Marc Ambinder is a columnist at The Atlantic with extensive contacts in the Obama administration. Ambinder is a smart guy, but he's sometimes "captured" by his sources -- in order to get exclusive information, he writes the article with the spin his source wants. All through the health care debate, he's been the go-to guy for the Official Unofficial White House Line. That is, the inside baseball and gossip which the White House wants to make public but for one reason or other doesn't want Robert Gibbs to say officially.
As a source of the Official Unofficial White House Line, it's quite interesting to read his write-up of the CIA torture investigation announced last week. In short, the Obama team's line on this is, "We know this is a political loser. We're only doing it because the public facts of the cases compel us to enforce the law. We'd rather ignore all of it. Please don't hit us too hard."
Which is really a shame, both for policy and political reasons. I think one of the worst policies of the Bush administration was the willingness to completely disregard civil liberties. American officials kidnapped foreigners and American citizens, held them in secret foreign prisons without charge or trial, and extracted false confessions through torture. And this investigation isn't going to address any of that! They're only going to investigate individuals who went beyond even the incredibly loose restrictions set by the Bush administration.
And Obama's team is ashamed that they're even doing that. Supposedly Leon Panetta threatened to resign as CIA head over this investigation.
This decision gets them the worst of both worlds. They give the Republicans ammunition to say Democrats are prosecuting the people who worked to keep America safe. And they show people like me that they have no courage to do the right thing and investigate how people at the very top -- Cheney, Gonzales, and Yoo -- set up a system that violated America's fundamental principles.
Will there be charges in the case? Not for a year or two at least. If they do happen, they'll be timed to do the least political damage, probably shortly after the 2010 elections.
Shameless Rumor-mongering
I'm not sharing my source on this one, but I hear that embarrassing news is about to come out about the sexual behavior of one of Mark Sanford's top nominees. Sanford made it very clear that he's not going to resign, but this will add pressure for a special legislative session for impeachment.
More Future News Today
Note: This blog will be on hiatus for the next week.
______________________________
September -- Ted Kennedy finally succumbs to brain cancer. All respectable news outlets eulogize the "Lion of the Senate." Health care reform was Kennedy's signature issue, so liberals try to leverage this outpouring of goodwill towards passage of a meaningful bill. They are helped by a small but significant faction of conservatives who take the opportunity to yell "Chappaquiddick" and express their joy that Kennedy is dead.
This wins a news cycle for the progressives, bumping up public support for health reform by 5 points or so.
______________________________
September -- Ted Kennedy finally succumbs to brain cancer. All respectable news outlets eulogize the "Lion of the Senate." Health care reform was Kennedy's signature issue, so liberals try to leverage this outpouring of goodwill towards passage of a meaningful bill. They are helped by a small but significant faction of conservatives who take the opportunity to yell "Chappaquiddick" and express their joy that Kennedy is dead.
This wins a news cycle for the progressives, bumping up public support for health reform by 5 points or so.
Solomonic health care
The Wall Street Journal reported last night that the Democrats are considering splitting the health care reform bill into two pieces. One part would contain relatively popular provisions like insurance reform, and would be expected to pass with several Republican votes. The other would have more controversial provisions, likely including a public option, and would be expected to require a dirty fight over reconciliation to pass.
It's hard to tell exactly what the administration is trying to accomplish with this. There are two possibilities. Either they're beginning the process of shaping legislation to pass through reconciliation, as I predicted earlier. Or they're going to pass what they can and let the rest die on the vine.
Reconciliation is going to be a difficult parliamentary process. If we go down that path, expect to hear a lot about Alan Frumin, the Senate Parliamentarian. In theory, the process works like this: reconciliation was originally designed to prevent a minority from filibustering important budget-related items. Anyone can object to any provision in a bill, arguing that it is not budget-related. The parliamentarian will uphold or reject their objection; if it is upheld, 60 senators must vote to overrule the parliamentarian's judgment. In practice, the Democrats will probably do what the Republicans did twice in 2001: fire the current parliamentarian and replace him with someone more ideologically suitable.
Reconciliation has been used successfully by both parties in the past to pass legislation unrelated to the budget. Health insurance portability, nursing home standards, and offshore drilling have all passed through reconciliation. Using it to pass health care reform is ambitious but not impossible. Expect Republicans to squawk and moan about the trampling of the democratic process, and for liberals to point out many times when those very Republicans voted for reconciliation when Bush was president.
So, I think it's plausible that substantive health care reform could be passed by reconciliation. But the process will be messy, partisan, and unpopular. It will focus attention on the Washington sausage-making factory in a very unflattering way. It all goes against Obama's instincts, and I'm not sure he'll have the stomach for it. I could easily envision Obama shepherding through the popular bipartisan stuff, then shrugging to the liberals that the votes aren't there for a public option. He'd still declare victory because he would be able to sign something he called health care reform. The liberal base would be incredibly pissed off, and at least one Daily Kos post would argue for a primary challenge. Still, moderate reform would help the Congressional Dems more in tight races in 2010.
I'll wait for more signals from the White House before calling this (and it may just be a trial balloon or bluff anyway), but my guess is that only one half of a split bill will ever get passed.
It's hard to tell exactly what the administration is trying to accomplish with this. There are two possibilities. Either they're beginning the process of shaping legislation to pass through reconciliation, as I predicted earlier. Or they're going to pass what they can and let the rest die on the vine.
Reconciliation is going to be a difficult parliamentary process. If we go down that path, expect to hear a lot about Alan Frumin, the Senate Parliamentarian. In theory, the process works like this: reconciliation was originally designed to prevent a minority from filibustering important budget-related items. Anyone can object to any provision in a bill, arguing that it is not budget-related. The parliamentarian will uphold or reject their objection; if it is upheld, 60 senators must vote to overrule the parliamentarian's judgment. In practice, the Democrats will probably do what the Republicans did twice in 2001: fire the current parliamentarian and replace him with someone more ideologically suitable.
Reconciliation has been used successfully by both parties in the past to pass legislation unrelated to the budget. Health insurance portability, nursing home standards, and offshore drilling have all passed through reconciliation. Using it to pass health care reform is ambitious but not impossible. Expect Republicans to squawk and moan about the trampling of the democratic process, and for liberals to point out many times when those very Republicans voted for reconciliation when Bush was president.
So, I think it's plausible that substantive health care reform could be passed by reconciliation. But the process will be messy, partisan, and unpopular. It will focus attention on the Washington sausage-making factory in a very unflattering way. It all goes against Obama's instincts, and I'm not sure he'll have the stomach for it. I could easily envision Obama shepherding through the popular bipartisan stuff, then shrugging to the liberals that the votes aren't there for a public option. He'd still declare victory because he would be able to sign something he called health care reform. The liberal base would be incredibly pissed off, and at least one Daily Kos post would argue for a primary challenge. Still, moderate reform would help the Congressional Dems more in tight races in 2010.
I'll wait for more signals from the White House before calling this (and it may just be a trial balloon or bluff anyway), but my guess is that only one half of a split bill will ever get passed.
AGNC hit my target
Sold my AGNC at 24.49 this afternoon. That's a 5% gain in 9 days, or 700% annualized. It may go up further, but the risk/reward is less attractive at these levels.
WUC is up 10% in 2 days, but that's just luck.
WUC is up 10% in 2 days, but that's just luck.
Western Uranium Corp
Interesting micro-cap mining company I just bought into yesterday. Western Uranium (WUC.V, WURNF.PK) owns claims to a few uranium-rich areas in Nevada, New Mexico, and northern Canada.
What I really like about WUC is its balance sheet. WUC last traded at $0.89 (all numbers are in Canadian dollars). It has $0.88 in cash with no debt. What's more, it owns one third of Western Lithium Corporation (WLC.V), an early-stage lithium miner. Based on WLC's last trade, WUC's ownership is worth $0.34 a share. So without even getting into WUC's actual business, for 89 cents you can buy 88 cents in cash and 34 cents worth of WLC.
In many companies with cash-on-hand greater than market cap, it's because management is obviously terrible and everyone expects them to blow the cash. That's not the case here. WUC is spending only $4 million per year on exploration.
WUC's uranium properties are valued at $0.30 a share. I don't know much about uranium mining, but Cameco, the world's largest publicly traded uranium miner, thought highly enough of WUC's prospects to buy 10% of the company at $3.80 per share.
