“Are You Ready For Some Futbol?!?”

TNR’s world cup blog

Jonathan Last:

It’s happening again.

The most puzzling part of anti-American soccer obsession is that it’s not like Americans don’t like the game of soccer. We all play it at the youth level and–for the most part–have a good time. It’s just that we graduate up to other sports and don’t have much of an appetite for soccer played at the elite level.

And what’s wrong with that? Our interest level in soccer is the mirror image of our interest level in football, which, comparatively few people play at the youth level, but which has great popularity at the professional level.

But the thing is, you never hear football–or baseball, or ultimate frisbee, or tennis, or cycling, or hockey, or curling–or any other kind of fans railing against people who don’t share their passion as if there’s something morally and politically wrong with them. Why is it that soccer fans care so much about what American’s don’t care about?

We’ll never know.

Will at The League:

But despite the thoroughly artificial media blitz surrounding the World Cup and the obnoxious social signaling that goes into American soccer fandom, I’m really looking forward to the tournament. So I thought I’d take a stab at explaining how soccer differs from American sports and why I find its distinctiveness so enjoyable.

Lumping team sports together is a chancy business, but I think there is one important commonality between football, baseball and, to a lesser extent, basketball that distinguishes them from soccer. All three American sports are characterized by short, action-packed intervals followed or preceded by pauses – an inbounds pass that leads to an easy dunk; a pitch that results in a strike that ends an inning; an end-zone reception immediately following a thirty second pause. This is not to say there aren’t fluid sequences in American sports – witness fast-break basketball or baseball’s hallowed triple play. But American teams usually see action in short, frenetic bursts instead of the slower build-up of a good soccer match.

To an outsider, the notion that a two hour football game only consists of 11 minutes of televised action must seem absurd. At its best, however, the pauses accentuate tension and allow for more elaborate plays, more back-and-forth adjustments between the teams’ respective coaches, and a level of athletic execution that would be impossible in a less controlled, faster-paced environment. For the most part, this is a trade-off I can accept. To take another example from American sports, good pitching duels include plenty of pregnant pauses. I don’t think this detracts from the action so much as it heightens the tension of athletic competition.

Soccer has fewer pauses, fewer substitutions, and no timeouts. As a consequence, the manager (coach) has very little opportunity to pause or direct in-game play. Soccer also tends to be more spontaneous, more dynamic, and less scripted. While physical contact or bad execution will sometimes slow the game down to an unbearable pace, the rules of soccer allow for a level of fluidity that would be impossible in an American context (transition-oriented basketball is the only exception I can think of, but that’s  still broken up by frequent timeouts, inbound passes, and the tempo of the opposing team). The build-up to the first Dutch goal in the 1974 World Cup final is a classic example of soccer’s distinctive style – despite a slow start, the Dutch control the ball for over a minute before Johan Cruyf streaks through the defense to draw a penalty kick.

Maybe the contrast between the short, frenetic play of American athletes and the fluid build-up of a European soccer match offers some insight into our respective cultural psyches. But I suspect a more fluid style of play already appeals to American sports audiences. Fast-paced, transition-oriented basketball was the calling card of Magic Johnson and the Showtime-era Lakers. A quarterback-directed hurry-up offense is often the most exciting part of a football match. So if you like fast-paced team competition, give soccer a try. But if the World Cup isn’t your thing, I won’t hold it against you.

Daniel Gross at Slate:

Being a soccer fan at World Cup time in America is a little like being Jewish in December in a small town in the Midwest. You sense that something big is going on around you, but you’re not really a part of it. And the thing you’re celebrating and enjoying is either ignored or misunderstood by your friends, peers, and neighbors. It can be a lonely time. But the World Cup is much bigger than Christmas. After all, only a couple of billion people in the world celebrate Christmas; the World Cup is likely to garner the attention of a much larger audience. Yet in the world’s largest and most important sports competition, the American team, and the American audience, is a marginal, bit player. And for those of us who love the game of soccer and the World Cup, and for the few of us who followed the ups and downs of Landon Donovan’s career, these next couple weeks are likely to be bittersweet.

[…]

Oh, sure, you can find other enthusiasts. A few Slate colleagues pass around YouTube links to the latest sick goal. Urban hipsters are obliged to show some interest in the game, the same way they do in CSAs, and facial hair (for men) and yoga (for women). On the Internet, there’s the high-brow crew over at the New Republic, (which features an ad for a book from Cornell University press on Spartak Moscow), the fine blogs No Short Corners and Yanks Abroad, and a rising volume of press coverage. But there’s nothing like the volume and sophistication of stuff our frères at Slate.fr are doing. If you want to follow the game, wince with every missed shot, and question coach Bob Bradley’s personnel choices, you’ll have to venture into the fever swamps of BigSoccer.com. There you will find some people who live and die with status updates of defender Oguchi Onyewu’s knee. But they’re only avatars.

Following the U.S. national team in the World Cup is a somewhat solitary endeavor in part because the scheduling doesn’t lend itself to social or family watching. Unlike the Olympics, the World Cup is not scheduled or televised according to U.S. preferences—the last time the quadrennial tournament was staged in the Western hemisphere was 1994. To watch the United States’ opening game in the 2002 World Cup, I had to go to the Irish pub across from my New York apartment at 4 a.m. This year the schedule is only slightly better: this Saturday against England at 2:30 p.m. ET, Friday, June 18, against Slovenia at 10 a.m. ET, then Wednesday, June 23, at 10 a.m. ET, against Algeria. Yes, pubs and sports bars will be showing the games. But how many people will leave work, or take the day off, or skip the Little League game or pool party, to sit indoors and watch a soccer match? My guess is that when the U.S. plays England, the bars in New York and Los Angeles will be like Condé Nast in the 1990s—overrun with Brits.

I won’t be there. On Saturday afternoon, I’ll be at a family gathering, one at which I’m confident nobody will be checking scores or talking about the potentially epic matchup with England. I’ll have to tape it and watch it later, most likely alone. At least I’m confident none of my close friends or family members will call, e-mail, or text me with scores or updates, and that I can safely listen to the radio without the result intruding. On the other hand, I might have to shut off my Twitter feed. I follow a few foreigners.

Matthew Philbin at Newsbusters:

Time magazine is leading the “Ole’s” for soccer this year, putting the World Cup on its cover and dedicating 10 articles to the sport in its June 14 issue.

One of those articles proclaimed in the headline, “Yes, Soccer Is America’s Game.” Author Bill Saporito argued that “soccer has become a big and growing sport.”

“What’s changed is that this sport and this World Cup matter to Americans,” Saporito asserted. “These fans have already made the transition from soccer pioneers to soccer-literate and are gradually heading down the road to soccer-passionate.”

Soccer is even in the White House, Saporito pointed out. President George W. Bush was a former co-owner of a baseball team. And although President Obama played basketball, his daughters play little league soccer, and current White House Press Secretary Robert Gibbs played soccer in high school and college.

On MSNBC’s “Morning Joe” on June 3, host Joe Scarborough noted the importance of the World Cup to other countries, but explained that Americans just don’t understand “what a huge sport this is.” Still, he said hopefully, “It is a growing sport in America as well, isn’t it?”

Growing, but not “huge” by any standard. The final game of the 2006 World Cup drew 16.9 million viewers in the United States. While that number may seem respectable, it pales in comparison with the 106 million viewers that tuned in to watch the 2010 Super Bowl. The final 2009 World Series game drew 22.3 million viewers, and 48.1 million tuned in to watch Duke beat Butler in the 2010 NCAA men’s college basketball championship.

A look at game attendance figures is instructive, as well. According to Major League Soccer’s MLS Daily, as of June 7, 2010, the highest drawing pro soccer team, the Seattle Sounders, averaged 36,146 attendees over seven home games. Conversely, the Seattle Mariners baseball team has averaged 25,314 over 32 home games.

The Mariners are dead last in the American League West division, and 24^th in the league in batting average, 30^th in home runs, 27^th in RBIs and 25^th in number of hits. In short, they’re horrible. With a record of 4-5-3, the Sounders aren’t very good either, but they play in a very liberal city, are currently benefiting from World Cup year interest in their sport, and they play a schedule that allows far fewer opportunities for fans to attend.

Another number is Hollywood box office. John Horn of The Los Angeles Times contemplated on June 6 about Hollywood’s lack of a mainstream movie about soccer. In “Why is There No Great Hollywood Soccer Movie?” Horn pointed out that each sport has its own hit movie except soccer.

