The GOP's game of chicken - let's crash

Once again, as it has so many times before, the GOP plays a game of chicken ...

Conservatives Viewed Bailout Plan as Last Straw - NYTimes.com:

...If Democrats believe the only plan that will save the economy is the Paulson plan, they have the power and the moral responsibility to go ahead and pass it,” said Mr. Hensarling. “They don’t have to have Republican votes to get it done...

We've seen this game before. It usually involves a financial crisis of one sort or another.

In past episodes the grown-ups turn the car aside. The crisis is averted. The GOP then savages the grown-ups.

That would be fine, except for what happens next.

It works. The GOP win, and once they win they create more crises. For the grown-ups to solve. In the long run, being grown-up only makes things worse.

Being grown-up doesn't work when a large chunk of the electorate is clueless.

Better to crash and burn now, because if the GOP isn't reformed we'll only crash harder next time. The GOP needs to spend four years in the desert, purging the torturers and the loons, and rebuilding as a respectable alternative.

NYT - informative review of AIG's fall

A lot of important background I'd not heard elsewhere ...

Behind Insurer’s Crisis, a Blind Eye to a Web of Risk - NYTimes.com

...Although it was not widely known, Goldman, a Wall Street stalwart that had seemed immune to its rivals’ woes, was A.I.G.’s largest trading partner, according to six people close to the insurer who requested anonymity because of confidentiality agreements. A collapse of the insurer threatened to leave a hole of as much as $20 billion in Goldman’s side, several of these people said.

Days later, federal officials, who had let Lehman die and initially balked at tossing a lifeline to A.I.G., ended up bailing out the insurer for $85 billion.

Their message was simple: Lehman was expendable. But if A.I.G. unspooled, so could some of the mightiest enterprises in the world...

... Although America’s housing collapse is often cited as having caused the crisis, the system was vulnerable because of intricate financial contracts known as credit derivatives, which insure debt holders against default. They are fashioned privately and beyond the ken of regulators — sometimes even beyond the understanding of executives peddling them.

Originally intended to diminish risk and spread prosperity, these inventions instead magnified the impact of bad mortgages like the ones that felled Bear Stearns and Lehman and now threaten the entire economy.

In the case of A.I.G., the virus exploded from a freewheeling little 377-person unit in London, and flourished in a climate of opulent pay, lax oversight and blind faith in financial risk models. It nearly decimated one of the world’s most admired companies, a seemingly sturdy insurer with a trillion-dollar balance sheet, 116,000 employees and operations in 130 countries.

“It is beyond shocking that this small operation could blow up the holding company,” said Robert Arvanitis, chief executive of Risk Finance Advisors in Westport, Conn. “They found a quick way to make a fast buck on derivatives based on A.I.G.’s solid credit rating and strong balance sheet. But it all got out of control...

Walmart DRM: and consumers still don't care?

Another seller of DRMd music is making their music worthless ...

Slashdot: News for nerds, stuff that matters: "'So, you thought you did well to support the fledgling music industry by purchasing your tracks legally from the Wal-Mart store? Well, forget about moving these tracks to a new PC! Since they started selling DRM-free tracks last year, there's no money to be made in maintaining the DRM support systems, and in fact, support is being shut down. Make sure you circumvent the restrictions by burning the tracks to an old-fashioned CD before Wal-mart 'will no longer be able to assist with digital rights management issues for protected WMA files purchased from Walmart.com.' Support ends October 9th.'"

This is at least the 3-4th time a DRMd music vendor has shutdown and taken their customer's music with them.

The interesting aspect is that consumers don't seem to worry about DRM at all.

Why is that? Here are my guesses:

1. Tyranny of the mean: people just can't get their heads around this stuff.
   
2. Just too complicated: people have to much complexity going on to even think about it.
   
3. Bigger things to worry about: I'm about to lose my house. F*** my music.
   
4. It's not that much money: Pocket change. Don't care.
   
5. Only buy Apple, assume Apple is immortal. (See #1.)
   
6. 21st century transience: Nothing is expected to endure. All is transient. Music is the same.
   
7. Never buys music, steals it.
   
8. Doesn't buys DRMd music, buys used CDs, rips music, resells 'em (legally equivalent to #7).
9. Doesn't buy DRMd music, buys CDs, rip them, and keep them. (us)
10. All of the above.