I see several potential catalysts for WUC's share price to reflect its true value. -A resurgence in the price of uranium will refocus attention on uranium miners. Uranium cost $120 a pound at the height of the commodities boom. Now it's around $50. Most commodities have moved upwards substantially over the past few months; uranium has not yet joined them. If it does, WUC should trade up as well.
-Increased use of nuclear power will draw attention to uranium miners as well. China and other developing countries are rapidly expanding their nuclear capacity. No new plants have been built in the US for 30 years, but the first new approval could come in 2011.
-Western Lithium and lithium metal are surging upward as investors anticipate much higher demand for lithium for hybrid-car batteries. If this continues, it may soon be cheaper to own WLC by buying WUC than buying WLC directly.
What I really like about WUC is its balance sheet. WUC last traded at $0.89 (all numbers are in Canadian dollars). It has $0.88 in cash with no debt. What's more, it owns one third of Western Lithium Corporation (WLC.V), an early-stage lithium miner. Based on WLC's last trade, WUC's ownership is worth $0.34 a share. So without even getting into WUC's actual business, for 89 cents you can buy 88 cents in cash and 34 cents worth of WLC.
In many companies with cash-on-hand greater than market cap, it's because management is obviously terrible and everyone expects them to blow the cash. That's not the case here. WUC is spending only $4 million per year on exploration.
WUC's uranium properties are valued at $0.30 a share. I don't know much about uranium mining, but Cameco, the world's largest publicly traded uranium miner, thought highly enough of WUC's prospects to buy 10% of the company at $3.80 per share.
I see several potential catalysts for WUC's share price to reflect its true value. -A resurgence in the price of uranium will refocus attention on uranium miners. Uranium cost $120 a pound at the height of the commodities boom. Now it's around $50. Most commodities have moved upwards substantially over the past few months; uranium has not yet joined them. If it does, WUC should trade up as well.
-Increased use of nuclear power will draw attention to uranium miners as well. China and other developing countries are rapidly expanding their nuclear capacity. No new plants have been built in the US for 30 years, but the first new approval could come in 2011.
-Western Lithium and lithium metal are surging upward as investors anticipate much higher demand for lithium for hybrid-car batteries. If this continues, it may soon be cheaper to own WLC by buying WUC than buying WLC directly.
Game theory and the public option
A political meme has been gaining traction in liberal circles recently: Health reform without the public option would be worse than nothing. Slate's Timothy Noah makes the most convincing case. Other versions have been put forward by Howard Dean, Bob Herbert, Rachel Maddow. James Carville has argued that the Democrats should pass nothing and run against the Republicans as obstructionists (Which, by the way, is terrible political advice.)
If the public option is to have any chance at passing, this meme will have to spread. There is a group of 64 liberals in the House who have pledged to vote against any reform plan that doesn't include a public option. Right now, no one believes them. The political calculus is simple. Half a loaf is better than none, so when push comes to shove, they'll vote for something rather than nothing. The moderates and Democratic leadership can freely ignore the liberals' concerns and still get their votes.
The argument that partial reform is worse than nonegives the liberals a credible alternative. If the Democratic leadership believes that their liberal wing really believes that reform without the public option is worse than nothing, and really will vote against it, then they must include a public option or get nothing at all.
This particular meme fits into a larger meme, which is, roughly, "Hey! Obama isn't as liberal as we thought!" Progressives have been dismayed by a lot of Obama's actions: bringing in a corporatist economic team and continuing the bank bailouts; refusing to meaningfully reform the way Wall Street works; keeping Guantanamo open; continuing to imprison terror suspects without charge or trial; continuing the Bush practice of adding signing statements to bills; etc, etc. For the most part, liberals said to themselves, "Well, he's saving up his political capital for health care." And now that they see what that political capital has gotten them, a bill that achieves universal coverage largely by mandating that everyone buy insurance from private companies, they wonder why they bothered.
Look for liberal groups to put more and more pressure on moderate Democratic senators. Withholding contributions, targeted ad buys, threats of primary challenges. They really only need 7 more Senators to pass a public option. That's certainly within the realm of possibility.
If the public option is to have any chance at passing, this meme will have to spread. There is a group of 64 liberals in the House who have pledged to vote against any reform plan that doesn't include a public option. Right now, no one believes them. The political calculus is simple. Half a loaf is better than none, so when push comes to shove, they'll vote for something rather than nothing. The moderates and Democratic leadership can freely ignore the liberals' concerns and still get their votes.
The argument that partial reform is worse than nonegives the liberals a credible alternative. If the Democratic leadership believes that their liberal wing really believes that reform without the public option is worse than nothing, and really will vote against it, then they must include a public option or get nothing at all.
This particular meme fits into a larger meme, which is, roughly, "Hey! Obama isn't as liberal as we thought!" Progressives have been dismayed by a lot of Obama's actions: bringing in a corporatist economic team and continuing the bank bailouts; refusing to meaningfully reform the way Wall Street works; keeping Guantanamo open; continuing to imprison terror suspects without charge or trial; continuing the Bush practice of adding signing statements to bills; etc, etc. For the most part, liberals said to themselves, "Well, he's saving up his political capital for health care." And now that they see what that political capital has gotten them, a bill that achieves universal coverage largely by mandating that everyone buy insurance from private companies, they wonder why they bothered.
Look for liberal groups to put more and more pressure on moderate Democratic senators. Withholding contributions, targeted ad buys, threats of primary challenges. They really only need 7 more Senators to pass a public option. That's certainly within the realm of possibility.
Public option still looks dead, still isn't
Man, I love being a week ahead of the mainstream media and blogosphere. The NY Times and Washington Post are reporting as news that the public option may be dropped from Obama's health care plan. Meanwhile Nate Silver has a couple posts about the recent "death" of the public option. Daily Kos and TPM are doing a post mortem. And Drudge has a picture of white flag on the front page.
Oh, and the price of the Public Option contract on Intrade has dropped from the 30s to 18 this morning.
My goodness. Who could possibly have seen this coming?
This flurry of "news" stories doesn't really change my analysis at all. The nut of all of them is that Obama and his allies are willing to jettison the public option if it's necessary to get reform passed. It's not clear that it is.
As I wrote before, Obama's first choice would be to pass a bill with the support of at least a few Republicans. Given the solid intransigence shown by the Republicans so far, I don't think that will happen. Obama's second choice would be a party-line vote where 60 Democrats vote for cloture. It'll be very hard to get all 60 behind a single bill. Of course either of those first two bills would not include a public option.
It's a much lower hurdle to get 50 votes for a health care plan and pass it through reconciliation. Because he doesn't have to please Ben Nelson, Max Baucus, and Kent Conrad, Obama could pass a much more liberal bill which included a public option. Nate Silver points to a great vote count at Open Left, which shows 43 senators in favor of a public option, with many more on the fence. The Democratic leadership can probably add enough pork to slap together 50 votes on this.
As a side note, liberals are pissed about dropping the public option. Take a look at the comments on this post on 538, which is not a particularly liberal site. Or just look at all of Daily Kos. Basically, the people who really supported Obama, knocked doors and got out the vote, are wondering why they bothered. Major health care reform was the big ticket item in the Obama campaign. Without the public option, what does this bill do? Insurance companies will have to cover people with pre-existing conditions. Some people will get subsidized insurance. Beyond that? Not much. Not really worth spending your weekends phoning strangers and handing out flyers.
When the bipartisan negotiations fail, and we start hearing more talk of "reconciliation," look for these same news sources to start running stories about the amazing resurrection of the public option.
Oh, and the price of the Public Option contract on Intrade has dropped from the 30s to 18 this morning.
My goodness. Who could possibly have seen this coming?
This flurry of "news" stories doesn't really change my analysis at all. The nut of all of them is that Obama and his allies are willing to jettison the public option if it's necessary to get reform passed. It's not clear that it is.
As I wrote before, Obama's first choice would be to pass a bill with the support of at least a few Republicans. Given the solid intransigence shown by the Republicans so far, I don't think that will happen. Obama's second choice would be a party-line vote where 60 Democrats vote for cloture. It'll be very hard to get all 60 behind a single bill. Of course either of those first two bills would not include a public option.
