The problem with Hillary

This comment nailed it for me:

Cynthia Kral, 38, of Pittsburgh, said she would never vote for Mrs. Clinton. “I cannot trust her,” Ms. Kral said, adding that she planned to vote for a third-party candidate or write in Mr. Sanders’s name in the general election. “I feel like she can be bought on anything, and for her to be president — that kind of scares me.”

This and the obvious rush for the dollars that came after they left the White House.

Regulatory capture by TBTF institution

So this is what they meant when they said they would reform the financial markets after the last crisis.

At a March 2012 meeting, a group of examiners at the Federal Reserve Bank of New York agreed that Goldman Sachs had inadequate procedures to guard against conflicts of interest — guidelines aimed at stopping firms from putting their pursuit of profit ahead of their clients’ best interests.

The examiners voted to downgrade a confidential rating assigned by the New York Fed that could have spurred costly enforcement actions and other regulatory penalties. It is not known whether the vote in fact led to a rating change. The former examiner who pushed for a downgrade, Carmen M. Segarra, now contends in a lawsuit filed on Thursday that just weeks after the vote, her superiors asked her to change her findings on Goldman and fired her after she refused.

So long, and thanks a lot to Larry Summers, Bob Rubin, Tim Geithner and company. We shall blame the next crisis on you.

Debt limit timeline

This was a good presentation on the implications of the debt limit:

There's been a fair bit of confusion about the timeline for the debt-ceiling crisis. The date Oct. 17 gets tossed around a fair bit as a hard deadline. But that's probably not the date when we'll see lots of financial disruptions if Congress fails to lift the debt ceiling.

The real crises are likely to occur a little later in October or early November. But even that's not certain.

And from the Center of Bipartisan Policy from which the above article was based:

Shutdown optics?

 
 This chart has been making its rounds on the Internet - I added the S&P500 to the VIX volatility index. The claim is that the shutdown is a non-story and is all optics and theater since the government could never credibly threaten to default no matter who is in charge:

“As political theater,” he said, “the debt ceiling is not a useful threat, because politicians are basically threatening to shoot themselves, as they will rightly shoulder the blame for the serious global economic consequences of a default.”
Mr. Reinhart’s view has become conventional wisdom on Wall Street when it comes to whether the country will hit the debt ceiling limit on Oct. 17. Warren Buffett put it this way: “We’ll go right up to the point of extreme idiocy, but we won’t cross it.”

This assumes that Congress or rather the Tea Party 30 are rational. What about the Lehman failure? Was the market expecting that?

Update (10/9/2013) from NYT:

Many in G.O.P. Offer Theory: Default Wouldn’t Be That Bad

On Wall Street, among business leaders and in a vast majority of university economics departments, the threat of significant instability resulting from a debt default is not in question. But a lot of Republicans simply do not believe it.

A surprisingly broad section of the Republican Party is convinced that a threat once taken as economic fact may not exist — or at least may not be so serious. Some question the Treasury’s drop-dead deadline of Oct. 17. Some government services might have to be curtailed, they concede. “But I think the real date, candidly, the date that’s highly problematic for our nation, is Nov. 1,” said Senator Bob Corker, Republican of Tennessee. 

Others say there is no deadline at all — that daily tax receipts would be more than enough to pay off Treasury bonds as they come due. 

“It really is irresponsible of the president to try to scare the markets,” said Senator Rand Paul, Republican of Kentucky. “If you don’t raise your debt ceiling, all you’re saying is, ‘We’re going to be balancing our budget.’ So if you put it in those terms, all these scary terms of, ‘Oh my goodness, the world’s going to end’ — if we balance the budget, the world’s going to end? Why don’t we spend what comes in?” 

“If you propose it that way,” he said of not raising the debt limit, “the American public will say that sounds like a pretty reasonable idea.” 

Is it time to be afraid?

Update 10/11/2013: Even Marty Feldstein (and by extension Greg Mankiw) doesn't believe that default is a risk if the debt limit is not raised.

Shutdown non-puzzle

In an earlier post, I considered the "puzzle" of the government shutdown through the lens of the median voter theorem. Three are two (at least) possible was to reconcile this:

1. The median voter theorem does not apply.
2. The focused single issue special interest lobby. This is usually used to respond to why protectionism legislation always passes even though (possible) lower prices from free trade benefits the wider population.
3. Update: John Boehner is trying to protect his job as House Speaker

Shutdown Puzzle #2

I've been trying to make sense of the shutdown and this Washington Post interview by Ezra Klein (EK) with Robert Costa (RC) makes good reading:

The thing that makes Boehner interesting is he’s very aware of his limited hand. Boehner doesn’t live in an imaginary world where he thinks he’s Tip O’Neill and he can bring people into his office and corral them into a certain vote. So he treads carefully, maybe too carefully. But he knows a clean CR has never been an option for him.