Robert Costa at The Corner:

When it comes to soccer, I’ll quote Churchill: America, it seems, still has “sublime disinterestedness.”

Michael Agovino at The Atlantic:

During this World Cup, I know there will be kids like me from the Bronx—a soccer wasteland in 1980s; a wasteland period, to some—watching this strange new game and devouring it. Where is Valladolid? Vigo? Bilbao? Cameroon? El Salvador? Algeria? Why does Algeria wear green, Italy blue? Why is it Glasgow Celtic and not the Celtics? Where’s this team Flamengo? Or Corinthians? Why is that skinny man with the beard named Socrates?

They’ll be some curious 14-year-old or 12-year-old or 10-year-old (kids seem so much smarter these days) and maybe they’ll start by bugging their parents for a Kaizer Chiefs jersey. Then, better still, they’ll get the atlas off the shelf, or more likely online, and trace their finger on the computer screen and look for Polokwane and Bloemfontein and Tshwane. Maybe it will take them to the photography of David Goldblatt or to the music of Abdullah Ibrahim (no room for him at the concert last night I suppose), or of the late Lion of Soweto himself, Mahlathini. (Don’t laugh, my first encounter with Joan Miro and Antoni Tapies were from 1982 World Cup posters.) Maybe they’ll learn that the “word,” long ago, was “Johannesburg!”

And they’ll ask questions—why is this stadium named for Peter Mokaba, that one for Moses Mabhida, and who is Nelson Mandela? And they’ll learn and they’ll be obsessed for life.

And that makes me do one thing: smile. Now, may the games begin.

UPDATE: Dave Zirin at NPR

Jonah Goldberg at The Corner

James Fallows

UPDATE #2: Daniel Drezner

UPDATE #3: Stefan Fatsis at Slate

Jonathan Chait at TNR

UPDATE #4: Marc Thiessen at Enterprise Blog

Matt Yglesias on Thiessen

UPDATE $5: Bryan Curtis and Eve Fairbanks at Bloggingheads

Don’t Drink The Water

Andrew Moseman at Discover:

The oil rig fire in the Gulf of Mexico is finally out, as the Deepwater Horizon sank into the sea yesterday and hope for finding 11 missing workers began to fade. The damage assessment for the oil spill, however, has just begun.

Oil from an undersea pocket that was ruptured by the rig, which was leased by the energy company BP, has begun to spread outward. The spill measures 10 miles (16 kilometers) by 10 miles, about four times the area of Manhattan, and is comprised of a “light sheen with a few patches of thicker crude,” U.S. Coast Guard Lieutenant Commander Cheri Ben-Iesau said today [BusinessWeek]. Whether or not the 700,000 gallons of diesel on board Deepwater Horizon is part of the spill remains unknown. Transocean, the company that owns the rig, admitted that it failed to “to stem the flow of hydrocarbons” before the rig sank.

Josh Garrett at HeatingOil:

On top of the heavy human cost of the incident is the threat of widespread environmental damage, which is growing by the minute as a massive oil slick spreads toward land. By Monday afternoon, the size of the oil slick was estimated at 1,800 square miles, the New York Times reported. Although no environmental effects have yet been observed, sea flora and fauna could soon be harmed by the presence of the oil in the water. Environmental damage could worsen as the oil slick moves into coastal ecosystems, which the US Coast Guard estimated would not happen for at least 36 hours, according to the Wall Street Journal. BP, the oil company that commissioned the sunken platform, is charged with stopping the leak and cleaning up the spilled oil, both of which could take months.

Cain Burdeau at Daily Caller:

Crews used robot submarines to activate valves in hopes of stopping the leaks, but they may not know until Tuesday if that strategy will work. BP also mobilized two rigs to drill a relief well if needed. Such a well could help redirect the oil, though it could also take weeks to complete, especially at that depth.

BP plans to collect leaking oil on the ocean bottom by lowering a large dome to capture the oil and then pumping it through pipes and hoses into a vessel on the surface, said Doug Suttles, chief operating officer of BP Exploration and Production.

It could take up to a month to get the equipment in place.

“That system has been deployed in shallower water, but it has never been deployed at 5,000 feet of water, so we have to be careful,” he said.

The spill, moving slowly north and spreading east and west, was about 30 miles from the Chandeleur Islands off the Louisiana coast Monday. The Coast Guard said kinks in the pipe were helping stem the flow of oil.

From the air Monday afternoon, the oil spill reached as far as the eye could see. There was little evidence of a major cleanup, with only a handful of vessels near the site of the leak.

The oil sheen was of a shiny light blue color, translucent and blending with the water, but a distinct edge between the oil slick and the sea could be seen stretching for miles.

George Crozier, oceanographer and executive director at the Dauphin Island Sea Lab in Alabama, said he was studying wind and ocean currents driving the oil.

He said Pensacola, Fla., is probably the eastern edge of the threatened area, though no one really knows what the effects will be.

“We’ve never seen anything like this magnitude,” he said. “The problems are going to be on the beaches themselves. That’s where it will be really visible.”

Aaron Viles, director for the New Orleans-based environmental group Gulf Restoration Network, said he flew over the spill Sunday and saw what was likely a sperm whale swimming near the oil sheen.

“There are going to be significant marine impacts,” he said.

Seymour Friendly at Firedoglake:

We have the information that Federal law places all the responsibility for cleanup and emergency response onto the rig’s operator. BP leased the rig from Transoceanic, hence, BP is liable.

Obviously, without massive regulation and investment, British Petroleum is not going to plan and prepare effectively for disasters like this. Such preparation is not profitable to them.

Handling a disaster like this should without doubt be a Federal obligation. BP can absorb the costs, but the Feds should fulfill the mandate for having plans and personnel ready for response, and requirements and safety guidelines that prevent and mitigate disasters as well.

As it stands, of the three initial possible responses:

1) Activate the massive cutoff valve, stopping the flow of oil, via improvised use of deep-sea ROVs,

2) Drill “intervention wells” over a period of months,

3) Place an apparatus over the well that transports the leaked oil to the surface where it can then be removed from the sea indefinitely,

That BP, which owns the decision in lieu of Federal regulations and agency authority, is going to elect for (3).

That means that oil will be going to the surface, and recovered, until the “something can be done”. In other words, this oil leak in the Gulf may go on for a very, very long time.

I’d like to see the Obama administration rectify its statement today that it has “acted swiftly to protect the environment” in light of the fact that it is not clear that there is even a Federal capacity to respond to this situation, and the best of our information is that the leak will continue indefinitely, with the Feds needing to figure out how to remove the oily water produced for months, and the wreck of the oil rig left at the bottom of the deep blue sea.

James Herron at WSJ:

However, contrary to initial Coastguard reports Friday that no oil was leaking from the sunken drilling rig, it became apparent Saturday that around 1,000 barrels a day of crude oil is gushing from ruptures in the pipeline that linked the platform to the sea bed. An oil slick 30 miles long and 20 miles wide is drifting slowly north towards the shore, although weather forecasts indicate it will not hit land for at least 72 hours.

“The oil is ours and we are responsible for the cleanup,” said a BP spokesman. [Read BP’s latest press statement here.]

BP is throwing all the resources it has available at the spill, so the cost to the company may be substantial. It has deployed 32 spill response ships and five aircraft to spray up to 100,000 gallons of chemical dispersant on the slick and skim oil from the surface of the water and deploy floating barriers to trap the oil.

In case attempts to shut down the leaking oil using a remotely operated subsea robot fail, BP is already sending in another rig to drill a second well to inject a specialized heavy fluid into the reservoir and cut the flow of oil from the sea bed–a process that could take months.

“We’ve already spent millions,” and will continue to spend whatever is necessary, said the BP spokesman.

UPDATE: John Cole

Rod Dreher

UPDATE #3: Paul Krugman

Chris Good at The Atlantic

Max Fisher at The Atlantic with a round-up

Jonah Goldberg at The Corner

UPDATE #4: John Hinderaker at Powerline

National Review

Andrew Sullivan

Mark Schmitt and Megan McArdle at Bloggingheads

UPDATE #5: Glenn Thrush and Mike Allen in Politico

Allah Pundit

Steve Benen

UPDATE #6: Pascal-Emmanuel Gorby at The American Scene here and here. And via PEG, Lexington at The Economist

UPDATE #7: Huffington Post

UPDATE #8: Daniel Gross at Slate

Grey Economics Are Gonna Clear Up, Put On A Happy Face

Floyd Norris at NYT:

The American economy appears to be in a cyclical recovery that is gaining strength. Firms have begun to hire and consumer spending seems to be accelerating.