It's a much lower hurdle to get 50 votes for a health care plan and pass it through reconciliation. Because he doesn't have to please Ben Nelson, Max Baucus, and Kent Conrad, Obama could pass a much more liberal bill which included a public option. Nate Silver points to a great vote count at Open Left, which shows 43 senators in favor of a public option, with many more on the fence. The Democratic leadership can probably add enough pork to slap together 50 votes on this.
As a side note, liberals are pissed about dropping the public option. Take a look at the comments on this post on 538, which is not a particularly liberal site. Or just look at all of Daily Kos. Basically, the people who really supported Obama, knocked doors and got out the vote, are wondering why they bothered. Major health care reform was the big ticket item in the Obama campaign. Without the public option, what does this bill do? Insurance companies will have to cover people with pre-existing conditions. Some people will get subsidized insurance. Beyond that? Not much. Not really worth spending your weekends phoning strangers and handing out flyers.
When the bipartisan negotiations fail, and we start hearing more talk of "reconciliation," look for these same news sources to start running stories about the amazing resurrection of the public option.
Mark Sanford timeline
I think it's unlikely Mark Sanford will serve out his term.
Let's recap:
June 18th - Mark Sanford leaves the state. After a few days, people start to wonder where he went. After a few false starts, his staff decides he is "hiking the Appalachian trail."
June 24th - An intrepid reporter catches Sanford disembarking from a plane returning from Argentina. Turns out he's been visiting his mistress in Argentina. Sanford brings a fresh take to the "politician caught cheating" press conference. Instead of the template "I made a terrible mistake," Sanford is quite honest about his feelings. Everyone thinks this is refreshingly real.
June 25th - Everyone forgets about Mark Sanford as Farrah Fawcett, Michael Jackson, Billy Mays, and, I believe, Generalissmo Franco all die.
June 30th - Mark Sanford inexplicably does another interview, in which he calls his mistress his "soul mate" and says he is trying to fall back in love with his wife. This sets off a new round of calls for his resignation. South Carolina's two senators work behind the scenes to convince him to resign. Lindsay Graham says he could accept Mark Sanford staying on as governor if he reconciles with his wife.
August 7th - Jenny Sanford moves out of the governor's mansion.
August 9th - The Associated Press reports that Sanford has been using state aircraft for personal and political trips, contrary to state law. This includes trips to his sons' ball games, and a trip for a discount haircut. Some people think these actions are out of character for a governor who had made a career out of fiscal discipline, trying to reject federal stimulus money, and making state employees use both sides of their Post-It notes.
Yesterday - South Carolina's attorney general and high-ranking Republican state legislators call for wide-ranging probes into whether the governor broke the law in his use of state planes and other resources.
What happens next?
Sanford published an editorial defending his actions, and arguing that other governors had done worse. It's clear he still doesn't plan to resign.
The South Carolina ethics commission may take up the case in the next few days. They operate confidentially, so the public won't know if they've even decided an investigation was warranted. Given the high-ranking officials calling for an investigation, it probably will take up the case. When it completes its review, it will either conclude Sanford did nothing wrong, conclude he acted unethically, or conclude he acted criminally. As a caveat, Sanford appointed or re-appointed each of the 9 members of the Ethics Commission, so they will likely be pre-disposed to rule in his favor. Meanwhile State Senator David Thomas, who is running for US Congress, is running his own inquiry.
There's quite a bit of talk of impeachment. Most of Sanford's most vocal opponents are South Carolina Republicans, who want Sanford to stop embarrassing them. The Democrats would love the political spectacle of taking down a nationally prominent governor, so they'll go along. If the Ethics Commission concludes that Sanford broke state law, he will almost certainly be impeached and convicted.
There is also a question of when this will happen. The South Carolina legislature is currently out of session, and isn't scheduled to reconvene until January. Still, they can reconvene earlier under certain circumstances. If the Ethics report creates political momentum for impeachment, the Republicans driving this will find a way to get the legislature back together. The sooner they get Sanford out of there, the sooner voters can stop associating South Carolina Republicans with their embarrassingly emo governor. Alternately, Mark Sanford might finally see the writing on the wall, and step down ahead of an inevitable impeachment.
It's not at all a sure thing that Sanford will be gone by the end of the year. In particular, if he gets only a mild rebuke from the Ethics Commission, he'll likely stay on. Still, I think the odds are about 35% that he leaves before the end of the year.
Let's recap:
June 18th - Mark Sanford leaves the state. After a few days, people start to wonder where he went. After a few false starts, his staff decides he is "hiking the Appalachian trail."
June 24th - An intrepid reporter catches Sanford disembarking from a plane returning from Argentina. Turns out he's been visiting his mistress in Argentina. Sanford brings a fresh take to the "politician caught cheating" press conference. Instead of the template "I made a terrible mistake," Sanford is quite honest about his feelings. Everyone thinks this is refreshingly real.
June 25th - Everyone forgets about Mark Sanford as Farrah Fawcett, Michael Jackson, Billy Mays, and, I believe, Generalissmo Franco all die.
June 30th - Mark Sanford inexplicably does another interview, in which he calls his mistress his "soul mate" and says he is trying to fall back in love with his wife. This sets off a new round of calls for his resignation. South Carolina's two senators work behind the scenes to convince him to resign. Lindsay Graham says he could accept Mark Sanford staying on as governor if he reconciles with his wife.
August 7th - Jenny Sanford moves out of the governor's mansion.
August 9th - The Associated Press reports that Sanford has been using state aircraft for personal and political trips, contrary to state law. This includes trips to his sons' ball games, and a trip for a discount haircut. Some people think these actions are out of character for a governor who had made a career out of fiscal discipline, trying to reject federal stimulus money, and making state employees use both sides of their Post-It notes.
Yesterday - South Carolina's attorney general and high-ranking Republican state legislators call for wide-ranging probes into whether the governor broke the law in his use of state planes and other resources.
What happens next?
Sanford published an editorial defending his actions, and arguing that other governors had done worse. It's clear he still doesn't plan to resign.
The South Carolina ethics commission may take up the case in the next few days. They operate confidentially, so the public won't know if they've even decided an investigation was warranted. Given the high-ranking officials calling for an investigation, it probably will take up the case. When it completes its review, it will either conclude Sanford did nothing wrong, conclude he acted unethically, or conclude he acted criminally. As a caveat, Sanford appointed or re-appointed each of the 9 members of the Ethics Commission, so they will likely be pre-disposed to rule in his favor. Meanwhile State Senator David Thomas, who is running for US Congress, is running his own inquiry.
There's quite a bit of talk of impeachment. Most of Sanford's most vocal opponents are South Carolina Republicans, who want Sanford to stop embarrassing them. The Democrats would love the political spectacle of taking down a nationally prominent governor, so they'll go along. If the Ethics Commission concludes that Sanford broke state law, he will almost certainly be impeached and convicted.
There is also a question of when this will happen. The South Carolina legislature is currently out of session, and isn't scheduled to reconvene until January. Still, they can reconvene earlier under certain circumstances. If the Ethics report creates political momentum for impeachment, the Republicans driving this will find a way to get the legislature back together. The sooner they get Sanford out of there, the sooner voters can stop associating South Carolina Republicans with their embarrassingly emo governor. Alternately, Mark Sanford might finally see the writing on the wall, and step down ahead of an inevitable impeachment.
It's not at all a sure thing that Sanford will be gone by the end of the year. In particular, if he gets only a mild rebuke from the Ethics Commission, he'll likely stay on. Still, I think the odds are about 35% that he leaves before the end of the year.
At least he's not a crook
I've never been a big fan of Arlen Specter. As I've said before, Specter's only moral conviction seems to be that he should remain in office.
It's been a bad week for Arlen. First, he got his ass handed to him at a town hall meeting.
Specter seems to be channeling Frank Langella's Richard Nixon. Specter is stuttering, and despite holding the microphone, he seems totally out of control of the situation. I count twelve "Wait-a-minutes." And his feeble, "We just had a demonstration of democracy" at the end is great fodder for an opponent's campaign commercial.
The other bad news for Arlen is this Rasmussen Reports poll. Everybody knew Specter would lose to Pat Toomey in the Republican primary. What's surprising is that Toomey leads him 48-36 in the general. Meanwhile Toomey is ahead of Joe Sestak by 43-35.