All of the above, of course, but 7-9 are important. People who like music either buy CDs and convert, or they steal it outright. I also think that younger consumers expect transience, they live in an ethereal world.

Every time some vendor turns off their DRMd music they make stealing music more respectable, and make buying music look foolish.

At this point I think music thieves occupy the moral high ground.

Apple puts pressure on China's telecoms

Apple and China's leading telecoms have been sparring over iPhone terms for over a year.

Apple has just increased the pressure.

Apple selling unlocked iPhone 3G in Hong Kong - International Herald Tribune

Apple Inc. has begun selling unlocked iPhones in Hong Kong that can be used with any cell phone carrier.

The move appears to depart from the company's previous strategy of selling the popular device capable of working with 3G, or third-generation cellular networks, through specific service providers, usually with a required service contract.

On its Hong Kong Web site, the Cupertino, California-based company is advertising unlocked iPhones, saying people can 'buy directly from Apple' and choose their own carrier.

'iPhone 3G purchased at the Apple Online Store can be activated with any wireless carrier,' the Web site says...

These phones, of course, are for the mainland market.

It's quite a bold move. I'm sure Apple thought very long and hard about when and how to do it.

Should be interesting to see what happens next!

The Right blames Wall Street's collapse on ... Clinton. Bill Clinton.

Power Line: What Caused the Crisis on Wall Street? would be a lot funnier if I didn't think the barbarians were going to win. (Lord, these people are loud, plethoric, old, and angry. Maybe a laxative would help?)

Yes, the current GOP meme is to blame our latest financial crisis on all those poor people who've recently lost their homes, and to blame that on Clinton. Not Hillary. Bill. Oh, and welfare queens. Black people, mostly.

Black people stealing the millions off the table of deserving billionaires. Lucky Ducky lives.

The GOP has effectively held power for 12 years, though for the past year they've been greatly slowed. Twenty years from now, they'll blame rising sea levels and severe weather on Bill Clinton, unless civilization wins this November.

In which case Obama will be blamed for the weather.

There is an upside. This stuff is so silly that it might, just maybe, just possibly, strike a few people as being laughable.

That could help.

McCain declares, yes, we tortured

Is this true?

If so, it's both a slip and a historically noteworthy statement ...

Grasping Reality with Both Hands: The Semi-Daily Journal Economist Brad DeLong

...McCain admitted that we have tortured people under Bush...

I found more confirmation. So can the newspapers stop calling it anything but torture?

Why journalists should vote McCain

It's hard to argue with GC's conclusion...

Gail Collins - McCain - Bearish on Debates - Op-Ed - NYTimes.com

... One thing we now know for sure. Electing John McCain would be God’s gift to the profession of journalism. A story a minute.

Imagine what would happen if a new beetle infested the Iowa corn crop during the first year of a McCain administration. On Monday, we spray. On Tuesday, we firebomb. On Wednesday, the president marches barefoot through the prairie in a show of support for Iowa farmers. On Thursday, the White House reveals that Wiley Flum, a postal worker from Willimantic, Conn., has been named the new beetle eradication czar. McCain says that Flum had shown “the instincts of a maverick reformer” in personally buying a box of roach motels and scattering them around the post office locker room. “I can’t wait to introduce Wiley to those beetles in Iowa,” the president adds.

On Friday, McCain announces he’s canceling the weekend until Congress makes the beetles go away.

Barack Obama would just round up a whole roomful of experts and come up with a plan. Yawn.

Just look at history. The Fall of Rome is much more interesting than Rome when it worked. I'm sure the Romans felt the same way.

(ps. this is satire, i like gail collins.)

Non-ethnic - a sign Obama did well on debate one

At first hearing, my jaw dropped ...

Talking Points Memo | Matthews

Matthews asked if it's weird that Obama was so 'non-ethnic' tonight.

On reflection, though, this is a good political sign.

These right wing commentators say aloud what their audience is thinking. Since "ethnic" is a dog whistle code word for "alien, black, Muslim*, scary, other" Matthews is effectively saying

Obama wasn't scary.

Matthews, a loyal GOP tribesman, has been telling his people Obama is scary. Now Matthew's people see that Obama isn't scary. Matthews is worried.

I sometimes read editorials that Obama needs to stop being cool, he needs to be passionate, angry, whatever.

