted to cut. Barack Obama asked the Republican caucus for a list of proposed cuts. They came up with a list of $24 billion over five years. Nothing.

You talk as though you identify with the Republican Party. And yet there is a contradiction between that identification and your stated policy preference of cutting spending. If you have proposals for cutting spending, please share. What I see is that you have complaints.

Regardless of what the Bush administration intended, torture happened. We have the Red Cross, the FBI and General Petraeus all saying this. I would say that the intention of the Bush administration was to make excuses and rationalizations. You accept these excuses.

There doesn't seem to be any objective reality you will accept. The Bush administration made excuses. So, the excuses must be good ones. You see John Yoo as a moral authority and the Red Cross, the FBI and General Petraues as illigitmate. To each our own, but I prefer my company to yours.

I don't understand why my analogy is false. You can hire lawyers to say anything. The Bush administration did that.

I don't have any opinion about your good faith. I'm interested in policies and results and my preference is for peace and prosperity over war and recession. Proposals and reasoning behind them are of interest to me. Excuses for failure, and blame, and name calling, not so much.

suek said...

>>So that figure is largely George Bush's work.>>

I was unhappy with Bush's fiscal policies. He should have flat vetoed many of the Congressional acts passed while the Repubs were in power. Nevertheless, the president can only pass or veto the budget sent him by Congress, and it was a Democratic majority Congress that passed the budget you deride.

In addition, if you're in the hole $10,000, it doesn't help to borrow an additional $40,000. Sure it wasn't a great idea to get 10K in the hole, but quadrupling that is an even worse idea.

By the way...I'd also like to know your source for establishing that prisoners were in fact tortured. Leave out waterboarding - that one's been done to death. If that's the only one you have, it's a different story.

copithorne said...

I did go to your links regarding middle class incomes.

All of reputed middle class income gains came from health care inflation. The cost of health care premiums went up. And that looks, statistically, like increased income. You can understand that that does not feel like increased income.

I understand your charts do acknowledge that income inequality increased during this time.

We now know that the success of 2006 and 2007 was illusionary -- a class of bankers and mortgage brokers and real estate builders and professionals that was functionally engaged in fraud. They created a bubble, skimmed off the profits, and now we have to pay the bill.

Carl said...

I agree with suek. And with OBH that copithorne isn't listening.

copithorne seems to have forgotten that his initial argument was that Bush did torture and directed tax cuts uniquely to the wealthy. Now he says "to each his own"--and acts as if the Red Cross is an arbiter of U.S. law. Yet still insists I don't see objective reality?

To top it off, copithorne demonstrates his economic ignorance by equating healthcare premium increases with income gains (without, by the way, supplying a citation). And, in any event, the Federal fiscal year starts October 1st, not in August.

copithorne said...

Suek, I already cited a report on the Red Cross findings:

http://www.cbsnews.com/stories/2009/03/16/terror/main4869240.shtml

Yes, torture happened. I don't doubt that because I view the Red Cross as legitimate. There won't be trials, (except for scapegoat Charles Graner). And in Carl's world that means torture never happened. It's like Schroedinger's cat never died because it was never seen in a court of law. Really, Carl don't expect that you are out looking for the real killer behind the OJ murders. That is not your true standards for objective reality. That's just making excuses.

Carl, the articles YOU cited under Middle Class income gains quoted income AND benefits. I'm still looking for some kind of documentation, but I know I have seen several times that those figures show that almost all the increase comes from increased health care premiums paid for by the employer. It is only because medical inflation is higher than regular inflation that middle class incomes have the appearance of rising in this century. When I talk with conservatives who sincerely try to argue that middle class incomes went up they try to tell me that health care improved and that represents an increase in middle class standards of living. They don't try to tell me that middle class wages went up.

I only said that I opposed Bush's tax cuts for the wealthy. Carl went off to a tangent about how George Bush also cut other people's taxes and therefore his intentions were good and therefore I should withdraw my objections to tax cuts for the wealthy. All that is irrelevant to my point which is that George Bush's tax cuts on the wealthy at a time of war were a mistake.

