What you believe depends on what you’ve seen, -- not only what is visible, but what you are prepared to look in the face. – Salman Rushdie, The Satanic Verses
In this week's Sift:
- The Economy: No Quick Fix. The $700 billion bailout has been passed, but the world's stock markets are still plummeting.
- This Week in Sarah. Do debates get graded on a curve? And I wonder if she knows that her closing Reagan quote was from his denunciation of Medicare.
- Short Notes. We're still losing soldiers in two wars. Polling is trickier than it looks. Apologies to Tom Paxton. Identity is not policy. The Bill Ayers innuendo. Using the Bible to argue for same-sex marriage. And more.
Anyone who was expecting the markets to turn around instantly after the $700 billion financial bailout (or "rescue" or whatever you want to call it) became law ... well, that's not what's happening. European and Asian markets open before Wall Street, and most lost 6-8% today. (Russia was down 15% when they closed the market early.) The Dow broke below 10,000 -- a level it first achieved in 1999.
It's hard to assess what's responsible for what, because the bailout is not the only financial news. We found out that the U.S. economy lost more than 150,000 jobs in September, bringing 2008's job losses to 750,000. Banks are failing in Europe too, and the EU has not come together on a strategy for dealing with it.
In general, I think the mainstream media has done a bad job of explaining how the problems of the banks and the stock market affect ordinary people. So I'll try. The underlying purpose of a money-and-banking system is to make sure that people cooperate economically. When the system fails, sensible cooperation fails with it. At the the height of the Depression for example, you had coal miners going hungry because the mines couldn't find buyers for their coal. Meanwhile, farmers were burning corn to stay warm, because they also couldn't find buyers. Any idiot could see that burning coal and eating corn made more sense. But to act on that insight, the idiot would need capital, and the capital system was broken.
That level of dysfunction is still a long way off. But there have been some worrisome signs pointing in that direction. Unfortunately, you have to learn some financial terminology to talk about those signs. The system by which big organizations borrow money to smooth out their cash flow is called the commercial paper market. It's been shrinking. Another measure of the problem is the London Interbank Offered Rate (usually known by its acronym LIBOR). LIBOR is the interest rate that banks charge each other for short-term loans. Ordinarily, LIBOR is pretty close to the rate on short-term treasury bills, because banks consider other banks to be almost as credit-worthy as the U.S. government. The gap between LIBOR and the treasury rate is called the T-bill/EuroDollar (TED) spread. It's usually small. Early in 2007 it was less than half a percent. Recently it's been close to 4%.
Translation: Banks don't even trust other banks to pay them back. So why should they trust you or your business?
The upshot is that when, say, Sears decides to build up its inventory for Christmas -- that's harder to do now. And the problem doesn't just affect businesses. The State of California asked the federal government for $7 billion loan Friday, because (according to its treasurer) California "has been locked out of the credit markets for the past ten days." Massachusetts made a similar request. If they don't get it, paychecks may start bouncing. "Payments for teachers' salaries, nursing homes, law enforcement and every other state-funded service would stop or be significantly delayed," the California treasurer warned.
Think about that. The problem isn't that teachers, nurses, and cops are no longer needed, or even that California's residents are unwilling to pay for their services. (The spending has already been approved by the political process.) It's just a question of getting the money from here to there. That's what is locking up. Once such a lock-up starts, it propagates. Suppose you're a business with state contracts; maybe you supply food to a UCLA cafeteria. You know the state still wants your services, and you know that (ultimately) the state is good for the money. It would make perfect economic sense to borrow to keep paying your workers until the state comes through. But borrow from who? And if you can't borrow, then what happens to your suppliers, or to the people who were expecting your workers to pay their bills?
That's what the bailout is about -- getting money flowing again. It was never expected to fix the underlying economic problems. Instead, it is supposed to be like the shock paddles that restart a patient's heart. The shock doesn't cure whatever was wrong to begin with, but now the patient may live long enough for the doctors to figure something out.
If real economic reasons -- overbuilding, competition from other markets, diminishing resources, and so forth -- cause stocks to fall, businesses to go broke, and people to lose their jobs ... well, that's capitalism. The business cycle repeats about once a decade, and eventually things turn around. But if stuff is crashing because nobody trusts anybody else ... that's a political problem. And it needs a political solution.
The Wonk Room has one of those proverbial thousand-word pictures: A graph of the national debt relative to the size of the economy. The graph declines from World War II all the way to the advent of Ronald Reagan, when it shoots up. It declines again during the Clinton years, then shoots up again under Bush. Moral: If you worry about the national debt, you don't want another Republican administration.
In trying to understand all the debates about regulation, I've been leaning on a sports analogy: In a game like football, you've got players, you've got referees, and you've got a committee that meets in the off-season to figure out if the rules need to change. (Non-fans may not realize this, but the NFL's rules are subtly different each season.)