EK: But why isn’t it an option? A few dozen unhappy members is an annoyance, but how is it a threat? Wouldn't Boehner be better off just facing them down and then moving on with his speakership?

RC: So there are 30 to 40 true hardliners. But there’s another group of maybe 50 to 60 members who are very much pressured by the hardliners. So he may have the votes on paper. But he'd create chaos. It'd be like fiscal cliff level chaos. You could make the argument that if he brought a clean CR to the floor he might have 100-plus with him on the idea. But could they stand firm when pressured by the 30 or 40 hardliners and the outside groups?

The reason why I think it is a puzzle is that the media is representing this as a fight within the Republican party and that a minority within the party is holding Boehner hostage. The median  voter theorem predicts that because extreme constituents (i.e. the base of a political party) will never abandon the party, it makes more sense for the leader/politician to lean toward the center/median voter.

So why should Boehner care about the 30-40 hardliners? The "hardliners" represent their districts and their median voter is on one end of the spectrum. But aren't the total of all of these constituents still a minority within the Republican party? And Boehner who leads the party and presumably all congressional members as well within the party would lean toward the center if the majority of the members also have constituents who lean more toward the center.

So here goes: Its the 50 or 60 and perhaps more whose constituents may also be less "centered". Not knowing who they are and the size of all the congressional districts of all of these members it is difficult to say with certainty but I'll go ahead and say it anyway - that perhaps the minority isn't really a minority - and that the Republican party and their constituents truly have swung to one end.

There is some supporting evidence for this from Larry Bartels using data by James Stimson:



(graph by Larry Bartels)

Update (10/7/2013): From Buzzfeed via The Atlantic (emphasis mine):

From its genesis in 2009, the Tea Party movement has been fueled by the rhetoric of revolution. True believers attend rallies unironically dressed in colonial garb. Their early organizers preached earnestly from Saul Alinsky’s left-wing activist handbook Rules For Radicals — a book that advises just the sort of procedural disruption they’ve imposed this week. And while Nevada Senate candidate Sharon Angle outraged mainstream political observers when she suggested people may start looking for “Second Amendment remedies” to the country’s problems, one recent survey showed that nearly half of Republicans believe armed insurrection might be necessary “in the next few years.”

Update (10/9/2013): From the Washington Post/Monkey Cage:

Recently on this blog, Larry Bartels drew attention to an astonishing fact: the public is as conservative as it has been in 50 years. To highlight this point, Professor Bartels presented the public’s policy mood — James Stimson’s measure of public support for government programs—from 1950 to 2012. In a recent article, Julianna Koch and I generated measures of policy mood for each state from the 1950s to 2010 (our measures our here). What we found is that the conservative opinion shift Professor Bartels highlighted repeats itself in every state.

Fracking (Frakking) Republicans

This NYT article was probably written to demonstrate that it is a myth that Republicans are pro-busines:

As energy companies move to drill in densely populated areas from Pennsylvania to Texas, battles are breaking out over who will have the final say in managing the shale gas boom.
…
The battle is playing out in Pennsylvania as the Republican-controlled legislature considers bills that would in their current form sharply limit a community’s right to control where gas companies can operate on private property. Critics say the final bill could vastly weaken local zoning powers and give industry the upper hand in exchange for a new tax, which municipalities badly need.
The legislation has struck a nerve in a state where land control has long been considered quintessentially local.

“I’m a conservative Republican, and this goes against all my principles,” said Brian Coppola, the chairman of the Board of Supervisors of Robinson Township, in Washington County west of Pittsburgh. The pending legislation, he said, “is an enormous land grab on the part of the industry. He added, “Our property rights are being trampled.”        

The brouhaha is over the following:

Local governments argue that drilling is an industrial activity, just like that of a gas station or a cement factory, that should be subject to zoning. Dozens of towns, cities and counties across the country have enacted rules on drilling noise, lighting and the distance from homes and, in some cases, outright bans. In New York State alone, there have been at least 70 such actions.
…
The flurry of local rules comes as the federal government inches forward on a national study of hydraulic fracturing, also known as fracking, the process used to extract previously inaccessible natural gas from shale deep underground.

Frak, I was familiar with from BSG. But it’s a little funny to see how a simple character difference has carried the word into the mainstream media.

How tenuous is the rule of law and the sanity of crowds

Very.

Gangs of youths roamed one south London neighborhood while carrying molotov cocktails, the BBC reported. And widespread looting was reported in the west London borough of Ealing after a shopping mall caught fire.
...
The increasing unrest — spreading in part via BlackBerry text messages as well as postings on Twitter and other social networking sites — was taking root mostly in the powder keg of poorer neighborhoods...