For a lot of people being disagreed with is experienced as: the interlocutor is not listening. People have a hard time imagining that the perspective of other people may be that their view is incomplete or incorrect. But I do follow many of your links and read them closely. I am looking for the opportunity for agreement. I would prefer that.

OBloodyHell said...

> http://www.cbsnews.com

Is this the same CBS news that equates Ahminajad with Bush?

That CBS "news"?

I realize you can't grasp when a source has become utterly biased and unreliable on a broad range of topics, but, for the rest of us, this is not a subject on which anyone can or should trust CBS to tell you anything even vaguely approximating the truth.

Hint: Agencie France Press isn't trustworthy, either.

Copi, of course, won't Get That. The fact that CBS news has been reliable in the distant past, and is telling him exactly what he wants to believe, means it is reliable now. Its recent history of feckless and blatantly unreliable journalism where politics are concerned is lost on him.

> I am looking for the opportunity for agreement. I would prefer that.

LOL, as long as it's us agreeing with you, no matter how bogus or unsupported your opinion, anyway.

OBloodyHell said...

P.S., Cue copi's theme music... LOL

copithorne said...

You can follow the link in that article to the full forty five page Red Cross report. But I understand. CBS isn’t legitimate. The New York Times isn’t legitimate. The International Red Cross isn’t legitimate.

Basically your tribe has it’s own reality. I can’t prove things in your reality and that isn’t my intention. Carl wrote initially wondering about the possibility of debate. He wondered about reasoned, substantiated argument. I supplied those. My intention is really only to show how I came to the conclusions I did, what evidence was important to me in shaping my views.

Now it is my expectation that your tribe only tolerates information from within a narrow intellectual ghetto: Fox News and Rush Limbaugh and some websites. And I don’t mind at all. I’m confident you will be politically marginalized until you find your way out of this ghetto. And it seems like everyone is a long ways away from finding the way out. From the outside, that ghetto appears to be something that is experienced as irritating and frustrating. In your case Bloody Hell, it seems to be something that is damaging to your health. But if you have the impression that you are comfortable there, please enjoy.

Anonymous said...

Where did the Red Cross get it's verification that prisoners had been tortured? Did any of them witness torture?

OBloodyHell said...

> But I understand. CBS isn’t legitimate. The New York Times isn’t legitimate. The International Red Cross isn’t legitimate.

Not on certain subjects, no. Quite true.

> Basically your tribe has it’s own reality.

1) Our reality includes proper grammar: "its"

2) Yes, and ours is tested day in and day our against readily observable facts.
Example: When someone, such as the Lancet, claims that hundreds of thousands of Iraqi citizens are being killed, but there's no sign of the bodies, one is doubtful of such claims
Mathematical justification: Assume they're all 4' tall, and 1.5 feet wide -- that's 6 square feet to bury them, minimum, ignore Islam's strict rules for handling bodies -- 650,000 people, the Lancet's count, is 3.9 million square feet of burial space, at the minimum. That's more than 67.5 football fields worth of dead bodies, packed head to toe, shoulder to shoulder. You don't "hide" that. You don't "miss" that. Ergo, a red flag should go up when you hear something like that, and mark it as doubtful, and the source as hitherto dubious on any related matter.

CBS, IROC, and, yes, the NYT have been steadily failing this test for a long time -- IROC for the longest by far, but CBS for about 20 years and the NYT for at least 15 -- whenever Pinch took over.

They consistently fail on obvious fact checking (like calling the subject of a piece and asking them, "hey, is this true?" or opening an encyclopedia and reading about the subject.) and, when facts do blatantly rear up their ugly heads, they never retract openly, never apologize. Often the same inaccurate "fact" will pop up again in later articles as though the editors at the paper had no idea it was false.