That is what usually happens after particularly sharp recessions, so it is surprising that many commentators, whether economists or politicians, seem to doubt that such a thing could possibly be happening.

[…]

Why is good news being received with such doubt? Why is “new normal” the currently popular economic phrase, signifying that growth will be subpar for an extended period, and that the old normal is no longer something to be expected?

It is possible, of course, that I am wrong and the prevalent pessimism is correct. Many economic indicators, including Thursday’s retail sales report, are looking up, but that does not prove the recovery will be self-sustaining. There are issues relating to over-indebted consumers and local governments. The housing collapse will have an impact for some time.

But there are, I think, a number of reasons for the glum outlook that are unrelated to the actual economic data.

First, the last two recoveries, after the downturns of 1990-91 and 2001, were in fact very slow to pick up any momentum. It is easy to forget that those recessions were also remarkably shallow. If you are under 45, you probably don’t have much recollection of the last strong recovery, after the recession that ended in late 1982.

Add to that the fact that the vast majority of the seers did not see this recession coming. Remember Ben Bernanke assuring us the subprime problem was “contained”? In mid-2008, after the recession had been under way for six months, the Fed thought there would be no recession, and the most pessimistic member of its Open Market Committee thought the unemployment rate could climb to 6.1 percent by late 2009. It actually went over 10 percent.

In January of this year — after the recession had probably been over for at least a few months — the most optimistic member of the committee expected the unemployment rate to fall to 8.6 percent by late this year. The consensus was for a rate no lower than 9.5 percent.

Having been embarrassed by missing impending disaster, there is an understandable hesitation to appear foolishly optimistic again.

But even without that factor, it is normal for recessions to make people pessimistic. “Go back and read what people were saying in 1982 or 1975,” said Robert Barbera, the chief economist of ITG. “Nobody was saying, ‘Deep recession, big recovery.’ It is quite normal to expect an abnormally weak recovery. It is also normal for that expectation to be wrong.”

Daniel Gross at Newsweek:

After the failure of Lehman Brothers in September 2008, industries and institutions tethered to the easy-money era were nearly sliced in half. And so was America’s economic self-esteem. Between the end of 2007 and the first quarter of 2009, $9 trillion of wealth evaporated. The relentless boom of China, India, and Brazil, with their cheap labor and abundant natural resources, emerged as a frightening new threat. The collapse coincided with other foreboding omens: $4-a-gallon gas, the rise of the tea partiers, an ungovernable Senate, an oddly blasé White House, unrepentant banks, and stubbornly high unemployment. The broad measure that tallies frustrated part-timers and those who have given up remains at 16.9 percent. If the U.S. doesn’t tumble back into recession, the consensus holds, we’ll face a Japan-style lost decade. A 2009 NBC/Wall Street Journal poll found that only 27 percent were confident their children’s standard of living would be better than their own.

Bleak is the new black.

But the long-term decline of the U.S. economy has been greatly exaggerated. America is coming back stronger, better, and faster than nearly anyone expected—and faster than most of its international rivals. The Dow Jones industrial average, hovering near 11,000, is up 70 percent in the past 13 months, and auto sales in the first quarter were up 16 percent from 2009. The economy added 162,000 jobs in March, including 17,000 in manufacturing. The dollar has gained strength, and the U.S. is back to its familiar position of lapping Europe and Japan in growth. Among large economies, only China, India, and Brazil are growing more rapidly than the U.S.—and they’re doing so off a much smaller base. If the U.S. economy grows at a 3.6 percent rate this year, as Macroeconomic Advisers projects, it’ll create $513 billion in new economic activity—equal to the GDP of Indonesia.

So what accounts for the pervasive gloom? Housing and large deficits remain serious problems. But most experts are overlooking America’s true competitive advantages. The tale of the economy’s remarkable turnaround is largely the story of swift reaction, a willingness to write off bad debts and restructure, and an embrace of efficiency—disciplines largely invented in the U.S. and at which it still excels. America still leads the world at processing failure, at latching on to new innovations and building them to scale quickly and profitably. “We are the most adaptive, inventive nation, and have proven quite resilient,” says Richard Florida, sociologist and author of The Great Reset: How New Ways of Living and Working Drive Post-Crash Prosperity. If these impulses are embraced more systematically and wholeheartedly, the U.S. can remain an economic superpower well into the current century.

//

So what will our new economy look like once the smoke finally clears? There will likely be fewer McMansions with four-car garages and more well-insulated homes, fewer Hummers and more Chevy Volts, less proprietary trading and more productivity-enhancing software, less debt and more capital, more exported goods and less imported energy. Most significant, there will be new commercial infrastructures and industrial ecosystems that incubate and propel growth—much as the Internet did in the 1990s.

Mike Dorning at BusinessWeek:

Bloomberg national poll in March found that Americans, by an almost 2-to-1 margin, believe the economy has gotten worse rather than better during the past year. The Market begs to differ. While President Obama’s overall job approval rating has fallen to a new low of 44%, according to a CBS News Poll, down five points from late March, the judgment of the financial indexes has turned resoundingly positive. The Standard & Poor’s 500-stock index is up more than 74% from its recessionary low in March 2009. Corporate bonds have been rallying for a year. Commodity prices have surged. International currency markets have been bullish on the dollar for months, raising it by almost 10% since Nov. 25 against a basket of six major currencies. Housing prices have stabilized. Mortgage rates are low. “We’ve had a phenomenal run in asset classes across the board,” says Dan Greenhaus, chief economic strategist for Miller Tabak + Co., an institutional trading firm in New York. “If Obama was a Republican, we would hear a never-ending drumbeat of news stories about markets voting in favor of the President.”

Little more than a year ago, financial markets were in turmoil, major auto companies were on the verge of collapse and economists such as Paul Krugman were worried about the U.S. slumbering through a Japan-like Lost Decade. While no one would claim that all the pain is past or the danger gone, the economy is growing again, jumping to a 5.6% annualized growth rate in the fourth quarter of 2009 as businesses finally restocked their inventories. The consensus view now calls for 3% growth this year, significantly higher than the 2.1 % estimate for 2010 that economists surveyed by Bloomberg News saw coming when Obama first moved into the Oval Office. The U.S. manufacturing sector has expanded for eight straight months, the Business Roundtable’s measure of CEO optimism reached its highest level since early 2006, and in March the economy added 162,000 jobs—more than it had during any month in the past three years. “There is more business confidence out there,” says Boeing (BA) CEO Jim McNerney. “This Administration deserves significant credit.”

Reihan Salam on Gross:

But does he gives us any reason to believe that this will happen? Have we curbed subsidies for homeownership? Have we curbed subsidies for the purchase of new automobiles? Will we see actually see legislation that bans or limits proprietary trading, would it be desirable, and would such legislation prove workable? My sense is that Neil Barofsky, quoted by Hart and Zingales in their National Affairs essay on curbing systemic risk, was right:

These banks that were too big to fail are now bigger. Government has sponsored and supported several mergers that made them larger. And that guarantee — that implicit guarantee of moral hazard, the idea that the government is not going to let these banks fail — which was implicit a year ago, it’s now explicit.

As for the more productivity-enhancing software piece, have we seen a sweeping effort from the White House to scrap software patents or to limit copyright terms, or have we seen an Administration that, like its predecessor, is eager to protect the interests of entrenched incumbents in this space?

Again, I like the Gross vision. But does he give us any reason to believe that it is coming to pass?

Gross writes:

In the 1990s, Japanese policymakers deliberated and delayed before embarking on a program that included interest-rate cuts, a huge stimulus program, expanded bank insurance, and the nationalization of failed institutions. In 2008 and 2009 it took the United States just 18 months to conduct the aggressive fiscal and monetary actions that Japan waited for 12 years to carry out. And the patient responded to the shock therapy, as the credit markets and financial sector bounced back. Since the announcements of the Treasury-imposed stress tests in May 2009, banks have raised more than $140 billion in new equity capital. In August 2009, not even the most cockeyed optimists could have projected that within four months, Bank of America, Citi, and Wells Fargo would return $100 billion in borrowed funds to the taxpayers. But they did.

Is he arguing that the financial system is basically sound? And is it really safe to say that the enormous monetary and fiscal expansion we’ve seen over this period hasn’t actually exacerbated the downside risks of another sudden downturn? Jeffrey Sachs would disagree.