I doubt Specter even wins the primary. I suspect Democrats are extremely suspicious of Specter's liberal bona fides, as they should be. Meanwhile Sestak is not as well known, with 24% "Not sure" whether they have a favorable or unfavorable impression.
Specter's advantages are the chits he earned with Democratic party officials by switching parties, and better name recognition. The former will earn him some endorsements and a little money. The latter will disappear by the time the primary rolls around. Soon, I suspect we won't have Arlen Specter to kick around anymore.
It's been a bad week for Arlen. First, he got his ass handed to him at a town hall meeting.
Specter seems to be channeling Frank Langella's Richard Nixon. Specter is stuttering, and despite holding the microphone, he seems totally out of control of the situation. I count twelve "Wait-a-minutes." And his feeble, "We just had a demonstration of democracy" at the end is great fodder for an opponent's campaign commercial.
The other bad news for Arlen is this Rasmussen Reports poll. Everybody knew Specter would lose to Pat Toomey in the Republican primary. What's surprising is that Toomey leads him 48-36 in the general. Meanwhile Toomey is ahead of Joe Sestak by 43-35.
I doubt Specter even wins the primary. I suspect Democrats are extremely suspicious of Specter's liberal bona fides, as they should be. Meanwhile Sestak is not as well known, with 24% "Not sure" whether they have a favorable or unfavorable impression.
Specter's advantages are the chits he earned with Democratic party officials by switching parties, and better name recognition. The former will earn him some endorsements and a little money. The latter will disappear by the time the primary rolls around. Soon, I suspect we won't have Arlen Specter to kick around anymore.
Grassley blows it
Hey, remember when I said the Republicans in Max Baucus' health care negotiations were negotiating in bad faith? Chuck Grassley just proved it. Today he endorsed the "death panel" fearmongering: “You have every right to fear. You shouldn’t have counseling at the end of life, you should have done that 20 years before. Should not have a government run plan to decide when to pull the plug on grandma.”
Repeating such obvious lies is a clear indication that Grassley has no intention of helping to craft a bipartisan compromise on health reform. Which is a shame for opponents of health reform, because this statement makes it much easier for the Democrats to step away from the negotiating table.
Grassley forgot what position he was playing. He wasn't supposed to work up popular outrage -- that's for Palin, Gingrich, Limbaugh, Beck, etc. Grassley was supposed to offer a moderate face to keep the Democrats busy in negotiations that would go nowhere. We'll see if Max Baucus notices; he may not. But I'm looking for the Democrats to give up on a bipartisan effort sooner rather than later.
Repeating such obvious lies is a clear indication that Grassley has no intention of helping to craft a bipartisan compromise on health reform. Which is a shame for opponents of health reform, because this statement makes it much easier for the Democrats to step away from the negotiating table.
Grassley forgot what position he was playing. He wasn't supposed to work up popular outrage -- that's for Palin, Gingrich, Limbaugh, Beck, etc. Grassley was supposed to offer a moderate face to keep the Democrats busy in negotiations that would go nowhere. We'll see if Max Baucus notices; he may not. But I'm looking for the Democrats to give up on a bipartisan effort sooner rather than later.
Time for a new story
The media narrative has been all town halls, birthers, and deathers for almost two weeks now. Our collective national attention span is about that long. Surely there must be something else new and shiny to look at? Now would be a great time for either side to play a new card.
By the way, the August brawls have made it clear why it was so important for Obama to get health care bills voted through both houses before the August recess. Since that didn't happen, the debate is focused on the legislative sausage-making process, rather than debating the end result. Democrats don't have a single bill they can point to and support, while Republicans can harp on the problems of several different versions.
By the way, the August brawls have made it clear why it was so important for Obama to get health care bills voted through both houses before the August recess. Since that didn't happen, the debate is focused on the legislative sausage-making process, rather than debating the end result. Democrats don't have a single bill they can point to and support, while Republicans can harp on the problems of several different versions.
Stock market rec: Buy AGNC
AGNC is a Real Estate Investment Trust (REIT) which invests exclusively in Mortgage-Backed Securities (MBS) guaranteed by Fannie and Freddie. Their business model, essentially, is to borrow at 2% and invest in bonds paying 5%. Because these bonds are backed by Fannie and Freddie, which are (unofficially) guaranteed by the US government, there is zero default risk.
Macro-economic conditions are absolutely perfect for this strategy. The spread between the short-term and long-term rates is huge right now, and I expect it will stay that way for at least a year. As a result of this perfect environment, AGNC is yielding 25%! I expect a 20% yield will be sustainable for as long as this interest-rate environment persists.
There are several companies that follow very similar strategies: ANH, CMO, MFA, HTS, and NLY. I like AGNC today because it just made a secondary public offering, which knocked down the price by 5%.
I bought at 23.30 today. My price target is 24.50, which I expect it to hit in the next two months, with very little downside risk.
This post is just a stub -- there are a lot more factors that went into the decision than this, but I want to make the call on the record today.
Macro-economic conditions are absolutely perfect for this strategy. The spread between the short-term and long-term rates is huge right now, and I expect it will stay that way for at least a year. As a result of this perfect environment, AGNC is yielding 25%! I expect a 20% yield will be sustainable for as long as this interest-rate environment persists.
There are several companies that follow very similar strategies: ANH, CMO, MFA, HTS, and NLY. I like AGNC today because it just made a secondary public offering, which knocked down the price by 5%.
I bought at 23.30 today. My price target is 24.50, which I expect it to hit in the next two months, with very little downside risk.
This post is just a stub -- there are a lot more factors that went into the decision than this, but I want to make the call on the record today.
Public option looks dead, isn't
I currently have no position on the health care public option, but my sell-at-45, buy-at-32 strategy has worked out well so far.
Prices have dipped recently as various progressives have signaled their willingness to substitute co-ops for a government-run public option. My thinking a few days ago was, if they're already trading that away, there's no chance for a public option in the final bill. That may not be the case.
We're seeing a little more clarity as the negotiations progress. Various versions and parts of a health care reform bill have come out of all the relevant House and Senate committees except the Senate Finance Committee. There, Max Baucus is leading negotiations with Kent Conrad, Jeff Bingaman, Olympia Snowe, Charles Grassley, and Mike Enzi. Baucus, Conrad, and Bingaman are moderate Democrats; Snowe is a moderate Republican, and Grassley and Enzi are fairly conservative.
I see two scenarios: first, that Baucus' negotiations are successful. They manage to craft a bill which is acceptable to all Democrats and a few Republicans. This would certainly require eliminating the public option and replacing it with some form of co-ops. Alternately, these negotiations might fail. They might come up with no solution, or a solution which is immediately rejected by liberal Democrats. If that happens, as Chuck Schumer pointed out in an interview with the New York Times, the Democrats will go it alone. They will push very hard on people like Kent Conrad and Ben Nelson to vote against a filibuster. If they can't get all 60 on board, they'll pass something through reconciliation.
Baucus' negotiations will probably fail. I've thought they were a sham from the beginning. Olympia Snowe might be a convincable vote. Grassley is very unlikely, and Enzi is simply impossible (He's from Wyoming, and has a 92% rating from the American Conservative Union). Grassley has been twittering his opposition to the idea of reform the entire time. These negotiations are basically a way for the GOP to run out the clock until momentum for reform dies.
Since Obama's inauguration, the Republican leadership has decided that its best strategy on any Obama initiative is to fight, fight, fight. I made a bunch of money earlier this year betting that hardly any Republicans would support the stimulus bill. Same thing on the Sotomayor vote. Other than Olympia Snowe and Susan Collins, there is near zero chance that any Republicans support any health care bill. The "town brawls" have made it even harder for any Republican to cross the aisle. They've ginned up so much outrage that supporting any bill is a ticket to a major primary challenge.
Meanwhile, Obama is beginning to face serious disillusionment from his left flank. Many, many progressives are dismayed that President Obama is doing a lot of things differently than Candidate Obama promised. (More on this later this week).