You see, you hear about someone like Jayson Blair and believe him to be the exception. We've seen how the NYT works, and we know -- the same sort of shoddy, lame, and ineffective background checking done, not just on Blair but on his resume is SOP for the NYT. If the NYT has a "fact checking department", it's probably staffed by some 85yo granny with gout and a peptic ulcer. She ain't there working most of the time, and usually ain't doing her job even when she is.

OBloodyHell said...

> Now it is my expectation that your tribe only tolerates information from within a narrow intellectual ghetto

You can "expect" anything you want. I expect your head to explode any second now....
.
.
.
.
Damn. My "expectations" came to naught.



And that's one of the differences -- I don't base my views on my "expectations" but on constant comparisons of my world map with observable data and rational calculations (as above). If the two don't match, I ask people who ought to know if I'm missing something (i.e., a specialist in that field of knowledge).

In case you didn't notice, most people who deal with hard numbers lean towards the "conservative" political spectrum -- engineers are a key example. When their worldview fails to match objective reality (something you probably deny even exists), people die.

I could explain it further, but Bill Whittle did a fine job explaining it over on Eject! Eject! Eject!, titled, interestingly enough, Tribes.

> , it seems to be something that is damaging to your health

As I've told you before, stop worrying about MY health. It's none of your F'in business, first off, and, second off -- more importantly -- it's totally irrelevant to the discussion.

Is there a particular reason you like to think of your opponent being in ill health? Have you been diagnosed with a problem, you know, like "schizophrenia", paranoid delusions, anything like that? Because that's what I'm reading from your inability to stay focused on the topic at hand, such that you keep segueing to the matter of my health. Projection is a common side-effect of such problems.

> I’m confident you will be politically marginalized

I think the 2010 and 2012 elections are going to do wonders for your confidence. Not necessarily good wonders, but wonders, nonetheless.

bobn said...

Carl said:

I did say that tax cuts can stimulate the economy and increase tax receipts.

Huge case of: Post hoc ergo propter hoc!

The post-Bush-taxcut increase in GDP growth can almost entirely be accounted for by Mortgage Equity Withdrawal (MEW) - HELOCs, 2nd mortgages, etc - which was completely part of the real estate and credit bubble. Subtract out the other effects of the bubble and the "Bush recovery" never happened at all.

And until deregulationists of both parties, with extra help from the Bush admin, destroyed the economy, we had something called a business cycle, so if you cut taxes anywhere near the bottom, it was bound to be followed by growth eventually. So, once again, I say: Post hoc ergo propter hoc!


OBH said:

It was worse than arguing with bobn. Bobn gets stuck on things, often annoyingly so, but once in a while you get through to him.

You old softie, you. ;)

Carl said...

Again, recall that copithorne's original points included the assertions that: "The policy of the government was to torture people [and] The policy of the government was to give tax cuts to the wealthy."

I've shown that the Bush Administration's policy was not to torture and to give tax cuts to all earners. copithorne's stubborn claim that his blinkered view is more authoritative than the Administration's words and actions amply proves my argument--following AVI's point--that liberals are indifferent to facts and captives of their pre-determined theories.

Carl said...

bobn:

You're right to some extent--it's difficult to prove the effectiveness of tax cuts. Except--they've worked historically, at various points in the business cycle. Except--both liberals and conservatives have agreed, including Barack Obama. Except--tax cuts apparently help to bring on the shift in the business cycle, especially cuts in capital gains tax.

Carl said...

bobn:

Deregulation isn't the devil that caused this crisis, nor will Obama's mooted overregulation resolve it.

bobn said...

Deregulation isn't the devil that caused this crisis, nor will Obama's mooted overregulation resolve it.

We'll probably never agree on the first half of your statement. I will try to more agreeable while disagreeing.

The idea that more regulation now will *solve* the crisis is late barn-door closing. I don't know that there is any way to "solve" this crisis - I think we've been painted into a corner where the only "solution" is a large decline in living standards for all but the filthy rich. Deregulationists of both parties, Bush, and Obama, have all made their contributions.