Riiiiigggghhhht. Hate to break this to anyone, but Obama is, you know ... melanin positive. I trust he understands, by now, how to work the fear factor.

Obama did well at this debate. I still think McCain will be President, but Obama merits the money we give him. Time to send more.

*Update: I am an agnostic heathen who suspects that if any supernatural entities currently exist that they are unlikely to be friends to humanity. Obama is a more conventional Christian than McCain. I realized after writing this post that in the current bizarro world of American politics I needed to point this out.

Do I make more sense in Greek?

I've added a Google translation widget to the side of my blog page:

Gordon's Tech: Gordon's stuff, now in 35 languages

... As if English weren't bad enough, my less unpopular blogs now feature a translation widget. If you try it you can see me in, say, Chinese.

The widget uses Google's statistically based machine translation. It was pretty easy to ...

This is how we amuse ourselves on the cusp of the Singularity. Instead of watching "All in the Family" while the kids are settling, we hack personalized versions of pangalactic search engines and embed panlingual translators into our hobby blogs.

Ben takes a while to fall asleep, so I should have time yet to turn my iPhone into a digital radio.

This is more fun than TV, really.

Stanislav Petrov saves the world?

Charles Stross sends us to an essay on the man who saved the world ...

FAQ - Stanislav Petrov

The date is 1 September 1983 and the Cold War between the Soviet Union and USA is in full gear, when from the New York skies Korean Air Lines Flight 007 flies from JFK, destination Seoul, South Korea.

In the middle of the flight, while accidentally passing through Soviet air space, Soviet fighter jets appear getting close the aircraft. ..

... The Soviet fighter jets shot down the plane, with the aircraft plunging 35,000 feet in less than 90 seconds, killing 269 civilians, including a US congressman.

The tension between the two mega-powers hit an all-time high, and on 15 September 1983 the US administration banned Soviet aircrafts from operating in US airspace. With the political climate in dangerous territory, both US and Soviet government were on high-alert believing an attack was imminent.

It was a cold night at the Serpukhov-15 bunker in Moscow on 26 September 1983 as Strategic Rocket Forces lieutenant colonel Stanislav Yevgrafovich Petrov resumed his duty, monitoring the skies of the Soviet Union, after taking a shift of someone else who couldn't go to work.

Just past midnight, Petrov received a computer report he'd dreaded all his military career to see, the computer captured a nuclear military missile being launched from the US, destination Moscow....

Petrov figured something didn't make sense, as strategically, just one missile...

But then, seconds later, the situation turned extremely serious. A second missile was spotted by the satellite. The pressure by the officers in the bunker to commence responsive actions against America started growing. A third missile was spotted, followed by a fourth. A couple of seconds later, a fifth one was spotted... everyone in the bunker was agitated as the USSR was under missile attack.

He had two options. Go with his instinct and dismiss the missiles as computer errors, breaking military protocol in the process or take responsive action and commence full-blown nuclear actions against America, potentially killing millions.

He decided it was a computer error, knowing deep down that if he was wrong, missiles would be raining down in Moscow in minutes.

Seconds turned to minutes, and as time passed it was clear Petrov was right, it was a computer error after all. Stanislav Petrov had prevented a worldwide nuclear war, a doomsday scenario that would have annihilated entire cities. He was a hero. Those around him congratulated him for his superb judgment.

Upon further investigation it resulted that the error came from a very rare sunlight alignment, which the computer read as missile.

Of course, top brass in the Kremlin didn't find it so heroic, as he broke military protocol and if he would have been wrong, risked millions of Russian lives. He was sent into early retirement, with a measly $200 a month pension, suffering a nervous breakdown in the process...

...In 2008, a documentary film entitled 'The Man who saved the World' is set to be released, perhaps giving Petrov some financial help, thanking him for the incredible part he had in keeping the US and the USSR out of a full-blown war....

I'd heard a bit of this story before, but not with this much detail. Of course he didn't only save American lives. The Soviet system could not wipe out the US arsenal, Trident submarines would have destroyed much of the USSR.

There have been other, similar, close calls. I recall reading of 4-5 that have been made public, I assume there are another 5-10 that are still secret.

So why are we still here? How can we keep getting lucky? It's enough to make one wonder about bizarre variants of the anthropic principle, or wonder if the game is rigg.... [abort, retry, fail].