So here's what I see as the most likely scenario: Baucus' negotiations fail to meet the September 15th deadline. A quick count of Senate votes shows there's really only 52-55 Democrats who will support health reform. Mindful of the October 15th deadline for reconciliation, Obama and the Democratic leadership will give up trying to gather 60 votes, and will instead focus on shaping legislation so it can pass through reconciliation. Once they stop trying to please the conservatives in the party, they'll put together a bigger and more progressive bill, which will likely include a public option.
There's a lot of wiggle room in these predictions, but generally I think the failure of the Baucus gang is actually good for the public option.
Prices have dipped recently as various progressives have signaled their willingness to substitute co-ops for a government-run public option. My thinking a few days ago was, if they're already trading that away, there's no chance for a public option in the final bill. That may not be the case.
We're seeing a little more clarity as the negotiations progress. Various versions and parts of a health care reform bill have come out of all the relevant House and Senate committees except the Senate Finance Committee. There, Max Baucus is leading negotiations with Kent Conrad, Jeff Bingaman, Olympia Snowe, Charles Grassley, and Mike Enzi. Baucus, Conrad, and Bingaman are moderate Democrats; Snowe is a moderate Republican, and Grassley and Enzi are fairly conservative.
I see two scenarios: first, that Baucus' negotiations are successful. They manage to craft a bill which is acceptable to all Democrats and a few Republicans. This would certainly require eliminating the public option and replacing it with some form of co-ops. Alternately, these negotiations might fail. They might come up with no solution, or a solution which is immediately rejected by liberal Democrats. If that happens, as Chuck Schumer pointed out in an interview with the New York Times, the Democrats will go it alone. They will push very hard on people like Kent Conrad and Ben Nelson to vote against a filibuster. If they can't get all 60 on board, they'll pass something through reconciliation.
Baucus' negotiations will probably fail. I've thought they were a sham from the beginning. Olympia Snowe might be a convincable vote. Grassley is very unlikely, and Enzi is simply impossible (He's from Wyoming, and has a 92% rating from the American Conservative Union). Grassley has been twittering his opposition to the idea of reform the entire time. These negotiations are basically a way for the GOP to run out the clock until momentum for reform dies.
Since Obama's inauguration, the Republican leadership has decided that its best strategy on any Obama initiative is to fight, fight, fight. I made a bunch of money earlier this year betting that hardly any Republicans would support the stimulus bill. Same thing on the Sotomayor vote. Other than Olympia Snowe and Susan Collins, there is near zero chance that any Republicans support any health care bill. The "town brawls" have made it even harder for any Republican to cross the aisle. They've ginned up so much outrage that supporting any bill is a ticket to a major primary challenge.
Meanwhile, Obama is beginning to face serious disillusionment from his left flank. Many, many progressives are dismayed that President Obama is doing a lot of things differently than Candidate Obama promised. (More on this later this week).
So here's what I see as the most likely scenario: Baucus' negotiations fail to meet the September 15th deadline. A quick count of Senate votes shows there's really only 52-55 Democrats who will support health reform. Mindful of the October 15th deadline for reconciliation, Obama and the Democratic leadership will give up trying to gather 60 votes, and will instead focus on shaping legislation so it can pass through reconciliation. Once they stop trying to please the conservatives in the party, they'll put together a bigger and more progressive bill, which will likely include a public option.
There's a lot of wiggle room in these predictions, but generally I think the failure of the Baucus gang is actually good for the public option.
The 2012 GOP Nomination contracts are meaningless
Over the next 3 years, the market on the 2012 Republican presidential nominee will be one of the most active markets on Intrade. Several thousand contracts have already been traded. As the race heats up, the media will begin citing Intrade's numbers as a "true value" of each candidate's odds.
At the moment, though, the numbers there are pretty meaningless. What's happening there now illustrates some structural problems with the way Intrade works.
This market won't expire until August of 2012. The risk free rate of return over the next 3 years is 9%. Put $100 in a 3-year CD, and when it matures, you'll have $109. Or, you could do as some Intrader has done, and offer to bet against Ron Paul as the Republican nominee at 3.5%. $100 bet that way, after fees, will return $102.50 in three years. Plus you'd have to worry about the (very small) chance Ron Paul actually wins and you lose your whole $100. Fundamentally, it makes no sense to bet against anyone at odds of 10% or less*. Nevertheless, there are 17 candidates right now with asking prices of less than 10.
The offers on those 17 candidates show that Intraders are not completely rational. But the long waiting time does have a structural effect: it raises prices across the board. If the prices on Intrade accurately reflected the odds for each candidate, the total of all those prices would be a little less than 100**. The actual total? Today it's 146! That's absurd. It's as if Intrade predicted a 146% chance that Obama would win re-election. It means you could bet against every single candidate, and be guaranteed to make money no matter who wins.
Well, you could, if Intrade's software were better. Let's look at an example. Right now there are bids out for Mike Huckabee and John Thune at 12. Let's say I sell 10 lots of Huckabee. I stand to make $12 if he loses, and my maximum loss is $88 if he wins. Intrade will freeze $88 in my account to cover this potential loss. Then let's say I sell 10 lots of Thune. Now if neither Huckabee or Thune win, I make $24, and if either of them do win, I lose $76.
(Since the total bid is 146, you could continue this process through all the candidates, and eventually your maximum loss would be zero dollars.) But Intrade's software does not recognize that only one candidate can win, so rather than freezing $76, it will freeze $176. In technical terms, the margin is not cross-linked. If this were fixed, the systematic overpricing would be solved -- someone would come along and bet against every candidate until the total bid was less than 100.
Except for one other problem -- the fee structure. Intrade makes its money by charging a fee for trading and a fee for expiring winning contracts. The trading fee is 5 cents per $10 lot for trades between 5 and 95, and 3 cents per lot outside that range. The expiry fee is 10 cents per lot. Obviously Intrade needs to take a cut somewhere, but these per-lot charges distort the markets towards the extremes. For example, there is a bid out right now on Joe Lieberman to win at 0.3%. This probably overestimates his chances, but no one will ever match that offer. Why? If you bet against Lieberman at those odds, for every lot, you'd win 3 cents. Minus 3 cents for trading and 10 cents for expiry, for a net loss of 10 cents. This means there is no reason to bet against anything at odds less than 1.4%, because you can't possibly win money.
This fee system also reduces the volume of trade substantially. Right now someone is offering to buy Mark Sanford at 1.5. If I took that bet, I'd be risking $9.88 to win $0.02, or laying about 500-1 odds. Meanwhile, the person on the other side of the bet would only receive a 65-1 payout if they won. Another way of putting that is that Intrade is charging an 87% commission on that trade. That's far too high, and kills most of the action in that range. A much less distorting system would be to charge traders a small percentage of each winning trade.
None of these are insurmountable problems. They should actually be relatively easy software fixes. Intrade could improve the accuracy of its predictions and increase trading volume. Let's hope the long-awaited upgrade addresses these issues.
*Okay, technically, it might make sense to sell Ron Paul at 3.5 today if you could cover your position tomorrow at 2.0. But for that to work, it would require a greater fool to come along and risk $100 to make $101.00 three years later. That's not impossible, but it's never a good idea to make bets which require others' stupidity in order to succeed.
**The sum of the probability of all possible outcomes should total 100%. It should be slightly lower here because there is a small chance none of the listed candidates will win.
At the moment, though, the numbers there are pretty meaningless. What's happening there now illustrates some structural problems with the way Intrade works.
This market won't expire until August of 2012. The risk free rate of return over the next 3 years is 9%. Put $100 in a 3-year CD, and when it matures, you'll have $109. Or, you could do as some Intrader has done, and offer to bet against Ron Paul as the Republican nominee at 3.5%. $100 bet that way, after fees, will return $102.50 in three years. Plus you'd have to worry about the (very small) chance Ron Paul actually wins and you lose your whole $100. Fundamentally, it makes no sense to bet against anyone at odds of 10% or less*. Nevertheless, there are 17 candidates right now with asking prices of less than 10.
The offers on those 17 candidates show that Intraders are not completely rational. But the long waiting time does have a structural effect: it raises prices across the board. If the prices on Intrade accurately reflected the odds for each candidate, the total of all those prices would be a little less than 100**. The actual total? Today it's 146! That's absurd. It's as if Intrade predicted a 146% chance that Obama would win re-election. It means you could bet against every single candidate, and be guaranteed to make money no matter who wins.