The idea of regulation is to prevent the next crisis - and I haven't looked at them in any detail, but their source makes me dubious.

Carl said...

bobn:

Try this Arnold Kling piece.

bobn said...

I've read the Kling piece. It neatly, but wrongly, sidesteps huge parts of the issue.

I'll comment on the Kling piece after you comment on this - and "Thanks for the T2 link" doesn't count.

bobn said...

You're right to some extent--it's difficult to prove the effectiveness of tax cuts.

Difficult indeed. Especially with the things you are linking to.

It appears to me that you are once again trying to use the tactic of linking to garbage faster than I can debunk it. In "retaliation", I will debunk one link - the first, chosen because it was first, and because it was so completely wrong that I decided to follow no more links from that comment.

From said link:

Under Coolidge, marginal tax rates were cut from the top rate of 73% to 24%. The economy rewarded this policy by expanding 59% from 1921 to 1929.

1929 - the number rings a bell - oh yeah, a bubble in the stock market immploded, leading to 10 years of utter economic destruction, ultimately fully relieved only by a World War and the physical destruction of all our competitors. Oh, and there was also the great Florida real estate bubble of the early to mid 20s - but hey, that's just another annoying detail.


Under Kennedy, marginal tax rates were cut from a top rate of 91% to 70%. In real dollar terms, the economy grew by 42%, an average of 5 percent a year from 1961 to 1965.

Oh, check this CR post, most especially this graph. What's that I see at the beginning of 1961? Why, it is the end of a recession! Can you say "Business cycle, therefore fallacy of Post hoc ergo propter hoc"? I knew you could.

Under Reagan, marginal tax rates were cut from a top of 70% to 28%. ... Revenues increased from roughly $500 billion in 1980 to $1.1 trillion in 1990.

Referring again to the graph, you might just as well argue that Reagan caused the 81-82 recession, and then the economy recovered on it's own. I'm not saying that, but I could.

Martin Feldstien, professor of economics at Harvard, estimates that the U.S. Treasury would have collected two-thirds more revenue during the first three years of the Clinton presidency had his administration NOT raised taxes.

Ah yes, an estimate from an economist. We all know what those are worth.

Carl said:

Except--both liberals and conservatives have agreed, including Barack Obama

Oh, opinions of politicans prove something? Only that they pick and choose the parts of Keynes they like.

Carl said...

bobn:

I've been thinking about it; some preliminary thoughts:

1) The Kling analysis, and the analysis I've previously supported, are both mostly consistent with the T2 presentation. We agree on fixing capital standards for savings banks.

2) Still, forty nine percent is a lot--but you discount it. This is especially critical given that the pie chart from page 18 that you reprint is based on the "number" of mortgages, not their value. If you look at page 23, T2 says that the largest sector, by value, at risk is prime mortgages. Commercial real estate is second. Neither of those are the type of transactions of which you complain.

3) Further, I fault your interpretation of T2 given that the T2 charts on borrowing power (page 9) seem to prove my point--that much of the crisis was demand driven. T2 itself admits that on page 13: "Debt became increasingly available and acceptable in our culture [and] Millions of Americans became greedy speculators." That's why T2's page 29 chart shows that 25 percent of prime mortgages also are underwater.

4) And you haven't justified your concern for the leverage standards of investment banks. How did that cause the crisis? Because they aren't backed by government deposit insurance, we should be less concerned about leverage rules for investment banks--and normally shouldn't bail them out if they bust. I'm not aware of any bank meltdown caused by the fact that an investment bank was affiliated with a commercial bank, but I agree we need to tighten the rules where commercial banks are affiliated with non-bank financial companies.

5) Presidents, Congress, columnists (post to come) and regulators wanted a housing boom. They got it, in the worst way. That's the crucial lesson, which can be implemented without over-regulation.

OBloodyHell said...

> Huge case of: Post hoc ergo propter hoc!