Systemic failure and financial firewalls

I caught an MPR Midday conversation on my drive home - MPR: Another bank bites the dust Broadcast: Midday, 09/26/2008, 12:00 p.m.

It featured Chris Farrell, who usually represents my team -- the rational left. The odd bit was the other guest, Louis Johnston. I suppose he was there to represent the right -- but he was rational too.

A discussion between two rationalists is probably a bit bland for the masses, though I much appreciate it.

Early in the program, there were some interesting themes. Chris spoke of systemic failure and of regulatory failure, and in another context both spoke of firewalls and hurricanes.

That suggests, as they probably intended, that even if there are deeper economic and cultural failures, there are also more straightforward firewall failures in our current crisis. These are usually called "regulatory failures" but regulation can come in many forms. I think the most interesting forms are those that are designed to stop the spread of contagions.

Fires, seizures, epidemics, hurricanes and financial crises are all, famously, "chaotic". They have non-linear perturbation sensitivities, and they can roar up and die down in ways that are only loosely predictable.

Excepting hurricanes, we have firewalls for these things. In our brains are systems to dampen seizures should they arise, and, we think, to limit where they spread. In our buildings we have, well, firewalls. In public health we find immunization rings, targeted interventions, quarantine and the like.

Firewalls are probably a fundamental requirement for all systems sufficiently complex to be interesting (insert Godel reference of choice). I think even the GOP House would agree things are interesting now.

Firewalls don't show up, to my knowledge, in classical economics. I'm sure they show up in modern economic models of regulation and in studies of "complex adaptive systems" [1]. Maybe this latest crisis will bring models of financial system firewalls, like the mourned Glass-Steagall act, to the level of popular economics.

Brad, over to you ...

[1] Unfortunately in English we use the same word for computer network security tools as for the broader concept of things that prevent spread. So a search involving the word "firewall" doesn't work too well. Interestingly the "same" search would work much better in a language with different homographs.

Keillor on human error, finance, and truth

It's odd, as a Minnesotan, that I didn't realize Keillor has a Trib column. There's no feed, but I'll use one of several page monitoring services to create one. A special thanks to the commenter who pointed me to Garrison's latest column. I'll split my response into two parts

Cowboy economics -- chicagotribune.com

It's just human nature that some calamities register in the brain and others don't. The train engineer texting at the throttle ("HOW R U? C U L8R") and missing the red light and 25 people die in the crash—oh, God, that is way too real—everyone has had a moment of supreme stupidity that came close to killing somebody. Even atheists say a little prayer now and then: Dear God, I am an idiot, thank you for protecting my children.

So true. Two days ago a driver almost ran me down as I crossed a shopping mall exit. She drove straight ahead, maybe 200 yards, and I still didn't register in her central vision. She was looking right, and probably talking on the phone.

I'd have jumped on her very slowly moving hood, so I wouldn't have been badly hurt, but those things happen all the time. I've done lesser versions myself. For every person who backs over their child playing in the driveway, a hundred fall to their knees with a near miss.

The train driver shouldn't have been texting, but it's insane that the system relied on someone noticing a red light. That was reasonable in 1940.

Keillor continues ...

... On the other hand, the federal bailout of the financial market (YAWN) is a calamity that people accept as if it were just one more hurricane. An air of crisis, the secretary of the Treasury striding down a hall at the Capitol with minions in his wake, solemn-faced congressmen at the microphones. Something must be done, harrumph harrumph. The Current Occupant pops out of the cuckoo clock and reads a few lines off a piece of paper, pronouncing all the words correctly. And the newscaster looks into the camera and says, "Etaoin shrdlu qwertyuiop." Where is the outrage?...

... Confident men took leave of common sense and bet on the idea of perpetual profit in the real estate market and crashed. But it wasn't their money. It was your money they were messing with. And that's why you need government regulators. Gimlet-eyed men with steel-rim glasses and crepe-soled shoes who check the numbers and have the power to say, "This is a scam and a hustle and either you cease and desist or you spend a few years in a minimum-security federal facility playing backgammon."

The Republican Party used to specialize in gimlet-eyed, steel-rim, crepe-soled common sense, and then it was taken over by crooked preachers who demand we trust them because they're packing a Bible and God sent them on a mission to enact lower taxes, less government. Except when things crash, and then government has to pick up the pieces.