Recall the Paris Riots? Is Washington DC next?

How can we predict when sparks escalate into prairie fires?

Elsewhere the markets react:

Japan’s Nikkei 225 index fell more than 4 percent within the opening hour and dropped 1.68 percent for the day, closing at 8,944.48 — its first finish below the 9,000 mark since mid-March. South Korea’s Kospi index sustained massive losses in the opening hours, at one point plunging more than 9 percent and bringing a brief halt to trading. But the index clawed back and finished with losses of 3.64 percent for the day.

In highly volatile trade, European markets were plunging early Tuesday. After initially rallying, key index in Frankfurt was falling more than 5 percent, with London’s FTSE 100 down 3.8 percent and Paris’s CAC 40 down 3.5 percent. ...

The latest market volatility comes in the wake of Wall Street’s worst trading day since the 2008 financial crisis — a reaction to the Friday credit rating downgrade from the ratings agency Standard & Poor’s.

Of signals and men (and women)

BBC News - Flashy sports cars are male 'short-term mating signal' (emphasis mine)
“Men who buy flashy sports cars might be more successful at getting a date, but women do not see them as good marriage material, a study suggests.
...
The US researchers discovered that women found a man who chose to buy a flashy, expensive product - like a Porsche car - more desirable than the same man who bought a non-luxury item, like a Honda Civic.

However, women are aware of a man's intentions in acting this way, the study says, because women found the man with the Porsche less desirable as a marriage partner than as a date.

"People may feel that owning flashy things makes them more attractive as a relationship partner but, in truth, many men might be sending women the wrong message."

According to the study, men who flaunt expensive, showy items like Porsches to woo potential sexual partners are like peacocks who display their tail feathers before potential mates.

But they said that not all men favoured this strategy - only those men who were interested in short-term sexual relationships with women.

So what does this say about women who are with these men? But women who drive flashy sports cars (or own other expensive items) are signalling something else:

Women, in contrast, did not spend excessively to attract men.

Jill Sundie, lead author of the study and assistant professor of marketing at University of Texas at San Antonio, said: "Obviously women also spend plenty of money on expensive things. But the anticipation of romance doesn't trigger flashy spending as it does with men."

On well, I guess I was wrong - I thought that women who drive flashy sports cars were signalling the same thing as men.

But what about women who dress provocatively? Is that a signal and if so what is it, because men are apparently confused. While it absolutely positively true that provocative dressing is not an invitation to be raped, is there any additional informational content in the attire?

Here are the signals that Forbes compiled when women dress ‘inappropriately’ at work:

1. Studies show that women who dress in sexy attire in a professional environment are more often passed over for promotions than women who dress more conservatively.
2. Wearing a micro-mini may send the message that you're trying to compensate for skills you lack in other areas.

And what about general attire - is there a signal there as well? From Yahoo:

1. “My personal secretary was a very presentable young woman, well educated, neat, and pulled together. After about a year on the job, her wardrobe fell off a cliff: she started showing up in men’s wool pants that looked like they had been pulled from a dumpster and moth-eaten sweaters. It was a crystal clear sign that she no longer cared about the work and needed to move on.”
2. “Over the two decades I’ve been practicing law, I’ve noticed women going from professional suits (great) to lovely dresses (all good) to strappy sundresses and flip flops (pathetic)! Dressing this way for Court takes away from their credibility. Clothes in the office have gotten very casual, which is okay, I suppose, but there are certain venues that one needs to respect and dress appropriately for.”
3. “Too much skin and too much perfume. One of my sales reps is just shy of inappropriate: Her clothes are stylish and made with quality fabrics, but the skirts are a couple of inches too short, the heels a couple of inches too high, and the camisoles a couple of shades too sheer. A strapless cocktail dress has appeared a few times. I’m not going to complain to HR, but with the party look and the perfume, she makes people uncomfortable.”
4. “My cosmetics studio is close to the beach. One day a young woman pranced in wearing a bikini and flip flops and asked for a job application. Needless to say, we were ‘out of applications’ that day.”
5. “A couple of years ago, we merged with a French company. The new HR representative came to do a workshop with my team—a bunch of young science geeks who build robots in their spare time. Well, she was wearing one of those clingy wrap dresses that was cut very low in front. The guys definitely had their minds on something aside from the presentation that day.”
6. “The charter school where I work strives for excellence and professionalism—from both students and teachers. Male teachers simply wear a tie, but for women the dress code is a little less clear, especially since many of them are right out of college and used to dressing in jeans. One woman is always straddling the line with her outfits and is the subject of regular teacher’s lounge debates about whether or not she has crossed it. Parent-teacher conference day rolled around and she appeared for breakfast in the cafeteria in black high-heeled boots, a tee-shirt mini dress with a keyhole back and a wide patent leather belt. I made a mental note to mention it to the principal before the parents came in the afternoon. At lunch I noticed the teacher wasn’t there—turns out the principal had already sent her home.”

