Condi Rice Schooled By A 4th Grader

First, college students were too tough for Condi Rice. Now, it's 4th graders who are too much of a challenge. After a speech at a Washington DC elementary school, the Washington Post reports a 4th grade student asked her "What did Rice think about the things President Obama's administration was saying about the methods the Bush administration had used to get information from detainees?" Again, she resorted to the Nixonian "it's-legal-if-the-president-says-it-is" defense.

Lucky for her, the student's question was toned down: he originally wanted to ask her, "If you would work for Obama's administration, would you push for torture?" Is the media paying attention? That's how you ask tough questions.

Krauthammer: Torture Is Impermissible Except Always

This is really a masterpiece of partisan hackery from Charles Krauthammer. Weighing in on the torture debate (how sad is it that there is even a debate about whether the United States should torture) with his trademark sanctimonious liberal-who-has-been-mugged-by reality "toughness", Krauthammer informs us that "torture is an impermissible evil. Except under two circumstances." And what are these exceptions? According to Krauthammer, "the first is the ticking time bomb." Ah, the ticking time bomb. Never mind that this situation has never actually happened outside of 24. Indeed, consider all of the facts an interrogator would need to know to justify torture in this situation: he would need to know that an attack is imminent, he would need to know enough about the plot to capture the suspect without knowing where or when the attack was, and he would need to know that the suspect knew enough to stop the attack. This is the epistemiological aspect of the ticking time bomb scenario. It is extremely unlikely that such a situation would ever occur. Much more plausibly, an interrogator would justify chatter about impending attacks - there is always chatter - to go on a fishing expedition to see what a suspect knows. After all, there might be a ticking bomb! It is a very slippery slope from the ticking time bomb to allowing torture in any case.

What about Krauthammer's exception? Again, from Krauthammer's column:

The second exception to the no-torture rule is the extraction of information from a high-value enemy in possession of high-value information likely to save lives. This case lacks the black-and-white clarity of the ticking time bomb scenario. We know less about the length of the fuse or the nature of the next attack. But we do know the danger is great. (One of the "torture memos" noted that the CIA had warned that terrorist "chatter" had reached pre-9/11 levels.) We know we must act but have no idea where or how -- and we can't know that until we have information. Catch-22.

This is not an exception; this is a license to torture any suspect at any time. In fact, this is an exact description of the slippery slope entailed in allowing torture under the ticking time bomb scenario. So, per Krauthammer, torture is an "impermissible evil" except whenever we decide to do it. Sadly, this is about on par with the legal "reasoning" in the Bybee and Yoo torture memos. If this is the best defense torture apologists can marshal, they should move to countries that do not have extradition.

Meyerson: Simon Johnson is Right

Harold Meyerson certainly seems to agree with Simon Johnson's argument that the financial sector has become both too large economically and too powerful politically. In his last column, Meyerson essentially paraphrases Johnson's recommendations for dealing with this crisis. From the Washington Post:

The Democrat in the White House and the Democrats on the Hill are committed to legislation that regulates our dysfunctional wards in the banking industry, but regulations by themselves won't solve the problem of the banks being too big to fail -- and so big that they dominate campaign finance and, with it, much of the business of lawmaking. We need to amend our antitrust laws so we can scale down banks to the point that they no longer imperil our economic and political systems. As things stand now, it's we who are serving their needs, not they who are serving ours. It's time to turn that around.

While many in the media have been quick to dismiss Johnson as a radical, it is certainly encouraging to see his ideas gain some currency among more mainstream voices. Because if we do not build a consensus about checking the outsized influence of Wall Street, we will only set ourselves up for an even bigger crisis in the future, assuming we make it through this one over the next year or two.

Richard Cohen Is Not Very Bright

In an otherwise unremarkable column about the myriad failures of the Bush presidency, Richard Cohen throws us this brilliant line on foreign policy:

Whether you supported the war or opposed it, you have to concede that it should have ended years ago and, along with the invasion of Grenada, be a fit dissertation subject for a desperate PhD candidate and not, as it remains, a festering debacle.

Does Cohen really think that regime change in a small Caribbean island, and in a much larger, ethnically heterogeneous Middle Eastern state are comparable? Was this the "logic" he used for supporting the invasion of Iraq? Perhaps he should stick to what he knows - serving as a faithful stenographer for our elites - and leave the policy analysis to people who can actually think (the kind of people who understand cultural and historical factors matter when you're talking about toppling a government and occupying a nation indefinitely).

Samuelson: Assets Just Need Some Love-erage

Count Robert Samuelson among those who insist that "there are no bad assets; only misunderstood assets". Per Samuelson:

"Deleveraging" has caused prices to plunge to lows that may be as unrealistic as previous highs.