To Soviet-style economic planners, all the running, passing, and tackling is secondary. They want the rules committee to decide who's going to win and the referees to implement those decisions.
Free-market fundamentalists, on the other hand, claim that all we need are players. They argue that players' salaries ultimately depend on the health of the sport and the fans' faith in the integrity of the plays, so we should trust the players to make their own rules and referee their own games.
But a sensible person understands that these are three different roles, and they're all necessary. We need players (businessmen, workers, consumers etc.) to make the plays. We need referees (SEC, FDIC, etc.) to figure out what happened and to enforce the rules. And we need a rules committee (policy makers in the administration and Congress) to look at the results and figure out how the game needs to change. We need all three, and we need to keep each from encroaching on the turf of the others.
As I explained last week, in the Republican alternate universe the financial crisis was caused by excessive government regulation and intervention: Regulations pushed banks to lend to minorities, and quasi-government companies like Fannie Mae and Freddy Mac went crazy. This explanation distracts attention from things like the rule-change exempting the big investment banks from capital requirements, and the government's failure to regulate "the shadow banking system" of hedge funds, non-bank mortgage lenders, etc. If Fannie and Freddy were the whole problem, bailing them out would have solved everything. Instead, we're looking at a similar problem developing around credit card debt and car loans, both of which were also a basis for complicated derivative investment vehicles.
Money Meltdown is a one-stop site for making sense of the financial crisis.
Humor never goes broke. Here somebody puts financial institutions into a elimination bracket, like the NCAA basketball tournament. The Joker critiques the bailout. Jon Stewart notices how similar Bush's bailout speech was to his Iraq speech, and recognizes John McCain as "the only man who can impulsively over-react to something ten days old." Scott Bateman annotates another Bush economic speech.
Some humor is unintentional. Here is a three-year-old post from the right-wing blog PowerLine, ridiculing Paul Krugman's crazy notion that there is a housing bubble or that people should worry about it popping: "No matter how well the economy performs, Krugman's bitter vendetta against the Bush administration requires him to hunt for the black lining in a sky full of silvery clouds."
Sarah's big event this week was her debate with Joe Biden on Thursday. How she did depends on what you expected. Graded on the curve established by her Katie Couric interview, she got an A, maybe even an A+. She continues to look like a student taking an oral exam, but this time she was a good student: She had responses -- though not always answers -- to every question, she supported her points with relevant "facts", and she never had long periods where she said nothing or strung words together incoherently.
If you had just dropped in from Mars and knew nothing about the build-up to the debate, though, you would think Biden won. (Polls agree.) He was generally sharper, and he did a better job putting forward his campaign's central message (that McCain has been wrong about Iraq from the beginning and wants to continue Bush's policies on the economy, while Obama offers a new direction on both). He also took better advantage of the short-answer format, which the McCain campaign had negotiated to protect Palin from extended follow-up questions. Biden always knew when the format was going to give him the last word on a question, so he closed with strong statements that left Palin no chance to respond. Palin did not appear to be strategizing on that level.
Palin was by far the folksier of the two, peppering her responses with colloquialisms (like doggone and you betcha) and facial expressions (like winks) that you don't usually see in a national debate. I can't tell how well this played. Neither could conservative columnist Kathleen Parker, who clearly was turned off by it, but expected less educated people to eat it up. (Her fellow National Review columnist Rich Lowry did eat it up, but he sounds more like he's reacting to a lap dance than to a political gesture.) I wonder how many people agree with comedian Elon James White (at about the 1:50 mark of Episode 9 of This Week in Blackness):
Why do people like this folksy nonsense? I don't want my president, I don't want my vice president, I don't want anyone who has any power over me being folksy. OK? I don't need to have a beer with you for me to feel comfortable with you running the government. Personally, if I could see myself having a beer with you, I'm probably not going to vote for you. It's the opposite of what I want, OK? My friends, I drink with them all the time, I wouldn't trust them with keys to my apartment.I grew up in a working-class Midwestern area, where people sound like Larry Bird, use expressions like dumber than a box of rocks, pronounce our nation's capital Worshington (the way McCain does), and talk about nuke-you-ler weapons (as Palin and Bush do). But I also was taught that you don't do folksy in public, because people will think that your family is stupid. I don't know if that taboo is still in force, but I imagine that at least a few older working-class folks were cringing as much as the educated elite were.
Remember Palin's debate claim that she pushed Alaska to divest its investments in Sudan? I don't know why I'm surprised that it's not true.
Palin ended the debate with a moving quote from Ronald Reagan, warning that we could end up telling our children's children "what it once was like in America when men were free." I imagine such a future often in this Age of Cheney, but do you know what great threat to American freedom Reagan was warning us against? Medicare.
Palin: "It's time that normal Joe Six-Pack American is finally represented in the position of vice presidency."