Well, you could, if Intrade's software were better. Let's look at an example. Right now there are bids out for Mike Huckabee and John Thune at 12. Let's say I sell 10 lots of Huckabee. I stand to make $12 if he loses, and my maximum loss is $88 if he wins. Intrade will freeze $88 in my account to cover this potential loss. Then let's say I sell 10 lots of Thune. Now if neither Huckabee or Thune win, I make $24, and if either of them do win, I lose $76.
(Since the total bid is 146, you could continue this process through all the candidates, and eventually your maximum loss would be zero dollars.) But Intrade's software does not recognize that only one candidate can win, so rather than freezing $76, it will freeze $176. In technical terms, the margin is not cross-linked. If this were fixed, the systematic overpricing would be solved -- someone would come along and bet against every candidate until the total bid was less than 100.
Except for one other problem -- the fee structure. Intrade makes its money by charging a fee for trading and a fee for expiring winning contracts. The trading fee is 5 cents per $10 lot for trades between 5 and 95, and 3 cents per lot outside that range. The expiry fee is 10 cents per lot. Obviously Intrade needs to take a cut somewhere, but these per-lot charges distort the markets towards the extremes. For example, there is a bid out right now on Joe Lieberman to win at 0.3%. This probably overestimates his chances, but no one will ever match that offer. Why? If you bet against Lieberman at those odds, for every lot, you'd win 3 cents. Minus 3 cents for trading and 10 cents for expiry, for a net loss of 10 cents. This means there is no reason to bet against anything at odds less than 1.4%, because you can't possibly win money.
This fee system also reduces the volume of trade substantially. Right now someone is offering to buy Mark Sanford at 1.5. If I took that bet, I'd be risking $9.88 to win $0.02, or laying about 500-1 odds. Meanwhile, the person on the other side of the bet would only receive a 65-1 payout if they won. Another way of putting that is that Intrade is charging an 87% commission on that trade. That's far too high, and kills most of the action in that range. A much less distorting system would be to charge traders a small percentage of each winning trade.
None of these are insurmountable problems. They should actually be relatively easy software fixes. Intrade could improve the accuracy of its predictions and increase trading volume. Let's hope the long-awaited upgrade addresses these issues.
*Okay, technically, it might make sense to sell Ron Paul at 3.5 today if you could cover your position tomorrow at 2.0. But for that to work, it would require a greater fool to come along and risk $100 to make $101.00 three years later. That's not impossible, but it's never a good idea to make bets which require others' stupidity in order to succeed.
**The sum of the probability of all possible outcomes should total 100%. It should be slightly lower here because there is a small chance none of the listed candidates will win.
Jenny Sanford walks out
Hmm... I guess Mark Sanford wasn't able to fall back in love with his wife after all.
This news has been out for a couple hours, and there's no move in the Mark Sanford departure contract. I think that's about right -- if he hasn't resigned yet, I doubt this will make him. Still, who can tell what goes on in that head of his?
This news has been out for a couple hours, and there's no move in the Mark Sanford departure contract. I think that's about right -- if he hasn't resigned yet, I doubt this will make him. Still, who can tell what goes on in that head of his?
Real People
The Left and the Right have two competing narratives for the recent town hall protests. The Right says this is an organic uprising, based on popular opposition to health care reform and Obama in general. The Left says it's astroturfing, a small group of people manipulated by Republican insiders. And of course both sides are comparing the other to Hitler and Stalin. How do we tell who's right? And does it even matter?
In a sense, the truth doesn't really matter. These protests are an example of speech which has no intent to convince. The protesters aren't there to actually debate health care. They shout down and interrupt the Representatives when they try to speak. Their point is not to bring anyone to their side that wasn't there already, but to make a dramatic point to outside observers. The union counter-protesters that have recently been deployed are doing much the same thing.
This is a battle for perception. Specifically, the perception of whether these protesters are, as a recent commenter put it, "real people." Humans use short-cuts in making decisions and forming opinions. One of the most important of those short-cuts is to ask, "What are people like me doing?" Note that it's not simply, "What are other people doing?" -- people take cues from others when they identify as being from the same group. Those from an out-group do not have nearly as much influence.
Thus the debate in the political sphere is about whether these protesters are Real People or Corporate Tools. Except there, too, no one is really trying to convince anyone from the other side. Each side will watch their own cable channels and read their own blogs, and they'll believe the narrative on their own side. The only people who won't be biased are those who don't particularly care. People who are only vaguely aware of politics, and catch a few seconds of CNN between VH1 and ET.
So why even try? For one thing, despite the polarization of the media over the past 2 decades, there are still "neutral" arbiters whose frames influence everyone. For another, there are limits to cognitive dissonance. A sufficiently resonant event could re-frame the terms of the debate.
Here's a devious and underhanded trick the Left could use. Writing this out makes me feel a little dirty. I offer this merely as an example of how this debate might be re-framed, and do not recommend its actual use. Get a group of 5-10 well-dressed, clean-cut white guys. Spread out among the crowd like the rest of the protesters. Lead the crowd in chants. Start easy -- "USA USA USA" or "Read the bill!" Then work up to unprintably racist slogans. When the crowd follows, and it's recorded on dozens of amateur videos, the moment will be captured and replayed for millions. And those watching at home will believe that the Tea Partiers are not Real People, but mean-spirited racists.
Developing a comparably underhanded tactic for the Right I leave as an exercise for the reader.
In a sense, the truth doesn't really matter. These protests are an example of speech which has no intent to convince. The protesters aren't there to actually debate health care. They shout down and interrupt the Representatives when they try to speak. Their point is not to bring anyone to their side that wasn't there already, but to make a dramatic point to outside observers. The union counter-protesters that have recently been deployed are doing much the same thing.
This is a battle for perception. Specifically, the perception of whether these protesters are, as a recent commenter put it, "real people." Humans use short-cuts in making decisions and forming opinions. One of the most important of those short-cuts is to ask, "What are people like me doing?" Note that it's not simply, "What are other people doing?" -- people take cues from others when they identify as being from the same group. Those from an out-group do not have nearly as much influence.
Thus the debate in the political sphere is about whether these protesters are Real People or Corporate Tools. Except there, too, no one is really trying to convince anyone from the other side. Each side will watch their own cable channels and read their own blogs, and they'll believe the narrative on their own side. The only people who won't be biased are those who don't particularly care. People who are only vaguely aware of politics, and catch a few seconds of CNN between VH1 and ET.
So why even try? For one thing, despite the polarization of the media over the past 2 decades, there are still "neutral" arbiters whose frames influence everyone. For another, there are limits to cognitive dissonance. A sufficiently resonant event could re-frame the terms of the debate.
Here's a devious and underhanded trick the Left could use. Writing this out makes me feel a little dirty. I offer this merely as an example of how this debate might be re-framed, and do not recommend its actual use. Get a group of 5-10 well-dressed, clean-cut white guys. Spread out among the crowd like the rest of the protesters. Lead the crowd in chants. Start easy -- "USA USA USA" or "Read the bill!" Then work up to unprintably racist slogans. When the crowd follows, and it's recorded on dozens of amateur videos, the moment will be captured and replayed for millions. And those watching at home will believe that the Tea Partiers are not Real People, but mean-spirited racists.
Developing a comparably underhanded tactic for the Right I leave as an exercise for the reader.
Sotomayor confirmation
In an hour or so, the Senate will vote 68-31 to confirm Sonia Sotomayor. Of the 40 Republicans, 31 will vote against her. For the most part, Republican voting could be determined accurately based on past voting history.
A few Republicans were surprise No votes: Bennett, Hatch, and Murkowski. Murkowski probably wanted to vote yes, but the NRA's involvement and power in Alaska politics forced her to vote no. Hatch and Bennett were true surprises, because they have nearly always voted in the past to confirm a president's judicial nominees. I can't be certain, but I believe these votes were payback for Obama's opposition to Bush nominees Roberts and Alito.
Of the 9 Republican Yes votes, only one was a surprise: Lindsey Graham. He alone among conservative senators seems to recognize that the roles will be reversed some day. A Republican president will nominate a Justice, and that nominee will get the same kind of tit-for-tat opposition that Hatch and Bennett just showed. A No vote scores a few very temporary political points (In 3 months, will anyone remember that Sotomayor was confirmed with 68 or 78 votes?) but poisons the well for future nomination battles.