Gross’s essay does include one specific bit of information that I find very encouraging.

In the short term, the ruthless pursuit of efficiency translates into the uncomfortable—and unsustainable—dichotomy of rising profits and falling employment. But the focus on efficiency is creating new business opportunities for smart companies. At BigBelly Solar, a Needham, Mass.-based firm whose solar-powered trash compactors reduce the need for both labor and energy, sales doubled in both 2008 and 2009. “Cities and institutions like universities and park systems are eager to do more with less,” says CEO Jim Poss. Leasing 500 compacting units has allowed Philadelphia to cut weekly pickups from 17 to five and will save it $13 million over 10 years. BigBelly employs fewer than 50 people, but like many businesses in fast-growing markets it indirectly supports a much larger number of jobs.

This is the power of capitalism, I tell you! But is BigBelly Solar more representative of the economy that is emerging or the massive transfers to declining industries, the pressure on GSEs to originate mortgages of dubious value, modification efforts that amount to huge subsidies for the financial sector, and much else besides?

Ryan Avent at Free Exchange at The Economist:

The trigger for the stories is clear. Economic data have been trending upward for a while, but March’s positive employment report was the catalyst for this rush of pieces. And once out there, the “Americans are too pessimistic” meme takes on a life of its own.

By its self, the cheerleading isn’t necessarily a bad thing. Confidence is a key ingredient to recovery, and if Americans are convinced that it’s once again ok to spend and invest, then the confidence boost to the economy may feed on itself. But it’s worth pointing out that after meeting on Friday, the NBER recession dating committee declared that it was not prepared to announce an official recession end date. This doesn’t mean that the economy is still in recession; it could simply mean that they have not yet seen enough data to agree upon a date. But it should indicate that America is not that far removed from contraction.

And optimism could be dangerous if it leads the country to underestimate its continued vulnerabilities—to new financial shocks, to new shocks to household budgets (as from rising resource costs), to new deterioration in housing markets, to continued drag from an unemployment problem that remains very serious. At this point in any recovery, complacency is the enemy. All observers want this to be 1983, but it very well might turn out to be 1937.

Kevin Drum:

But just off the top of my head, here are the things that gnaw at me when I hear stuff like this:

1. This is a balance sheet recession, not a Fed-induced recession. Paul Volcker caused the 1981 recession by jacking up interest rates and he ended it by lowering them. That’s not going to happen this time.
2. In fact, there won’t be any further stimulus from lower interest rates. They’re already at zero, and Ben Bernanke has made it clear that he doesn’t plan to effectively lower them further by setting a higher inflation target.
3. Consumer debt is still way too high. There’s more deleveraging on the horizon, and that’s going to make consumer-led growth difficult.
4. The financial sector remains fragile and there could still be another serious shock somewhere in the world.
5. There are strong political pressures to reduce the budget deficit. That makes further fiscal stimulus unlikely.
6. Housing prices are still too high. They’re bound to fall further, especially given rising interest rates combined with the end of government support programs.
7. Our current account balance remains pretty far out of whack. Fixing this in the short term will hinder growth, while leaving it to the long term just kicks the can down the road.
8. The Fed still has to unwind its balance sheet. That has the potential to stall growth.
9. Oil prices are rising. This not only causes problems of its own, but also makes #7 worse.
10. Unemployment and long-term unemployment continue to look terrible. Yes, these are lagging indicators, but still.

I don’t expect all of this stuff to be as dire as it sounds, and overall I suspect that we are indeed going to see steady if unspectacular growth over the next few years. But I’m not entirely sure of that, and these are the reasons why. Just thought I’d share.

Daniel Drezner:

If this happens, it would be consistent with the aftermath of past crises.  The U.S. tends to bounce back more quickly from global shocks — including those caused by the United States.

What’s intriguing about all of this is whether a U.S. economic resurgence would affect American attitudes about the rest of the world.  Afghanistan, Iraq, and the economic downturn have caused a lot of Americans to (understandably) grow weary of sustained engagement in other parts of the globe.  If the economy turns around, a lot of attitudes about foreign affairs might become less sour.

Question(s) to readers:  do you think the U.S. economy is primed for an supercharged recovery?  If so, how will that affect attitudes towards American foreign policy?

Marc Ambinder:

It can’t be a coincidence that Newsweek and BusinessWeek both proclaim (with caveats buried deep within) that America is back, that the worst is over, that a bright future for the country is ahead. It’s not the analysis that troubles me, it’s the perspective from which that analysis is derived. It is absolutely true that the worst is over, and is absolutely true that way too many Americans are suffering, and will continue to suffer, much more than when similar headlines were written about the ending of other recessions.

Americans don’t think the economy’s getting better, and they’re not confident it will get better. That’s the governing party’s major political challenge for the midterms. It also produces a disjuncture between elite opinion, which is talking up the economy, and public opinion, which is living with it.

I think the authors of these pieces are talking to their friends at private equity firms and on Wall Street — where exuberance reigns — and aren’t talking as much to vice presidents at, say, General Electric. It’s harder to talk to corporations when they’re not performing well and still in cautionary/recession mode. So there are more sources available to reporters who will say good things about the economy than will say bad things.

Furthermore, those writing the articles may have had trouble refinancing their mortgage, but probably aren’t underwater: they have jobs, they aren’t mobile, so they are somewhat disconnected from the depth of economic duress. (Again, these articles include caveats, but they’re intellectual, not emotional — the authors don’t give much weight to the experiences that don’t comport with their own.)

The truth is that unemployment is massive and people have a myriad of challenges. Millions face their own private liquidity crises. The unemployment rate might rise between now and November as people dip their toes back into the job market and discover that it’s still way too cold.

In general, the economy we see today is probably the economy we’ll see in November. That creates a political challenge for the White House and Democrats: they desperately want credit for saving the economy, and they’re eager to participate in stories that play up the economy. The mental figurin’ is that if the status quo is the status quo, it’s be better to talk it up than to project caution.

We Gave Out The Underpants And Now We Collect Them

Zachery Kouwe in the NYT:

Nearly a year after the federal rescue of the nation’s biggest banks, taxpayers have begun seeing profits from the hundreds of billions of dollars in aid that many critics thought might never be seen again.

The profits, collected from eight of the biggest banks that have fully repaid their obligations to the government, come to about $4 billion, or the equivalent of about 15 percent annually, according to calculations compiled for The New York Times.

These early returns are by no means a full accounting of the huge financial rescue undertaken by the federal government last year to stabilize teetering banks and other companies.

The government still faces potentially huge long-term losses from its bailouts of the insurance giant American International Group, the mortgage finance companies Fannie Mae and Freddie Mac, and the automakers General Motors and Chrysler. The Treasury Department could also take a hit from its guarantees on billions of dollars of toxic mortgages.

But the mere hint of bailout profits for the nearly year-old Troubled Asset Relief Program has been received as a welcome surprise. It has also spurred hopes that the government could soon get out of the banking business.

Daniel Gross in Slate:

The exhaustive spreadsheets at financialstability.gov document the status of the 667 investments made under CPP since last fall. To date, 21 institutions have repaid the principal amount and repurchased the warrants, and 15 more have repaid the principal. Morgan Stanley, which borrowed $10 billion in October 2008, redeemed the preferred shares in June and purchased the warrants for $950 million on Aug. 12, giving taxpayers a return of 12.7 percent, according to SNL Financial. For the 21 companies that bought back the shares and the warrants, the taxpayer received an annualized return of 17.5 percent—which is better than most hedge funds have done in the past year. Since many of the largest financial institutions raised private capital to substitute for government capital, the 36 “exits”—a tiny fraction of the transactions—represent 34 percent of the total. The bottom line: Taxpayers put $204.4 billion into the banks through CPP and have received $70.2 billion in principal, plus about $10 billion in dividends and warrant payments. The repaid money goes back into Treasury’s general fund, while a small amount has been put back to work. On Aug. 21, AmFirst Financial Services in McCook, Neb., received $5 million from the CPP. Today, 633 banks still owe the Treasury $134.2 billion.

Naked Capitalism:

In a simply remarkable coincidence of timing, the New York Time running a story with the very same message, namely that bailouts are good for taxpayers because the Treasury has made money on the TARP.