Uh, bob, I'm not even going to refute that because even IF that were true, it doesn't explain the OTHER times that tax cuts have increased government revenue -- not just on the Fed level but there are state-level cases of it, too.

At some point, you have to start noticing that there is a connection to giving people more of their own money to spend and... gosh, the economy actually benefiting from that!!

> I think we've been painted into a corner where the only "solution" is a large decline in living standards for all but the filthy rich.

Oh, geez. It's a cyclic downturn as the bad investments get written off. It's completely explained by business cycle theory. It's not a permanent problem, unless Obama &co do their damnedest (i.e., "what comes natural") to destroy any recovery by sucking the lifeblood out of it before it even gets started.

> The idea of regulation is to prevent the next crisis

Yes, bob, because that Senate Banking Committee (i.e., "oversight") you refuse to ack the existence of time and time again that prevented any action on the revelations of OFHEO (the "Bush admin" people) that the GSEs were screwing things up... that's not going to happen yet again (pick your agency and committee for the next one) as it's happened for just about every bloody damned serious downturn of the last century. Even the downturns of the seventies, tied partly as they were to the Oil Shock, were still the result of bad Federal policy.

> a bubble in the stock market immploded, leading to 10 years of utter economic destruction

No, bob, THAT is "Post hoc ergo propter hoc" -- the downturn *should* have been 2-3 years. What followed was directly as a result of repeated screwups by both the GOP and the Dems in Congress and the Hoover and Roosevelt admins.

That would be the very same people you want to "regulate" to prevent such problems. Ahhhyeaaauhhh. Right. They can't even fix a problem after it's happened. How can they prevent problems in the first place?

The entire reason why the FRS exists in the first place is to supposedly "prevent" the kind of financial downturns that were common following the civil war. The only thing that's happened is that the People In Charge have kept fiddling with things and managing to hold things off until they reach a crisis level and all of the sh** hits the fan at once.

These same people you trust to "regulate" to fix things can't even balance their own budgets bob!! WTF makes you think these morons can do better with a far more complex system?

Here's what they actually do with such a system: Yellowstone.

...(continued)....

OBloodyHell said...

> I'm not saying that, but I could.

You could say that, sure. I could say you have great big floppy bunny ears and a nose like a hamster, but, as with copi, that doesn't make it so.

There are ways of demonstrating the triggering elements of the rise and fall of the economy and of the tax revenues. Tax cuts have been demonstrated to be a positive factor in this regard, and once again -- that makes sense:

Allowing people to keep more of their own money so that they can spend it -- keep it flowing through the economy -- is going to fuel the engine better than having a government do it.

> Ah yes, an estimate from an economist. We all know what those are worth

Ah, so you believe in following the dictates of tea leaf readers and phrenologists instead, then? An interesting proposition....

I don't trust some people who call themselves "economists", either, bob. But some of them know what they speak of, and some clearly don't -- Krugman is an obvious resident in this latter category, along with just about anyone who tries to retrofit a blatantly failed theory like Keynsianism into a workable form. I've found the answers to "Are you a neoKeynesian" and "Are you a completely incompetent dunderhead" to be pretty strongly correlated.


From Carl:

> 5) Presidents, Congress, columnists (post to come) and regulators wanted a housing boom. They got it, in the worst way. That's the crucial lesson, which can be implemented without over-regulation.

Indeed, this is the real problem at the heart of it. It wasn't a failure of existing regulation itself, or even a lack of regulation -- it was efforts to override common sense applied to regulations which produced this mess and caused the problem. Everything else followed from that. I've pretty much been saying this all along.

It's so duh it's not funny -- when you create a swiftly rising market, then price credit so it is far cheaper than said market, people are going to buy on credit. They are going to speculate. I can't tell you the number of times I'd heard the "real estate prices always go up" mantra five years ago. Every drooling halfwit was out there saying that real estate was a great investment, you couldn't lose. Not being a halfwit myself, I wasn't suckered in. Lots of people have been found wanting in the "wit" department, however. Many are even Republicans.

bobn said...