Grasping this, you can understand the idea behind Geithner's hedge fund. It is to inject more leverage into the economy -- not to previous giddy levels but enough to reverse the panic-driven price collapse.

But has the collapse in assets prices been the result of panic or fundamentals? One study has shown that some CDOs are actually worth even less than what many pessimists thought. To counter the notion that the fundamentals justify the current depressed prices, Samuelson cites

one mortgage bond whose market value has dropped by roughly 40 percent even though all promised payments have been made and, based on the performance of the underlying mortgage borrowers, seem likely to continue.

Unfortunately, this description omits two key details: are the borrowers underwater on their mortgages, and do the mortgages reset in the near future? If borrowers owe substantially more than their homes are worth, then they have a powerful incentive to post jingle mail, and walk away from their mortgages, even if they could afford to pay it. And as the real economy continues to deteriorate, with unemployment rising and wages lowering, increasing numbers of underwater borrowers will likely be under greater financial strain; paying off a mortgage that dwarfs the value of one's house will make less and less sense. Likewise, if these are option ARM mortgages, then they will likely reset within the next year. Borrowers who can make their payments today may not be able to make the higher, reset rates. If either of these scenarios is the case, then discounting this particular mortgage bond 40% seems fairly reasonable.

Samuelson does hedge a bit, admitting that these current lows "may be as unrealistic as previous highs." Perhaps he realizes that losses in mortgages, in commercial real estate, and in credit card debt are all real. There is nothing panic-driven about these losses. And unfortunately, the wizards of Wall Street multiplied these losses several times over with synthetic CDOs and CDS bets. No, our major banks are very insolvent. And no amount of financial engineering - no matter how clever - will change that.

Kinsley: Obfuscation is the Point of the Geithner Plan

Finally, someone from the establishment media (aside from Paul Krugman) speaks the obvious truth about the Geithner giveaway-to-banks-and-hedge-funds-and-private-equity-at-taxpayers'-expense-orgy: it is deliberately opaque, so as to mask how large a subsidy it is to the financial sector. Just as our erstwhile wizards on Wall Street seem to create intentionally abstruse financial instruments in order to keep the masses from questioning their financial hanky panky, Kinsely argues that the difficulty in deciphering the exact workings of the Geithner public-private plan seems similary motivated: to keep the public out. Indeed, Geithner has merely recycled Paulson's TARP idea of buying up toxic assets, which was rejected for being too transparent a giveaway to bankers, and added an extra step - launder the money through hedge funds and private equity firms. Perhaps the success of keeping the identity of AIG's counterparties secret for six months inspired this new scheme. Geithner has explained that partnering with these financiers will tap into the "expertise of the market" in pricing these so-called toxic assets, when in fact, this amounts to passing out lottery tickets to hedge funds and private equity firms, as they siphon off a percentage of any potential gains from the bailout. And, of course, public money will continue to flow into the banks, except this time via hedge funds and private equity firms instead of through AIG. This is the coup de grace of our kleptocratic system: everyone on Wall Street wins, and everyone on Main Street loses.

Of course, once it becomes clear that already rich financiers are becoming even richer thanks to the largesse of the Treasury, there will be public outrage that could potentially dwarf the AIG bonus flap. Maybe then our political class will pay more than lip service to the righteous anger spewing over the transfer of wealth from the masses to the politically connected who have brought the system down.

Welch: Ignore Everything I've Ever Said (Except For This)

Remember maximizing shareholder value? Remember beating quarterly earnings expectations being the be-all-and-end-all of a CEO's job? Well forget it - at least according to Jack Welch, the deified former GE CEO credited with ushering in the shareholder value gospel. From the FT:

Jack Welch, who is regarded as father of the "shareholder value" movement, has said the obsession with short-term profits and share price gains that has dominated the corporate world for over 20 years was "a dumb idea"....

"On the face of it, shareholder value is the dumbest idea in the world," he said. "Shareholder value is a result, not a strategy...your main constituencies are your employees, your customers and your products."

Now he tells us. No doubt Welch feels chagrined about the sorry state in which he left GE. While Welch managed to leave near the top, the accounting gimmicks he regularly employed to beat quarterly earnings expectations - particularly with the opaque GE Capital - have shredded investor confidence in GE's financial statements today. Oops.

It's worth noting that not everyone has bought into the shareholder value gospel. In the Washington Post, Harold Meyerson calls attention to the stakeholder model in Germany, where workers have meaningful representation on company boards, and long-term goals are prioritized over short-term ones, since German companies rely on retained earnings and banks rather than the markets for funding. It might be a model worth copying.