If you believe that, I have a bridge in Brooklyn I’d like to sell you. The fact that we have such patent garbage running as a front page New York Times story says either the reporter and his editors lack the ability to think critically (or find sources who could do that for them) or that we have a controlled press. Given that subscriber-driven Bloomberg has even fallen in line, I am inclined to the latter view, but I am still curious as to how this has been achieved. Is this the price of access journalism, or is something more pernicious at work?

Now to the intellectually bankrupt New York Times story. Here is how it determined the TARP was making money:

The profits, collected from eight of the biggest banks that have fully repaid their obligations to the government, come to about $4 billion, or the equivalent of about 15 percent annually, according to calculations compiled for The New York Times.

Help me. Credit 101 is that your best borrowers repay first (unless you gave them overly generous terms, of course, then they might hang on to the proceeds). A quick but not conclusive search suggests that only a small portion of the TARP has been retired, so it is wildly premature to declare victory.

In fact, another source looked at the TARP as of June and estimated that it had lost $148 billion, and had lowered loss total as a result of the repayments. Now bank stocks have rallied since then, but the biggest contributors to the red ink, namely AIG and Citigroup, are not in any better shape fundamentally than they were then. Indeed, the fact that new AIG CEO Robert Benmosche has in a remarkable show of hubris, effectively told the US taxpayer to stuff it, AIG has the dough and is in no particular hurry to return it, nor does it care what the public or Treasury wants, its demands are unreasonable. I wouldn’t hold my breath about having the loans repaid.

James Kwak:

There is also an ongoing debate about whether Treasury is getting full value for its warrants, which we’ve covered previously, but let’s leave that aside for now. The bigger question, I think, is this: Did Treasury get a fair deal for its investments at the peak of the crisis?

At the time I said no, and I still think the answer is no. The most important principle to bear in mind is that how a decision turns out has no effect on whether it was a good decision to begin with. In honor of the changing seasons, imagine it’s the first quarter of a football game and you have fourth-and-one at the other team’s 40-yard line. Anyone who studies football statistics will say you should go for it; it’s not even close. (Some people have run the numbers and said that a football team should never – that’s right, never – kick a punt.) If the offense fails to make it, the announcer, and the commentators the next day, will all say that it was a bad decision. That’s completely wrong. It was a good decision; it just didn’t work out.

Arnold Kling:

Profit from bank bailouts–so far. The profits come from banks that have paid back the government, and recall that some banks were forced to take bailout funds in the first place. We will see what happens to the full sample.

Suppose in the end that the government makes a profit of $50 billion on banks, but loses $100 billion on Freddie and Fannie. How should we count that? I would be inclined to count it as a loss on bank bailouts, because the subsidies to Freddie and Fannie end up bailout banks, which were creditors of those institutions.

Matthew Yglesias:

Two things happen in a panic. One is that huge profit opportunities arise for anyone who has a giant pool of cash or the ability to raise it. The other is that thanks to the “flight to quality” it’s suddenly very easy for the government to raise cash. Hence, profit. Which isn’t to say that we’ll see a profit overall, lots of opportunities for losses still exist:

“The government still faces potentially huge long-term losses from its bailouts of the insurance giant American International Group, the mortgage finance companies Fannie Mae and Freddie Mac, and the automakers General Motors and Chrysler. The Treasury Department could also take a hit from its guarantees on billions of dollars of toxic mortgages.”

This should be a real worry. That said, it’s worth noting that none of this is core TARP. AIG, Fannie, and Freddie are all separate initiatives. The Fannie & Freddie bailouts were inevitable and anyone would have done them. GM and Chrysler represented diversion of TARP funds away from their main purpose (banks) toward something progressives were more friendly to. It’s really only AIG on this whole list of bailouts were I think clearly condemnation-worthy recent policy mistakes were made. The underlying situation at Fannie & Freddie was a horrible policy blunder, but it evolved over the course of decades so it’s hard to point the finger at anyone in particular.

Kevin Drum:

The money that’s being paid back first comes from the very strongest banks — mostly the ones that really didn’t need capital injections in the first place.  They were always the ones who were likely to cash out first, cash out completely, and therefore provide the government with its highest rate of return.  In other words, looking at the results of TARP so far is as distorted as if you tried to get a sense of how an election was going by polling only your own guy’s strongest precincts.  You’d just be kidding yourself.

TARP won’t end up costing $700 billion.  But these early paybacks account for only about 10% of the total and really don’t provide a very good sense of how the program as a whole is likely to turn out.  It’s more like an absolute upper bound.

Derek Thompson at The Atlantic:

Here’s what I still find incredible. In twenty years, we’ll likely look back on Obama’s first term and praise or criticize him for a swift or stalled recovery. But what’s amazing is that some of the most important and lasting decisions were made in the waning months of a lame duck presidency. TARP was a Paulson/Bernanke brainchild. The AIG bailout was a Paulson/Bernanke production. The takeover of Fannie and Freddie was in September 2008. The first-round auto bailouts were one of Bush’s final contributions. When history’s verdict on the recovery plans emerges, it focus on two months — September and October — during which time the public was arguably more focused on a campaign. Pretty amazing.

Justin Fox at Time

Meg Marco at The Consumerist

Eat My Electricity, Prius!

The Chevy Volt gets what MPG rating?

Richard S. Chang at NYT:

General Motors announced on Tuesday morning that its Chevrolet Volt extended-range electric car had delivered a fuel-economy rating of 230 miles a gallon — which sounds outrageous. With that kind of gas mileage, you could practically drive from Los Angeles to Las Vegas on a single gallon of gas, or for around three bucks.

But, of course, you wouldn’t be able to do that. G.M. said the 230 number is only for city driving, and it’s not based on the same measurement standard used to calculate the fuel economy of gas-engine or hybrid cars.

Matt Burns at Crunch Gear:

Take a look at the current high-mileage kings and that 230 MPG rating really sinks in. The EPA handed the Prius a 51 MPG city ranking and the Insight a 41 MPG. The EPA says that the Ford Fusion hybrid can get 41 in the city and the Camary Hybrid 40 MPG in the city. With hyper-mileage tactics like killing the engine to coast down hills and fancy pedal work, a few obsessed drivers have pushed a few of these cars into triple digit territory.

None of these cars of course benefit from a battery pack that can power the car exclusively for 40 miles, though. The only real competitor to the Chevy Volt is the Fisker Karma as it’s fundamentally the same powertrain design but the EPA hasn’t had a go with that EV yet.  There is the Tesla Model S too, but that vehicle is limited by the range of a battery pack and doesn’t have an on-board gasoline generator like the Volt and the Karma and therefore will not be ranked under the same guidelines.

Sebastian Blanco at Autobloggreen:

Frank Weber, vehicle chief engineer for the Volt, told AutoblogGreen that the EPA’s method takes into account the two extremes: People who plug in every chance they get and therefore barely ever need gasoline and people who never plug in (if you’re buying a Volt and never plug it in, we’d like to offer you a bridge or two. Call us). By figuring out what the average driver will do with the Volt, the EPA has declared that 230 mpg is reasonable. Weber said, “The number is in the ballpark, it is not unrealistic. The moment you are driving shorter trips, or you go on longer trips and look at your average fuel economy, this number is achievable.”

Keep in mind, the 230 mpg number is only valid for the Volt’s city cycle. On the highway, the number will be closer to 100 mpg. Still impressive to look at, and the first car to get triple digits from the EPA. As you can read in this detailed PDF from NREL, there is much more to think about in calculating the fuel economy of PHEVs than simply how far it can go on a single charge and then what its “regular” mpg rating is. At least, there’s more to it if you’re the EPA.

Darren Murph at Engadget:

This past Sunday, GM reportedly submitted a regulatory filing with the US Treasury, and while it can’t be taken as official word per se, it does provide reason to believe that the promised November ship date will slip to an undisclosed month and year. The report also noted that there is “no assurance” that it will qualify for any remaining energy loans to develop advanced fuel technology automobiles, and if you needed more reason to doubt the whole ordeal, have a look at this zinger: “Our competitors and others are pursuing similar technologies and other competing technologies, in some cases with more money available; there can be no assurance that they will not acquire similar or superior technologies sooner than we do.” Ah well — at least we know the four or five prototype models destined for eBay will do Ma Earth proud, right?

Harry Fuller at ZDNet:

And if gasoline does ever hit $20 per gallon, well, the Volt could put GM back into the driver’s seat. The Volt’s sticker price is apparently going to be around $40K, and it would qualify under current law for about $7500 in federal rebates. So with sales tax in most states it would retail in the mid-$30K range. Expect a waiting list, as well. Every Michigan pol will have to own one for sure. There is no official way to sign-up yet.
Chrysler, Daimler, Ford, Nissan and Toyota all expect to launch their own electric cars in the near future. It’s not clear if any of them can beat the Volt to the market. Also, not clear: will any of these companies be allowed to sell their electric cars in Saudi Arabia?