... What we are seeing is the stuff of a novel, the public corruption of an American war hero. It is painful. First, there was his exploitation of a symbolic woman, an eager zealot who is so far out of her depth that it isn't funny anymore. Anyone with a heart has to hurt for how McCain has made a fool of her.

McCain seems willing to say anything, do anything, to get to the White House so he can go to war with Iran. If he needs to recline naked in Macy's window, he would do that, or eat live chickens or claim to be a reformer. Obviously you can fool a lot of people for a while, and maybe he can stretch it out until mid-November. But the truth is marching on...

Government regulators are corruptible too; we've seen plenty of that in the past 8 years. The sex and drugs dept of the interior scandal shows how government can be broken. We need a mix of market oversight and regulation; the Clinton years show us how the balance can work.

We need something else though, and that's much harder.

Every cop knows that civil peace doesn't come from the police. The police are an essential component, but most of all you need a civil society, a culture of accommodation, tolerance, respect for law and for people, and a culture where duty and honesty earn respect. A culture where wealth without honor earns scorn and liars are scum.

We've drifted from that culture. Rove and the GOP led the descent in the 2nd Clinton term, but they couldn't have done it alone.

We don't know how cultures form or shift -- we still can't do the "social engineering" I contemplated 30 years ago. We suspect it comes, in part, from the top. If McCain/Palin are elected, and I still think they will be, we'll be cementing a culture of deceit. If Obama/Biden win, and I think that will take a bleedin' miracle, maybe we can start a turnaround.

Lastly, I don't remember when the "Republican Party used to specialize in gimlet-eyed, steel-rim, crepe-soled common sense". I think that was probably before Nixon - Gerald Ford was perhaps the last of that breed. A little bit before my time. We need that conservative party very badly.

Unfortunately only a devastating electoral defeat will lead the GOP to reform and return as a healthy alternative -- and I don't see that happening.

I wish the truth were marching on, but I sure don't see it. Maybe in China.

Train wreck McCain

As expected, McCain went in to stop the Paulson plan.

Madness on Pennsylvania Avenue - Paul Krugman - Op-Ed Columnist - New York Times Blog

...House Financial Services Committee Chairman Barney Frank (D-Mass.) angrily accused House Republicans — with the tacit support of Republican presidential candidate John McCain — of crafting an alternative to undercut Treasury Secretary Henry Paulson...

McCain is so bad, he makes Bush look ... Ok, I can't go there.

Update: more here. Looks like Bush and McCain's political ploy blew up on Bush.

DeLong: Bank finance 101 - in Salon

A great article. I more or less know this stuff, but DeLong's easy going exposition still taught me new things - like that banks lend long and borrow sort. Essential reading (emphases mine) ...

Why Ben and Hank are right, mostly | Salon

... In large part because the market thinks banks and other financial institutions are way risky, they are. There is a self-fulfilling prophecy element here. No bank or other financial institution can survive for more than a month or two when market risk is at current levels. Banks borrow a lot of money. They lend out a lot of money at a slightly higher interest rate. They make their profits on volume -- on the amount of money borrowed and loaned. Most of their loans are long-term: Their terms don't change when market conditions change. Most of their borrowings are short-term: Their terms do change when market conditions change. The high level of market risk and its rapid run-up from normal levels only a year ago last August means death to all banks, and near-banks, and shadow-banks, and banklike institutions -- unless the economic fever is broken and is broken soon....

So say we all

I've grown quite fond of Gail Collins, heir to Molly Ivins ...

Bring on the Rubber Chicken - Gail Collins - NYTimes.com

... Or, as Sarah Palin told Katie Couric on CBS News last night: “Not necessarily this, as it’s been proposed, has to pass or we’re gonna find ourselves in another Great Depression. But there has to be action taken, bipartisan effort — Congress not pointing fingers at this point at ... one another, but finding the solution to this, taking action and being serious about the reforms on Wall Street that are needed.”

So say we all.

(Palin was unable to answer questions about McCain’s record and relief for homeowners with troubled mortgages. But she did reveal forthrightly that she considers her running mate a “maverick.”)...

Update 9/25/08: M saw the interview and the transcript. She now understands why John McWreck had to cancel on Letterman, cancel the debates, and fly off to Washington to destroy the American economy. Anything to make people forget the interview.

The comments, by the way, are priceless. My fave: "Just who in the name of atheism is this person?"