Carl,

Re: the Kling article:

culminating in a formal repeal of Glass-Steagall in 1999. However, it is hard to pin the decline in mortgage lending standards or the surge in leverage at banks on this development.

While the repeal of Glass-Steagall may or may not have caused these 2 developements, the 2004 tripling of leverage allowances at the 5 big I-Banks certainly did. My mortgage disaster post, which Carl seems to have read very poorly, shows how these events were related temporally (1st part of my post) and causally (2nd part of my post).

A credit-default swap is an insurance policy on a bond or mortgage security. CDS were traded over-the-counter, meaning that individual firms wrote contracts. With over-the-counter trading, AIG insurance wrote CDS to insure many mortgage securities, never dreaming that there would be enough mortgage defaults that they would have to pay claims.

Kling acknowledges here that CDSs are a form of insurance, while conveniently leaving out the fact that regulating them as such would have required AIG and others (AMBAC, MBIA) to have reserves in place to pay off claims. The regular insurance companies selling regulated insurance did not come to harm on that insurance; they are in trouble because they invested in CMBS.

However, the fact is that the Federal Reserve, which regulates most of the nation's largest banks, had enough power to prevent bank failures with better capital regulations.

But the Greenspan FED refused to regulate. Greenspan, a sometimes follower of Ayn Rand, was completely against regulation, while simultaneously being perfectly in favor of massive monetary manipulation. A very strange and dangerous combination. Even he concedes today that his regulatory approach failed.

Preventing failure at Freddie Mac and Fannie Mae also did not require a systemic risk regulator—what was needed was tighter supervision by the Office of Federal Housing Enterprise Oversight, which regulates those institutions. That in turn would have required support from Congress, which generally was instead more prone to tampering with the regulator than with the housing enterprises it was supposed to regulate.

FNM and FRM are only 15% of the problem. I agree with the first sentence while disputing the second. Congress made no law requiring OFHEO to keep it's hands off of FNM and FRE. Short of a law, all the ranting in the world makes no difference to the fact that a regulator is supposed to regulate.

If you could turn back the clock and change regulations to prevent the financial crisis, the focus would be on two areas: mortgage underwriting standards and bank capital regulations.

But it was the reduction in I-Bank capital requirements that caused the decline of mortgage underwriting standards, as I showed in the second part of my Mortgage Disaster post.

The fact that some seemingly minor mistakes can have catastrophic consequences does not bode well for the view that regulatory reform will be sufficient to prevent another financial crisis. Instead, I agree with those who would like somehow to have banks broken into smaller units and subject to market discipline (through subordinated debt, for example), so that regulators are under less pressure to get regulations right or to engage in bailouts when banks fail.

I wholeheartedly agree that "too big to fail" is "too big to exist". I'm all for cutting these swine down to size. But given the banks we had, we needed to keep them more under our thumbs. De-regulation, anti-regulation and non-regulation was the wrong approach for the banks that existed.

bobn said...

the pie chart from page 18 that you reprint.

Actually, I believe that there is a "flaw" in that chart which - surprise! - makes Wall Street look worse than they are relative to everybody else, especially the GSEs.

(I had this feeling about trusting something from FRE, but it said what I wanted to hear. Darn.)

Oddly enough though, this flaw doesn't crucially affect most of my case against Wall Street. More tomorrow.

bobn said...

OBH said:

Uh, bob, I'm not even going to refute that because....

Because you can't, as I've already refuted several other examples as well.

bobn said...

The "flaw" I mention above in the FRE pie charts only relates to one specific way I was using the numbers in them, as noted here.

bobn said...

Carl says:

Still, forty nine percent is a lot--but you discount it.

Yes - because you and OBH have indicted the GSEs. So i focused on their part relative to Wall Street's. And Wall Street's problems are just beginning - the Alt-A and Option ARM tsunamis still in the making will make this even more one-sided.