Allah Pundit:

Thrilling news, not because the Volt’s going to solve America’s dependence on Middle Eastern oil overnight but because the baseline technology’s now not only available but almost cost-effective. Why do I say almost? Let’s do the math. Initial sticker-price estimates are $40,000; assume it’ll be a bit more than that, then deduct $7,500 for the federal tax credit you’ll get for buying one. Let’s say that leaves us with a cost of $35,000. Figure a new car with standard fuel efficiency will get 20 mpg and run you $18,000. Now assume gas prices of $3 per gallon. Buying the cheaper car will save you enough money to afford 5,667 gallons of gas, which, at 20 mpg, means it would be a better deal than the Volt for the first … 113,000 miles. That also doesn’t account for (a) the (comparatively tiny) cost of electricity to charge the battery, (b) the headaches for apartment-dwellers in finding a place to charge the thing, (c) the possibility of higher maintenance costs as the Volt’s new technology suffers glitches, and (d) the strain on urban electrical grids a decade or two down the road when these suckers become popular.

But never mind that. Like I say, we’re thinking big picture here, and the big picture for what this’ll do to Islamic oil autocracies once the technology becomes better and cheaper is sweet. Exit question: Shouldn’t Iran pessimists be looking especially carefully at this rig? If you believe some sort of confrontation in the Gulf is inevitable and you realize what’ll happen to oil prices if the Straits of Hormuz are closed or, god forbid, a regional war breaks out, then suddenly the Volt doesn’t seem like a terrible deal. Especially if you toss a little Carter-esque Hopenchange stagflation in there for old time’s sake.

John Cole

UPDATE: Daniel Gross at Slate

Allah Pundit

UPDATE #2: John Hudson at The Atlantic with a round-up

Cash Rules Everything Around Me

First, the question of the rich:

Daniel Gross in Slate:

As if market forces and malevolent actors weren’t enough, the rich are now finding themselves targeted by politicians. Strapped for cash, states, cities, and the federal government are seeking to soak the rich—or at least to make them pay taxes at the same marginal rates as they did in the Reagan years, which many on the right regard as an act equivalent to executing landed gentry. Some politicians have even suggested that we fund health care by slapping a surtax on people with annual incomes of more than $1 million.

This tactic isn’t likely to work, in large part because people who make a lot of money are quite effective at swaying public policy. What’s more, the wealthy have many defenders who argue that taxing the golden geese will cause them to fly away. In May, the Wall Street Journal op-ed page argued that millionaires fled Maryland after the state legislature boosted the top marginal state income tax rate to 6.25 percent on the top 0.3 percent of filers. “In 2008 roughly 3,000 million-dollar income tax returns were filed by the end of April,” the Journal notes. “This year there were 2,000, which the state comptroller’s office concedes is a ‘substantial decline.’ ” The Journal uses this small sample to warn the federal government and states with progressive tax structures and lots of rich people—New York, New Jersey, California—to heed the lesson. Tax the wealthy too much, and they’ll leave.

Such logic makes sense to the Journal’s op-ed page staffers, who inhabit an alternative universe in which people wake up in the morning and decide whether to go to work, innovate, or buy a bagel based on marginal tax rates. But if people were motivated to choose residences based solely on high state income taxes, then California and New York wouldn’t have any wealthy entrepreneurs, venture capitalists, or investment bankers—and the several states that have no state income tax, which include South Dakota, Alaska, and Wyoming, would be really crowded with rich people. Maybe Maryland’s rich folks just had a crappy year in 2008. Robert Frank, who chronicles the ultra-rich economy for the reality-based portion of the Journal, notes, citing data from the Institute on Taxation and Economic Policy, that there’s “evidence that [the state’s] millionaires didn’t disappear because they moved, they disappeared because they are no longer millionaires.”

Max Boot in Commentary:

But are millionaires all they’re cracked up to be? The term was coined in the 19th century. The Oxford English Dictionary credits Lord Byron with inventing it in 1816 (”He is still worth at least 50-000 pounds being what is called here [sc. Evian] a ‘Millionaire’ that is in Francs & such Lilliputian coinage”). At the time, a million pounds (or even a million francs) was a vast sum. This was a time when the average English worker earned less than 55 pounds a year. (Today the average full-time worker in the United Kingdom takes home almost 25,000 pounds a year.) But times change, and a million pounds ain’t what it used to be. Neither is a million dollars.

Comparisons of monetary value over the centuries are necessarily inexact because there are many different yardsticks one can use, and it’s hard to account for changing standards of living. But employing this handy website, my research associate, Rick Bennet, calculated that a million pounds in 1830 would be worth 73 million pounds today (or $120 million). A million dollars from 1830 is worth $24 million today. (That’s based on the Consumer Price Index. Utilizing other measurements, today’s dollar equivalent is even higher.)

If only someone had been clever enough to coin a term for today’s truly wealthy — those who make $120 million a year, or at least $24 million. Not that they should be hit with more taxes either. But at least if we’re going to talk about “the rich,” let’s talk about those who are wealthy in today’s terms rather than employing a metric that is 200 years out of date.

Kejda Gjermani in Commentary:

America desperately needs these energetic entrepreneurs to expand our technological frontier, but our tax system penalizes their risk-taking behavior. A million dollars or a sum in that range to them may be the culmination of many years of fervent effort toward materializing a business or product no one else has conceived of — years in which they have forgone the income obtainable from salary positions. When and if their efforts finally do pay off, not only does the time value of money erode the real worth of their lump-sum payment, but being treated under a high marginal tax rate further evaporates their earnings unduly. Unlike corporations, individuals cannot spread their losses over time in the eyes of the IRS. Therefore, the government is incentivizing a lifestyle dedicated to steady moderate earnings over one in pursuit of an open-ended, risky large payoff after years of financial sacrifices.

Because most taxpayers, at whom this “millionaires’ surtax” political pitch is aimed, are wage earners themselves, they can scarcely relate to the immense risks and sacrifices often involved in earning anything close to a million dollars. But entrepreneurial activity and the financial benefits accruing thereto are higher in America than anywhere else in the world. Ergo, a significant proportion of the millionaires burdened by the proposed surtax will be young entrepreneurs of unsteady income whose fruits of hard work are already embittered by our progressive tax code.

Onto executive compensation, Deborah Solomon in WSJ:

The U.S. pay czar, now preparing to vet the compensation at businesses receiving major federal aid, will push to renegotiate contracts that he views as excessive or seek other ways to reduce overall outlays, said people familiar with the matter.

The role of the government in setting pay is reaching a pivotal moment. Seven banks and industrial companies that received significant bailouts must submit proposals for their compensation packages by Aug. 13.: Citigroup Inc., Bank of America Corp., American International Group Inc., General Motors Co., Chrysler Corp., Chrysler Financial and GMAC Financial Services Inc.

Daniel Indiviglio in The Atlantic:

If you had signed a contract to be guaranteed a certain amount of money, would you be so quick to abandon that contract? I doubt many will. I think that’s especially true for bankers guaranteed large pay packages in groups that had nothing to do with the financial crisis, such as mergers and acquisitions. They’ll just argue that it wasn’t their fault. Should they be penalized for the stupid/negligent/evil actions of others?

Stephen Grocer at the WSJ:

Wall Street compensation is once again making headlines.

The U.S. pay czar, Kenneth Feinberg, will push to renegotiate contracts that he views as excessive or seek other ways to reduce overall outlays at institutions receiving big dollops of federal aid, the WSJ reported Monday. That followed closely on the heels of a WSJ article regarding Citigroup trader Andrew J. Hall and his push for the financial giant to honor a 2009 pay package that could total $100 million.

Hall is the head of Phibro, Citigroup’s energy-trading unit, which occasionally accounts for a disproportionate chunk of Citigroup income. Citigroup needless to say is one of the firms that has received federal aid. The troubled bank is contractually obligated to pay Hall based on Phibro’s profits. And Phibro has been highly profitable for Citigroup. So much so that a number of people believe Citigroup stands a better chance of repaying the U.S. money with its Phibro unit humming.

Peter Cohan at Daily Finance on Citi bonuses.