Wall Street Journal columnist and ex-Reagan speechwriter Peggy Noonan: "This left me trying to imagine Abe Lincoln saying he represents 'backwoods types'."
The Palins released their 2007 tax returns Friday. Mr. and Mrs. Six-Pack made $166,000 in 2007 and gave a whopping $2,500 of it to charity. And they didn't declare the $17,000 in travel per diem the State of Alaska pays her when she works at home.
Palin is suffering collateral damage from the McCain/Letterman feud. And Tina Fey is still doing a Palin impression for SNL. I especially love the part where she brings out a flute for the talent portion of the debate.
Not only can't reporters talk to Palin, they can't talk to people at Palin rallies either.
The Troopergate report is scheduled to come out Friday. The McCain campaign, having lost at all lower levels, is going to the Alaska Supreme Court to block it. If the federal Supremes wind up getting involved, it will be time to talk about Bush v. Gore again. Meanwhile, some Palin associates have realized that subpoenas actually mean something and have decided to testify. The First Dude, however, is still defying the law.
In September, 25 coalition soldiers (all Americans) died in Iraq, and 37 in Afghanistan. American military deaths in Iraq are fairly stable: the last few months have seen 25, 23, 13, 29, and 19 after a spike to 52 in April. After the spring of 2007, when deaths were regularly over 100 a month, the American people seem not to notice 20-some deaths. The 37 in Afghanistan (equally invisible) is down from an all-time monthly high of 46 in August. After nine months of 2008, we've already lost more coalition troops in Afghanistan (236) than we did in all of 2007 (232).
If you obsess over the daily or weekly fluctuations in the polls the way I do, this is a calm-down message: Take a look at the demographic data at the very end of the 9/29 ABC/WashingtonPost poll. What you'll see is that the demographics of the sample fluctuate in totally implausible ways. So, for example, the number of married people in the sample has been trending steadily upwards, from 53% in mid-June to 64% in the latest poll. It was 60% just a week before. Did 4% of registered voters really get married in the last week of September? (Were you invited? I wasn't.) The percentage of white people was also up 5% that week. (So take a bow, all of you who have been phone-banking to convince people that they're white.) Maybe the week-to-week support for Obama or McCain fluctuates for similar reasons, whatever they are.
Correction from two weeks ago: I was right that Arlo Guthrie sang "I'm Changing My Name to Chrysler" but Tom Paxton wrote it. To make up for this mistake, here's Paxton's Vietnam classic "Lyndon Johnson Told the Nation" which he updated in 2007 to "George W Told the Nation". You know, a medley of Paxton songs could make a pretty good history of the last 40 years.
Matt Yglesias notices something that's been bugging me about McCain: He consistently substitutes identity for policy. For example, he says: "I know the veterans. I know them well. And I know that they know that I’ll take care of them." Does that mean his policies back that up? No. Ditto for Palin and families with special needs. Is she pushing some particular program or policy change that will benefit those families? Of course not.
The Right keeps saying that the media won't look into Obama's relationship to ex-Weatherman Bill Ayers. Well, the New York Times just did, and found nothing remarkable. Obama and Ayers were politically active Democrats in Chicago, so they ran into each other from time to time. A thousand words later, the story ends.
Here's why baseless innuendo is such a popular political tactic: If there's no story to cover, you can usually count on the media not to cover it. (We never hear about all the reporters who investigate something and come back to their editors with nothing.) Then you can rail about how the biased media is hiding some horrible scandal. So I guess we should be grateful that this time the Times wasted a thousand words to verify that there really is nothing to say.
To repeat a point I've made before, the way you tell a real issue from a fake one is to ask: "What is the accusation?" Look at Troopergate, for example. There, the accusation is simple: Sarah Palin fired Alaska's public safety commissioner because he wouldn't help her pursue her personal vendetta against her sister's ex-husband. Respectable people are willing to stand up in public and make that charge, which has a true-or-false answer. But in the Obama/Ayers or Obama/Rezko attacks, you'll search in vain for anything so direct. Obama has "connections" or "associations" that are "suspicious". It never gets any more specific than that.
Rolling Stone has a devastating retelling of John McCain's life story. The L.A. Times also takes a look behind the myth. Apparently McCain destroyed more American planes than enemy planes.
I've been warning for months that McCain's budget ideas only work if "entitlement reform" means massive cuts in programs like Medicare. The Wall Street Journal is starting to agree with me.
If you're not watching Rachel Maddow's new show on MSNBC, you're missing out.
Here's how you use the Bible in an ad for same-sex marriage.
33 pastors participated in a civil disobedience action sponsored by the conservative Alliance Defense Fund: In defiance of a 1954 law about the tax-exemption of churches, the pastors endorsed candidates from the pulpit on September 28. I can't verify that they all endorsed McCain, but that seems to be the trend.
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