Thailand's elections rethought

An interesting point of view on Thai politics that tempers my demands to let democracy run its course:

In 1973, student-led protests ended military rule in Thailand and gave birth to a civil society movement. Its members came mostly from an expanding middle class in Bangkok that had benefited from new opportunities for university educations and was increasingly politically assertive. Thai civil society groups wanted a permanent end to military rule and government corruption, and a halt to the growing influence of money in politics, which had become pervasive as businessmen came to dominate parliament.

By 1997, these groups had grown strong enough to force parliament to agree to a new constitution. Significantly, it was drafted not by serving politicians or bureaucrats but by a popularly elected committee. The new constitution made too many changes to the existing charter to list here, but the underlying purpose was simple: to enforce the rule of law. It established, among other independent institutions, a national anti-corruption commission, a constitutional court and an election commission, and it explicitly recognized many human rights. Some questioned how effective the changes would be, but in general the 1997 constitution was hailed as a major advance for democracy in Thailand.

In 2001, Thaksin Shinawatra, one of Thailand’s wealthiest business executives, was elected prime minister. One reason for his decisive victory was a populist program to help Thailand’s rural poor, but his main message was that Thailand needed to be run in a modern, businesslike way. Thaksin liked to call himself the “CEO prime minister,” and he played down the importance of the system established by the 1997 constitution, arguing that it wasn’t law that mattered but results.

Thaksin asserted that since he was a moral person and a successful executive, he had the best claim to govern Thailand, and that the opposition was illegitimate. Over time, more Thais saw in his actions evidence that he was using his office and his enormous personal wealth to gut the constitutional reforms of any real meaning and to perpetuate himself in power. This was the main reason for the conflict between Thaksin and his opponents, not the desire of a pampered elite in Bangkok to maintain its privileges. In 2006, after Thaksin tried to manipulate the army promotion list, installing loyalists in key command positions to further his reelection prospects, the army acted to remove him.

This was a useful reminder to me of some of the events that began back in 2006 (more information on Wikipedia - see section "Origins of the Crisis"):

1. The move by Thaksin to install loyalists in the army.
2. The sale of Shin Corp and a ruling that this sale (of about US$2 billion) was exempt from capital gains taxes

Both of these struck the Bangkok elite (and myself still) as hypocritical (my word) since Thaksin was not really looking after the rural poor but looking after himself.

The way forward does not look too optimistic. The NYT reports of a growing Shinawatra dynasty in Thai politics.

Once again the Shinawatra clan has pulled off an unlikely feat: One of the wealthiest families in Thailand has convinced the poor and politically disenfranchised that it understands their problems, feels their pain and will fight for their rights.
…
In grubby market stalls and ramshackle shops, residents flew red flags that advertised their support for Thaksin Shinawatra and his younger sister, Yingluck, who is now in line to become Thailand’s first female prime minister.

“We are so happy and relieved,” said Somboon Kamduang, a 55-year-old resident who scratches out a living selling peanuts and beans in the market and singing in restaurants at night.

Mr. Somboon said he was one of dozens of residents who gathered at the covered marketplace on Sunday night to watch election returns on television — and cheer the victory.

There were similar celebrations across north and northeast Thailand after the surprisingly strong victory of Pheu Thai, as the party led by Ms. Yingluck is known. Opponents of the party fear a surge of populist policies, increased debt for the country and a revival of what they say were efforts by Mr. Thaksin to dilute democratic checks and balances.
...
A caravan of pick-up trucks from the Pheu Thai Party drove triumphantly through town on Monday, with loudspeakers blaring a grateful message to voters: “We will bring happiness back to you, brothers and sisters! Thank you!”

The caravan was led by Mr. Thaksin’s niece, Chinnicha Wongsawad, who was re-elected as a member of Parliament with a commanding 78 percent of the vote. At 29 years old she is one of the youngest members of the Shinawatra family.

She joins the growing dynasty: In 1969 Mr. Thaksin’s father, Lerdt, was elected to Parliament and served a little more than two years. (Like his son nearly four decades later, his term was interrupted by a military coup.) Mr. Thaksin’s sister, Yaowalak, served as an official in the municipal government of Chiang Mai, the busy capital of northern Thailand a half-hour drive from here. Mr. Thaksin’s brother, Payap, was a member of Parliament for one year until the 2006 coup.