P.S. I'm a little surprised that the Republicans, who are generally very good at coming up with diminutive nicknames for their opponents, never latched on to calling Sonia Sotomayor "So-So."
A few Republicans were surprise No votes: Bennett, Hatch, and Murkowski. Murkowski probably wanted to vote yes, but the NRA's involvement and power in Alaska politics forced her to vote no. Hatch and Bennett were true surprises, because they have nearly always voted in the past to confirm a president's judicial nominees. I can't be certain, but I believe these votes were payback for Obama's opposition to Bush nominees Roberts and Alito.
Of the 9 Republican Yes votes, only one was a surprise: Lindsey Graham. He alone among conservative senators seems to recognize that the roles will be reversed some day. A Republican president will nominate a Justice, and that nominee will get the same kind of tit-for-tat opposition that Hatch and Bennett just showed. A No vote scores a few very temporary political points (In 3 months, will anyone remember that Sotomayor was confirmed with 68 or 78 votes?) but poisons the well for future nomination battles.
P.S. I'm a little surprised that the Republicans, who are generally very good at coming up with diminutive nicknames for their opponents, never latched on to calling Sonia Sotomayor "So-So."
Mad as Hatters
I was out of town Monday and Tuesday, and came back to find my RSS feed filled with exultation from National Review and denial from Daily Kos. The same people behind the Tea Party protests have now organized "ambushes" at Democratic town halls. Their goal is to disrupt any discussion of health care reform by shouting it down, and to dominate the news coverage of these events. I think the Tea Partiers are wrong and deeply misguided, but this is a genius political move.
August was meant to be the month when the Democrats went to work on wavering Blue Dogs and moderates and shored up support for a robust public option. Evidently their plan was to hold nice staid boring town hall meetings to let seniors complain about their health problems. The goal of these events was to get on the front page of small local papers, with no national coverage. Instead the Tea Partiers, with only a hundred or fewer people at each event, managed to storm the national stage with a message of popular opposition to health care reform. If this goes on unanswered, reform is dead.
How should the Democrats respond? Daily Kos, Talking Points Memo, and Robert Gibbs are dismissing the protests, calling them "astroturfing." Which they are, in the sense that they are organized by corporate interests, and the protesters represent a much smaller proportion of the population than they claim. But these are real people, and they've been convinced to spend their free time disrupting public meetings. Labeling it astroturfing and plowing ahead is not an effective response. The town hall meetings will continue to be protested, and each individual Congressman that happens to will leave with a deep sense of fear about health care reform.
The only truly effective way is to counter the demonstrations is with even bigger demonstrations. Obama ran a brilliant ground game during the election. The Democrats need to activate their local volunteers and get-out-the-vote organizations. Get out pro-reform crowds that are bigger than the Tea Parties. Make sure everyone's carrying blue signs, so the cameras can tell whose side they're on. Move the events to city centers rather than suburbs, to make it easier for supporters to attend.
Then, just as the August recess is wrapping up, Obama should hold one or more massive rallies. He brought out a hundred thousand people out for a rally in St. Louis before the election. He could have done that in any major city in the country. Compare these pictures -- which side do you think has more support?
That kind of enormous rally would dominate the news for 3 days and would trump the small-scale Tea Party ambushes. It would cap the recess with a Democratic success story. News anchors would be not be talking about "health care reform stumbling," but about Obama's tremendous persuasive powers.
I know Obama's busy, but the success or failure of health care this year will spell the success or failure of his presidency. The reality is that winning an election is not enough -- there must be a constant campaign to actually get anything done once you make it into office.
August was meant to be the month when the Democrats went to work on wavering Blue Dogs and moderates and shored up support for a robust public option. Evidently their plan was to hold nice staid boring town hall meetings to let seniors complain about their health problems. The goal of these events was to get on the front page of small local papers, with no national coverage. Instead the Tea Partiers, with only a hundred or fewer people at each event, managed to storm the national stage with a message of popular opposition to health care reform. If this goes on unanswered, reform is dead.
How should the Democrats respond? Daily Kos, Talking Points Memo, and Robert Gibbs are dismissing the protests, calling them "astroturfing." Which they are, in the sense that they are organized by corporate interests, and the protesters represent a much smaller proportion of the population than they claim. But these are real people, and they've been convinced to spend their free time disrupting public meetings. Labeling it astroturfing and plowing ahead is not an effective response. The town hall meetings will continue to be protested, and each individual Congressman that happens to will leave with a deep sense of fear about health care reform.
The only truly effective way is to counter the demonstrations is with even bigger demonstrations. Obama ran a brilliant ground game during the election. The Democrats need to activate their local volunteers and get-out-the-vote organizations. Get out pro-reform crowds that are bigger than the Tea Parties. Make sure everyone's carrying blue signs, so the cameras can tell whose side they're on. Move the events to city centers rather than suburbs, to make it easier for supporters to attend.
Then, just as the August recess is wrapping up, Obama should hold one or more massive rallies. He brought out a hundred thousand people out for a rally in St. Louis before the election. He could have done that in any major city in the country. Compare these pictures -- which side do you think has more support?
That kind of enormous rally would dominate the news for 3 days and would trump the small-scale Tea Party ambushes. It would cap the recess with a Democratic success story. News anchors would be not be talking about "health care reform stumbling," but about Obama's tremendous persuasive powers.
I know Obama's busy, but the success or failure of health care this year will spell the success or failure of his presidency. The reality is that winning an election is not enough -- there must be a constant campaign to actually get anything done once you make it into office.
SELL SELL SELL (part two)
In part one of SELL SELL SELL, I talked about how the housing market will continue lower, pushing down on the markets and the economy in general. The market has rallied 10% since then, but it's a long-term call (6 months to a year) and I've never been good at predicting the market over days and weeks.
Since the Great Depression, the federal government has taken responsibility for managing the economy and moving to counteract recessions. In this situation, the government's response going forward will not be very helpful, and may be counterproductive. I'll look at two categories of response: fiscal and monetary policy.
Fiscal policy is the way that government collects taxes and spends money. Keynesian economics, the dominant school of thought since the Depression*, says that government fiscal policy should be counter-cyclical -- that when the economy is doing poorly, the government should make up for a loss of enthusiasm in the private sector by stepping up its own spending. The stimulus bill passed earlier this year was an attempt to do exactly that. Economists differ about whether that stimulus was a good idea, and whether we ought to do more. Paul Krugman has been a vocal advocate for more stimulus, while many conservatives are (suddenly) concerned about growing deficits. I tend to agree with Krugman, but it doesn't really matter: There's not going to be another stimulus.
Republicans have been quite successful at pairing the stimulus package with TARP and other corporate bailouts. And I'll agree that the stimulus was not put together very smartly -- it seems to have been put together by a bunch of Congressmen all trying to expand their pet programs, with little interest in spending the money wisely. Moderate Democrats are extremely reluctant to support more stimulus. That won't change in the future. If the economy recovers, we won't need more stimulus. If it doesn't recover, it "proves" the first stimulus didn't work.
"Stimulus" as a political concept is no longer workable. No massive omnibus stimulus bill will pass. The only way further stimulus will occur is under cover of another enterprise. Keynesians won't be able to push through another $800 billion stimulus package, but they might be able to get a $200 billion green energy bill, a $100 billion infrastructure bill, a $1 trillion health care bill, etc.
It's important to note that at the state level, fiscal policy is the opposite of
Most states have balanced budget requirements in their constitutions. As wages and property values go down, tax revenues go down along with them. This forces states to cut spending and raise tax rates, which is exactly the opposite of what they should be doing right now.
Overall, fiscal policy is going to get less, not more stimulative.
Monetary policy is what the Fed does, mainly by setting interest rates. Short term interest rates are at zero, and they will stay that way for a long time. The good news is, the Fed is doing what it should. The bad news is, for how bad the economy is right now, interest rates should probably be something like -4%, and that's impossible.
The Fed has dramatically expanded its role in recent months by initiating a series of ad hoc policies aimed at keeping the banking system from collapsing. Last month headlines announced that the Fed had guaranteed $14 trillion worth of potentially bad investments. That considerably exaggerates the true amount of money at risk. Still, between TARP and various other guarantees, losses may be in the hundreds of billions.