Roger Ehrenberg

Naked Capitalism:

First, to the “sanctity of contracts” bit. I don’t seem to recall many, or frankly any Wall Street types going on about sanctity of contracts when agreements with the UAW were reworked to save GM. So tell my why should big financial firms that would be toast other than by virtue of the munificence of the suffering American taxpayer be any different? The case that is getting everyone exercised is Andrew Hall of Citigroup, which is the lead candidate in the zombie bank casting call. Hall would have NO contract had nature been permitted to run its course. That inconvenient fact does not seem to be acknowledged by Hall defenders.

Being at a firm means all boats rise and fall with the fate of the firm, That construct was well understood in the days of partnerships and has gone completely out the window in the era of public ownership, aka Other People’s Money. If you did an A job in a C year, you did worse that if you did a C job in an A year. Unfortunate, but those were the breaks.

My beefs about Hall’s pay are not the level per se but the structure. He appears to have a firm within a firm, an arrangement that often leads to bad ends (Mike Milken at Drexel and the AIG Financial Products Group are the poster children, but I have seen smaller scale variants that also wound up causing trouble for the organizations housing them). He refused to comply with efforts to integrate his unit into the asset management group, which presumably would have been better for the bank, so he clearly wants to have his cake and eat it too: enjoy the advantages of Citi’s cheap borrowing costs (an important advantage in his business) and infrastructure (he is relieved of much of the hassle of running a business) and can focus on a year long horizon rather that worrying about Sharpe ratios and monthly NAVs. And his deal appears extraordinarily rich, with the cut for his group below but presumably not much below 30%, well above hedge fund norms.

More Naked Capitalism

And today, from WSJ:

The vote in favor of executive compensation legislation by the House Financial Services Committee gives lawmakers the chance to partially advance at least a portion of President Barack Obama’s ambitious financial regulatory revamp before adjourning for the August recess. The House of Representatives is scheduled to vote on the measure on Friday.

The bill, approved in a 40-28 vote, authorizes federal regulators to restrict “inappropriate or imprudently risky” pay packages at financial companies, though firms with under $1 billion in assets would be exempted.

The legislation also gives shareholders a greater ability to weigh in on executive compensation packages and ensures that board compensation committees are made up of independent directors.

On The Other Hand, When I Was 129, It Was A Very Good Year As Well…

A few facts about Japan:

Japan has the oldest population among major countries, according to new figures from the US Census Bureau.

In total, 22 per cent of the Japanese population is aged 65 and over.

As well as this, the bureau has revealed that by 2050, the number of Japanese people who are aged 100 and above will have risen to 627,000, which the equivalent of almost one per cent of its population.

People born in Japan can now expect to live until around 82.

A low birth rate in the country will also lead to a rise in the median age, which is expected to go from 37 in 1990 to 55 by 2050.

AFP News:

Japan’s elderly people should keep working to pay taxes as their only talent is the ability to work, Prime Minister Taro Aso said on Saturday, risking anger from senior voters ahead of a key election.

Addressing young entrepreneurs in Yokohama, near Tokyo, Aso noted that more than 80 percent of people aged 65 or older in Japan were able-bodied and needed no nursing care.

“Please think these people are talented only in working, unlike you,” Aso said in a televised speech.

“It’s too late to learn playing around at over 80… If they use their working talent more and become workers, they will be taxpayers,” he said.

Daniel Gross In Slate:

Such a decline is cataclysmic for an indebted country that values infrastructure and personal service. (Who is going to maintain the trains, pay for social benefits, slice sushi at the Tsukiji fish market?) The obvious answers—encourage immigration and a higher birthrate—have proved difficult, even impossible, for this conservative society. In the United States, foreign-born workers make up 15 percent of the work force; in Japan, it’s 1 percent. And, official protestations to the contrary, they’re not particularly welcome. One columnist I met compared the standard Japanese attitude toward immigrants to that of French right-winger Jean-Marie Le Pen. In the 1990s, descendants of Japanese who had emigrated to South America early in the 20^th century returned to replace retiring factory workers. Now that unemployment is on the rise, Japan is offering to pay the airfare for those who wish to return home.

Japan doesn’t particularly want to import new citizens, but it doesn’t seem to want to manufacture them, either. It’s become harder to support a family on a single income, and young people are living at home for longer. And Japan isn’t particularly friendly to working mothers—pre-K day care is not widely available, and the phrase work-life balance doesn’t seem to have a Japanese translation. (The directory of the Japanese Business Federation, a showcase of old guys in suits, makes the Republican Senate caucus look like a Benetton ad.) The upshot: a chronically low birthrate. Too often, demographic change was described to me as a zero-sum game—rather than being seen as potential job creators, women and immigrants are often seen as taking jobs from men.

Chalk it up to age or to culture, but Japan strikes me as strangely passive about the huge changes it is facing. I heard plenty of bromides about the need for new policies toward both immigration and work-life issues but no real policies. “The ongoing issues of the lower birthrate and the aging society have been going with such speed that the national design of how to respond to that has not caught up yet,” said Yuriko Koike, a TV reporter turned politician (Japan’s first female defense minister) and one of the most prominent women in public life.

Brad Glosserman and Tomoko Tsunoda in Foreign Policy:

This shift poses serious questions for the United States and its increasingly important relationship with Asia. The U.S.-Japan alliance has moved steadily forward over the last decade, with Japan assuming a higher profile when it comes to regional security. But we have probably seen the high-water mark of Japan’s international security activities. Even though the region is increasingly tense, Japanese defense budgets have actually declined in recent years (and Japan continues to cap defense spending at 1 percent of GDP) — a fact that could put U.S. interests in Asia at risk.

Financially, too, considering that Japan’s savings has bankrolled much of U.S. spending in recent decades, the country’s increasingly elderly population is going to hit the American empire where it hurts. U.S. trade negotiators have long targeted Japan’s trade surplus with the United States, but those funds have been recycled back to America to suppress the value of the yen, finance consumption of Japanese-made goods (and support employment), and help the United States cover its steadily expanding government deficits. Until late 2008, Japan was the number one holder of U.S. Treasury bills. (China has overtaken Japan, but as of February 2009, Japan still held $662 billion in T-bills, putting it just behind China.)

An aging Japan will no longer be able to recycle those surpluses. More precisely, an aging Japan won’t have those surpluses: Its trade accounts will fall into deficit, and funds that do exist will be badly needed at home. This process is already underway as the country’s savings rate declines. According to estimates by the consulting firm McKinsey, the total savings rate in Japan is projected to slide to 0.2 percent by 2024.

UPDATE: Mark Steyn in National Review

If “Back To The Future” Was Made Today, Marty McFly Goes Back To 1979

Brink Lindsey has a piece in Reason called Nostalgianomics about liberal pinning for the 50s. Specifically, he’s speaking of Paul Krugman, income inequality and social progress. The last two graphs:

Paul Krugman may long for the return of selfdenying corporate workers who declined to seek better opportunities out of organizational loyalty, and thus kept wages artificially suppressed, but these are creatures of a bygone ethos—an ethos that also included uncritical acceptance of racist and sexist traditions and often brutish intolerance of deviations from mainstream lifestyles and sensibilities.

The rise in income inequality does raise issues of legitimate public concern. And reasonable people disagree hotly about what ought to be done to ensure that our prosperity is widely shared. But the caricature of postwar history put forward by Krugman and other purveyors of nostalgianomics won’t lead us anywhere. Reactionary fantasies never do.

Veronique de Rugy at The Corner

Jim Manzi:

Brink goes on to argue that the political and social changes that have allowed growing inequality – and have in turn been reinforced by it – are good things, not bad things. These include greater freedom for women, acceptance of diversity and non-conformism and so on. I broadly agree with this diagnosis, though I think that Krugman paints too rosy a picture of the 1950s and Brink pays too rosy a picture of the current era. The trade-offs involved in policies that allow or encourage growing inequality are not nearly as one-sided as either Brink or Krugman asserts. They are uncomfortable.

But the United States didn’t just wake up in 1980 and decide to make a set of uncomfortable trade-offs through a process of abstract reasoning, or even entirely through organic social developments, we were pushed. What I think is missing from the debate as presented in Brink’s piece is international competition.

Manzi links to Jonah Goldberg, who writes about nostalgia for an even earlier time:

It seems to me that all of the new New Deal talk fails to grasp that the extent to which nostalgia drives our assumptions of “what works.” Even if you give the most charitable reading of the New Deal and the postwar period, the simple fact remains that those times aren’t like these times.