This is especially critical given that the pie chart from page 18 that you reprint is based on the "number" of mortgages, not their value. If you look at page 23, T2 says that the largest sector, by value, at risk is prime mortgages.

Yes, at risk, not already failed. T2 also says about this: "Prime loans (most of which are owned or guaranteed by the GSEs) defaulting due to job loss and home price declines (i.e., underwater homeowners). Timing: started to surge in early 2008 to the present." In other words, problems with prime mortgages are an effect of the crisis, not a cause. Try to think about the numbers, Carl. Prime mortgage is fixed rate, 20% down, payment less than 26% of gross income. So the market had to bring the the price down 20% *and* the borrower had to suffer a significant loss of income.

For Alt-A, subprime and Option ARM, all that needed to happen is prices not going up and time to pass.

Commercial real estate is second. Neither of those are the type of transactions of which you complain.

Commercial has all the same problems at residential. For every screwed up underwriting practice in RRE, a similar, though diffwerently named one existed in CRE. Problems in CRE typically lag RRE by 18 months, per Calculated Risk. I never brought it up because we were of the focus on RRE and GSEs, but ask the insurance companies how they like their CMBS.

(continued....)

bobn said...

Carl continues: Further, I fault your interpretation of T2 given that the T2 charts on borrowing power (page 9) seem to prove my point--that much of the crisis was demand driven.

You've got big brass balls for pointing to the Edmund Andrews case. Once upon a time, before Wall Street got involved (see the graphs for timing), there was a word that originators had for people who wanted to borrow 9x their income, or have mortgages payments equal to 95% of their monthly take home. That word was "NO". People can have all the "demand" they want - if the lenders had said "no" it would not have mattered.

"Debt became increasingly available and acceptable in our culture [and] Millions of Americans became greedy speculators."

See preceding.

That's why T2's page 29 chart shows that 25 percent of prime mortgages also are underwater.

Again you mistake effect for cause. The prime borrowers were 20% above water at closing, by definition. It took the subprime crisis to pop the bubble to get these folks underwater. (Actually, buying at bubble prices guaranteed that it would happen, but that's not the fault of the prime loan.)

And you haven't justified your concern for the leverage standards of investment banks. How did that cause the crisis?

Go back to my post, look at the graphs for the timing, then read about YSP for causal connection. Also here about YSP:

The big money for unscrupulous brokers, however, lies in steering borrowers into higher cost loans. A prime, fixed-rate loan at par may earn a broker a fee of one percent or less, but a hybrid adjustable rate mortgage (ARM) can pay four percent or more.

The Center for Responsible Lending (CRL) has said that inflated YSPs are included in 85 to 90 percent of all subprime mortgage loans.

Borrowers of hybrid ARMs, nicknamed "exploding" or "toxic" ARMs, often get stuck with prepayment penalties that penalize a borrower for paying off a loan early


There's your free market at work.


Carl continues:

Because they aren't backed by government deposit insurance, we should be less concerned about leverage rules for investment banks--and normally shouldn't bail them out if they bust.

Melting the economy is bad enough thank you. And talk to Bush/Paulson/Obama/Geithner about not bailing out investment banks.

OBloodyHell said...

> Congress made no law requiring OFHEO to keep it's hands off of FNM and FRE

Well, except, bob, that, ONC AGAIN you totally ignore CSPAN FOOTAGE which shows the Senate Finance Committee excoriating the OFHEO representative for daring to question the shoddy -- by government standards -- bookeeping practice at the GSEs.

After that, what bureaucrat is going to stick his head out and make any further claims as to irregularities? Just for the "privilege" of having his career jeopardized by a protecting member of Congress. Hmmm?

Without passing any law, the SFC made it quite clear that the GSEs were "off limits" for investigation or other attention by the admin's bureaucrats.

Without express support from much higher in the admin, there was no way anyone was going to do anything to the GSEs.