Washington Post: Healthcare=Iraq

From the annals of journalistic equivalence, comes this tendentious editorial from Jackson Diehl in the Washington Post. The Very Serious Diehl informs us that in actually attempting to follow through on his campaign promises, President Obama risks following his predecessor George W. Bush into presidential oblivion. Indeed, Diehl finds it "odd" that most of the punditocracy has spent the last few weeks comparing Obama's transformative potential to that of FDR or Reagan, while to Diehl the parallels to Bush are so apparently obvious.

David Broder would be proud. After all, while this "pox on both your houses" style of journalism seems easy to write, it often requires a great deal of intellectual dexterity to argue that up is down. Being this vapid is hard. And so in a rather breathtaking display of equivalence, Diehl argues that healthcare reform is Obama's Iraq. Bravura performance.

Diehl claims Obama mirrors Bush's trajectory first in not asking people to sacrifice in the face of crisis. I suppose the question could be asked, sacrifice what exactly? Their homes? Their jobs? Their retirement investments? People are already losing everything in this economic crisis. Asking them to give something else up now makes no sense. And it would be counterproductive to recovery. Once the economy is on stronger footing, and we know how much we spent to plug the holes in the banking sector and to stimulate growth, it would make sense to talk about broader based tax increases. I suspect President Obama will be forced to do just that, particularly with the payroll tax to make Social Security solvent over the longer term. But criticizing him for not talking about the hard choices we will have to make when we don't know what they are exactly is a cheap shot.

Second, Diehl argues that, like Bush, Obama has not made serious efforts at bipartisanship, and has instead used a crisis to push through a partisan agenda. This makes so many mistakes, it's hard to keep track of them all. First, it assumes that bipartisanship is in itself desirable. This is always the starting point for Very Serious centrists like Diehl; they see both sides of the issues and understand that compromise is always the best solution. This is simply untrue. There are right answers. Now there will always be disagreement, but a lack of unanimity does not make a policy incorrect. Sometimes the price of watering down a correct policy to appease the minority is disastrous. Now is one of those times. If you think we should have a government spending freeze during a depression and I think we should aggressively spend to use the excess capacity in the economy, we should not simply split the difference. Diehl complains that Obama has not done that. Indeed, according to Diehl, President Obama:

has been unapologetic about using emergency measures like the stimulus bill to press polarizing Democratic priorities, such as the expansion of Medicaid benefits to the unemployed and union-friendly contracting provisions.

Perhaps Diehl should become economically literate. Does he really believe President Obama pushed for increased aid to the unemployed because those are Democratic priorities, or because spending targeted at those most in need is the most stimulative? Mark Zandi, a middle of the road economist who advised Senator McCain's campaign, has estimated that spending is much more stimulative than tax cuts during a recession. Aid such as food stamps and extended unemployment benefits give the greatest bang for the buck in terms of stimulus. But for Diehl, how successful a policy is irrelevant in judging its merits. Whether Republicans and Democrats agree on it is the only factor that matters. This is the final fallacy Diehl adheres to: all disagreements are equal. Democrats voting against an intrusive infringement of our civil rights is equivalent to Republicans reverting to neo-Hooverism as the economy collapses (and, of course, the Very Serious people always blame the Democrats for any failure to agree; they had to give in to President Bush on the Patriot Act, and they must be willing to include more bad ideas in the stimulus to get Republicans to sign on).

To conclude this stunning tour de force of intellectual vapidity, Diehl tells us that President Obama's efforts at healthcare reform are analogous to the war in Iraq. Really. Both, according to Diehl, are "divisive and risky." Both, in a rather telling admission, have "lurked in the background of the national agenda for years." And both threaten to divide the set off "an enormous domestic battle," while the real problems besieging us - in this case the war in Afghanistan and the financial crisis - continue unsolved. Credit Diehl with this one point: he is correct that the Obama team needs to do more vis-a-vis the banks. Tim Geithner's performance and lack of a coherent plan thus far has been troubling. But comparing healthcare reform to the Iraq war is insane. Obama ran on a platform of healthcare, energy, and education. Now he is trying to make good on his campaign promises. He is not using this crisis to try to enact a secret agenda. He ran on this agenda, and won on it. People want dramatic change in all of these areas. Conversely, Bush misled us into war in Iraq for reasons still unknown. It was a complete non sequitur from 9/11. It never made any sense. This is why half the country vociferously opposed the war from the beginning. Furthermore, the war in Iraq directly took away resources from the real fight in Afghanistan. Reforming healthcare is not similarly zero sum when it comes to fixing financial crisis. And bringing down the costs and expanding coverage will put our economy on more competitive ground so that we can have real, sustainable growth in the future, not the purely speculative, illusory growth we have had for the last decade and a half. But never mind that - for Diehl and the organs of the conventional wisdom, Democrats and Republicans are always equally to blame. Especially Democrats. As Brad DeLong laments, why, oh why, can't we have a better press corps?