Goldberg is discussing the Niall Ferguson Financial Times article about Keynes and Krugman. Krugman had this blog post on Ferguson in early May. Here’s Paul Krugman‘s column on inflation, published a day before Ferguson. The New York Review of Books symposium with Krugman, Ferguson, Roubini, etc… Andrew Stuttaford excerpts part of the Ferguson piece at The Corner:

Of course, Mr Krugman knew what I meant. “The only thing that might drive up interest rates,” he acknowledged during our debate, “is that people may grow dubious about the financial solvency of governments.” Might? May? The fact is that people – not least the Chinese government – are already distinctly dubious. They understand that US fiscal policy implies big purchases of government bonds by the Fed this year, since neither foreign nor private domestic purchases will suffice to fund the deficit. This policy is known as printing money and it is what many governments tried in the 1970s, with inflationary consequences you do not need to be a historian to recall.

This fight between Ferguson and Krugman has gotten a lot of blog press.

Henry Blodget at Clusterstock

Noam Scheiber at TNR

Sheldon Filger at HuffPo

Gideon Rachman in FT

Cees Bruggemans in iAfrica sums it up:

But as history has shown, this may actually be very rational, demanding upfront that policymakers show it can work and thereby earning the compliance of bondholders rather than merely naively assume such compliance to be blindly forthcoming. Mr Ferguson goes wrong in claiming with the expectations crowd that governments are always wrong. In the present global crisis the Keynesian medication is needed and will work and to decry it merely suggests an inability to distinguish good from bad policy.

[…]So was this clash of titans useful? It most certainly helped in seeing where both gentlemen are going right, but also where they err. This aside of personal pettiness which suggests real big egos can’t have a normal conversation without completely missing the point of each other.

UPDATE: Daniel Gross in Slate

Everybody Open Your Hymnals To Section 363

Much debate in the blogosphere over the situation regarding Chrysler and the hedge funds, especially from the right side of the sphere:

Jim Manzi:

“How should we decide who makes what “sacrifice” when a corporation can not meet all of its financial obligations? In the U.S., we use bankruptcy court. Courts are effective for this purpose, in part because they are somewhat more insulated from immediate political pressures than are other agencies of the government. The reason that this matters is that investors require stability of rules in order to agree to put money at risk. This is Rule-of-Law 101. Given that a key political constituency that helped elect the President, unions, are a party to the Chrysler dispute, the potential for undermining the rule of law is obvious and severe.”

He links to both Seeking Alpha and Megan McArdle.

Noah Millman has a post up about the matter. He takes a different tact than McArdle and Manzi:

“So the government was at the table before the table was set. Before the hedge funds bought this distressed secured debt, they knew that the government was a major player in determining the outcome for the various stakeholders in the auto companies. Among the many factors in their investment decision, preeminent was the need to try to game what the government was going to do.

It’s very hard, once that context is established, for me to get terribly exercised about the Administration’s decision to play hardball negotiator on behalf of the UAW. Ever since the auto companies showed up on Capitol Hill begging for a bailout, they became political enterprises, and investors at every level must have understood that…

…Let me be clear about one thing. If allegations that the Obama Administration threatened to use the IRS to punish some of the hedge fund holdouts are true, then there’s been actual criminal activity and there should be a full investigation. But short of that kind of abuse of the government’s police power, I can’t get that excited about the government favoring this or that stakeholder. What did you expect would happen when you invite the government into your company?”

John Hinderaker at Powerline has two posts up on this, here and here. He also links to Michael Barone. In the second post, he discusses the story that the Obama administration threatened some of the creditors with the White House press corps. WH has denied that story. Michelle Malkin has a post up with audio from an interview with Tom Lauria, who represents some of the creditors.

Financial Times’s John Gapper also has a piece up defending the hedge funds:

“President Obama is trying to use the bully pulpit of the presidency to shove these investors into taking a worse deal than they could ordinarily expect under Chapter 11. The Tarp-funded banks that voted for the deal were no doubt aware of how they might by pilloried if they did not do so.

But there is a decent chance that the bankruptcy judge will ignore all of this poltical grandstanding in favour of longstanding legal principles, and so he or she should.”

From the other side, Naked Capitalism has a guest post up concerning the issue:

“In essence, section 363 gives the bankrupt entity, in this case, Chrysler, the right to sell assets to another organization, in this case Fiat, BEFORE creditors can challenge the Chapter 11 reorganization plan. This significantly reduces the collateral against which secured creditors can make claims in bankruptcy.

The long and short is this:

• Secured creditors might have gotten more in liquidation than they were being offered before Chrysler filed for bankruptcy.
• However, because of section 363 of the bankruptcy code, Chrysler can sell substantially all of its assets to Fiat without creditor approval and before it has a definitive reorganization plan
• This leaves the secured lenders out of luck. They could end up with less money than had they accepted the deal offered them earlier.”

The post links to this AmLawDaily post, which, in part, discusses Lauria’s past motions to the court.

“Lauria has been here before. In the contentious Adelphia Communications bankruptcy, Lauria led a group of creditors that filed late motions calling for a special trustee to investigate whether each group of note holders was getting what they deserved, according to this 2006 story from the New York Law Journal. A judge dismissed his motion, calling it a “nuclear war button” that threatened to disrupt the planned sale of Adelphia’s prime assets to Time Warner and Comcast for nearly $18 billion.”

Felix Salmon offers no love for the hedge funds. Neither does NYT’s Floyd Norris. Nor Andrew Leonard at Salon.

Ed Morrissey posts today that Lauria has filed a motion. He argues that the sale doesn’t meet the requirements of 363(f) on the Bankruptcy Code, the sale is not in good faith and the sale violate the 5th Amendment.

UPDATE: Daniel Gross in Slate.

Andrew Stuttaford at The Corner, linking to this piece by John Carney.

UPDATE #2: More from Ed Morrissey on the threats.

UPDATE #3: Post up from Steve Jakubowski at the Bankruptcy Litigation Blog. (h/t Calculated Risk.)

UPDATE #4: Ed Morrissey with an audio of Laura Ingraham and Chuck Todd.

UPDATE #5: John Cole has no sympathy for the hedge funds. The language is not safe for the children.

UPDATE #6: Greg Mankiw

UPDATE #7: More today from the left and right. Left: John Cole and TPM’s Moe Tkacik, Tkacik commenting on the motion to have the hedge funds’s names sealed to protect them from anonymous blog commentators. They were denied the motion.

From the right, we have John Hinderaker linking to Michael Barone:

“Left-wing bloggers have been saying that the White House’s denial of making threats should be taken at face value and that Lauria’s statement is not evidence to the contrary. But that’s ridiculous. Lauria is a reputable lawyer and a contributor to Democratic candidates. He has no motive to lie. The White House does.

Think carefully about what’s happening here. The White House, presumably car czar Steven Rattner and deputy Ron Bloom, is seeking to transfer the property of one group of people to another group that is politically favored. In the process, it is setting aside basic property rights in favor of rewarding the United Auto Workers for the support the union has given the Democratic Party. The only possible limit on the White House’s power is the bankruptcy judge, who might not go along.”

More from Jacob Sullum in Reason.

UPDATE #8: More from Ed Morrissey.

UPDATE #9: John Berlau at Human Events.

Another piece by John Carney, (h/t Naked Capitalism). NC says:

“Wall Street has gotten so piggy that up to a point, I’m not bothered by a show of force back. Without having a bit more detail, it’s hard to know whether Team Obama stepped over the line. Remember, J, Edgar Hoover supposedly had dossiers on everyone who counted in America (recall the public had more privacy than it has now), and Nixon had an enemies’ list. DC is more thuggish than we like to believe.”

UPDATE #10: Via David Frum, here’s a letter from a hedge fund managing partner in NYT’s Dealbook.

UPDATE:#11: We’ve got multiple posts from Frum:

One

Two, with a link to Mickey Kaus at Slate. (Or what should be, it doesn’t work right now, we’ve got what we think would be the link.) Actually, two links here and here

Three, a statement from Reps. Darrell Issa and Lamar Smith.

UPDATE #12: Malkin again.

UPDATE #13: A plethora of posts on Cliff Asness (see Dealbook link above), via Scott W. Johnson at Powerline:

Diana West

New York Magazine

I believe I linked to this John Hinderaker post before, but here it is again.

UPDATE #14: Scott W. Johnson at Powerline.

John Cole

And via Cole, The Epicurean Dealmaker