The thing is (and it's still hard to wrap my mind around this), it doesn't really matter. The Fed can literally print money. Without getting too deep into monetary theory, the Fed has however much money they say they have. (Chapters 6-8 of this site have a great overview.) As long as they don't print so much that they dramatically expand the supply of money and create inflation, everything will be fine. And at the moment, we need to be much more worried about deflation than inflation.
The real danger is in the political reaction. The Fed has made a lot of decisions that look like giveaways to the banks, and they are. Even if you assume that Bernanke had the best intentions of ensuring the stability of the financial system, a lot of the individual decisions will not look good in sunlight.
An "Audit the Fed" bill, written by Ron Paul, is growing in popularity. It's probably a good thing to get everything out in the open. But I don't trust most members of Congress to understand or respond intelligently to the results. There is a danger that Congress gets taken over by faux populist outrage.
That's what really worries me. The recovery will take quite some time. During that time the national debt will grow, and people and politicians will get impatient. It is quite possible that they start working counterproductively -- putting up trade barriers like the Smoot-Hawley tariffs that exacerbated the Depression, or making the Fed reverse some of its liquidity provisions, pushing banks into bankruptcy.
Even without a wave of populism, there are plenty of threats on the horizon. Residential house prices will continue to fall. Consumers are pulling back. Worst of all, there is $3 trillion in commercial real estate loans which will need refinancing over the next 3 years. Those units have lost 40-50% of their value since the loans were written, making refinancing extremely problematic. If that (or any other disruption) pushes another big bank towards insolvency, I doubt that the political will exists to save it.
*There are of course other macro-economic schools, such as the Austrian school favored by libertarians throughout the internet.
Since the Great Depression, the federal government has taken responsibility for managing the economy and moving to counteract recessions. In this situation, the government's response going forward will not be very helpful, and may be counterproductive. I'll look at two categories of response: fiscal and monetary policy.
Fiscal policy is the way that government collects taxes and spends money. Keynesian economics, the dominant school of thought since the Depression*, says that government fiscal policy should be counter-cyclical -- that when the economy is doing poorly, the government should make up for a loss of enthusiasm in the private sector by stepping up its own spending. The stimulus bill passed earlier this year was an attempt to do exactly that. Economists differ about whether that stimulus was a good idea, and whether we ought to do more. Paul Krugman has been a vocal advocate for more stimulus, while many conservatives are (suddenly) concerned about growing deficits. I tend to agree with Krugman, but it doesn't really matter: There's not going to be another stimulus.
Republicans have been quite successful at pairing the stimulus package with TARP and other corporate bailouts. And I'll agree that the stimulus was not put together very smartly -- it seems to have been put together by a bunch of Congressmen all trying to expand their pet programs, with little interest in spending the money wisely. Moderate Democrats are extremely reluctant to support more stimulus. That won't change in the future. If the economy recovers, we won't need more stimulus. If it doesn't recover, it "proves" the first stimulus didn't work.
"Stimulus" as a political concept is no longer workable. No massive omnibus stimulus bill will pass. The only way further stimulus will occur is under cover of another enterprise. Keynesians won't be able to push through another $800 billion stimulus package, but they might be able to get a $200 billion green energy bill, a $100 billion infrastructure bill, a $1 trillion health care bill, etc.
It's important to note that at the state level, fiscal policy is the opposite of
Most states have balanced budget requirements in their constitutions. As wages and property values go down, tax revenues go down along with them. This forces states to cut spending and raise tax rates, which is exactly the opposite of what they should be doing right now.
Overall, fiscal policy is going to get less, not more stimulative.
Monetary policy is what the Fed does, mainly by setting interest rates. Short term interest rates are at zero, and they will stay that way for a long time. The good news is, the Fed is doing what it should. The bad news is, for how bad the economy is right now, interest rates should probably be something like -4%, and that's impossible.
The Fed has dramatically expanded its role in recent months by initiating a series of ad hoc policies aimed at keeping the banking system from collapsing. Last month headlines announced that the Fed had guaranteed $14 trillion worth of potentially bad investments. That considerably exaggerates the true amount of money at risk. Still, between TARP and various other guarantees, losses may be in the hundreds of billions.
The thing is (and it's still hard to wrap my mind around this), it doesn't really matter. The Fed can literally print money. Without getting too deep into monetary theory, the Fed has however much money they say they have. (Chapters 6-8 of this site have a great overview.) As long as they don't print so much that they dramatically expand the supply of money and create inflation, everything will be fine. And at the moment, we need to be much more worried about deflation than inflation.
The real danger is in the political reaction. The Fed has made a lot of decisions that look like giveaways to the banks, and they are. Even if you assume that Bernanke had the best intentions of ensuring the stability of the financial system, a lot of the individual decisions will not look good in sunlight.
An "Audit the Fed" bill, written by Ron Paul, is growing in popularity. It's probably a good thing to get everything out in the open. But I don't trust most members of Congress to understand or respond intelligently to the results. There is a danger that Congress gets taken over by faux populist outrage.
That's what really worries me. The recovery will take quite some time. During that time the national debt will grow, and people and politicians will get impatient. It is quite possible that they start working counterproductively -- putting up trade barriers like the Smoot-Hawley tariffs that exacerbated the Depression, or making the Fed reverse some of its liquidity provisions, pushing banks into bankruptcy.
Even without a wave of populism, there are plenty of threats on the horizon. Residential house prices will continue to fall. Consumers are pulling back. Worst of all, there is $3 trillion in commercial real estate loans which will need refinancing over the next 3 years. Those units have lost 40-50% of their value since the loans were written, making refinancing extremely problematic. If that (or any other disruption) pushes another big bank towards insolvency, I doubt that the political will exists to save it.
*There are of course other macro-economic schools, such as the Austrian school favored by libertarians throughout the internet.
NRA provides covering fire on Sotomayor vote
I'd suspected something like this: Republican leader Mitch McConnell Encouraged NRA to Score Sotomayor Vote.
It didn't make a whole lot of sense for the NRA to score this. The outcome is a foregone conclusion, and interest groups generally don't waste ammo (sorry, I'll stop) on a symbolic vote. What the NRA move gets the Republicans is political cover. They're not voting against Sotomayor because she's Latina. Or because they want to make it look like Obama made a partisan, ideological choice. They're voting against her because she'll take your guns away.
The NRA move also has the minor effect of embarrassing a few red-state Democrats like Nelson and Begich.
There's still 8 Republicans who haven't announced their votes yet. Ensign, Enzi, and Barrasso will almost certainly vote No. McCain will likely vote No, as he voted against her in 1998. Murkowski, Gregg, Voinovich, and Bond are all probable Yes votes.
Here are my positions:
SOTOMAYOR.VOTES.+70 -230 @ 47.3
SOTOMAYOR.VOTES.+75 -552 @ 51.5
SOTOMAYOR.VOTES.+80 -317 @ 17.2
It didn't make a whole lot of sense for the NRA to score this. The outcome is a foregone conclusion, and interest groups generally don't waste ammo (sorry, I'll stop) on a symbolic vote. What the NRA move gets the Republicans is political cover. They're not voting against Sotomayor because she's Latina. Or because they want to make it look like Obama made a partisan, ideological choice. They're voting against her because she'll take your guns away.
The NRA move also has the minor effect of embarrassing a few red-state Democrats like Nelson and Begich.
There's still 8 Republicans who haven't announced their votes yet. Ensign, Enzi, and Barrasso will almost certainly vote No. McCain will likely vote No, as he voted against her in 1998. Murkowski, Gregg, Voinovich, and Bond are all probable Yes votes.
Here are my positions:
SOTOMAYOR.VOTES.+70 -230 @ 47.3
SOTOMAYOR.VOTES.+75 -552 @ 51.5
SOTOMAYOR.VOTES.+80 -317 @ 17.2
Lots of volatility on health care reform
I know this is going to be a great market. Over the past few days, the price has gyrated wildly between 25 and 45, sometimes gaining more than 50% in a single day. Volume has been quite robust.
I expect the news will continue to stoke volatility here for another month or so. It would not be a terrible trading plan to sell in the low 40s and buy in the low 30s/upper 20s. Wash, rinse, repeat, with the intention of having no position by the time this thing finally expires.