Hey Paul Krugman!

by hilzoy Somehow, this YouTube just seemed appropriate today: (via Calculated Risk, who also notes Dr. Krugman's answer to a similar question.)  Open thread. *** Update: I don't have any idea whether any of you share my interest in utterly weird music — music that makes you think: someone actually went to some trouble to … Read more

Opening to Bad Reviews…

by publius The long-awaited troubled assets plan is set to be released – and it’s not exactly getting rave reviews from people like Krugman and Yves Smith.  One major criticism is that the so-called public-private investment is a wee heavy on "public" – as in 97% of the investment could be coming from the government. … Read more

HR 1586

by hilzoy Even though I am furious at the people who brought down AIG, along with all the other Masters of the Universe, I do not support the House bill that passed yesterday — the one that would tax bonuses at 90%. For starters, it's badly targeted. On the one hand, it leaves out the … Read more

Mark Haines Doesn’t Get It

by hilzoy

If anyone on Wall Street is wondering: what is this "it" that we are supposed to "get"? Is it just that people are angry? Could I be one of those people who don't "get it"? If so, how would I know?, s/he could do worse than consider this YouTube of CNBC's Mark Haines interviewing Rep. Brad Sherman (D-CA) (via TPM). It's a pretty good diagnostic tool. 

This is what "not getting it" looks like. At about 50 seconds in, Haines says: "You and people who share your opinions seem to feel that, you know, let's hold salaries on Wall Street to $100,000. Do you have any idea what Wall Street would look like if you did that?" If your immediate reaction is: that's telling him, Mark Haines!, then you don't get it. 

A couple of years ago, it would have been hyperbole to suggest that we would all be better off if the senior executives at all our major financial firms were people picked entirely at random out of the phone book. Now, it's arguably true. People picked at random would, admittedly, be likely not to have been to business school. They might not know a lot about futures or derivatives or put options. But so what? At least they might have been more likely to know that they were clueless, and a few of them might have had the common sense to ask questions like: will housing prices really go up indefinitely?

In any case, what's the worst they could have done? Bankrupted their companies with ludicrously risky gambles that fell apart once markets went south? Destroyed trillions of dollars in value? Brought the world financial system to the brink of collapse? Left taxpayers across the globe on the hook for trillions of dollars? Bankrupted entire countries?

Oh, right. 

"Getting it" means understanding that the entire story that some people on Wall Street have told themselves about why they got such obscene levels of compensation is false. As a group, they were not uniquely talented. They did not make a lot more money for their company than they earned, at least not in the long run. Their salaries were not fair compensation for the value they produced. It would not have been worse if they had been replaced by people chosen at random. 

Look at the YouTube clip again. Mark Haines seems astonished and baffled by Rep. Sherman's comments. He acts as though he's dealing with some ignorant Yahoo who just doesn't see that when people on Wall Street and people on Main Street disagree, Wall Street is obviously right. That's why he takes "What do people on Main Street know about running a financial system?" to be such a killer response to Sherman.

A few years ago, it would have been a killer response. Normally, it makes sense to think that people on Wall Street know more about running a financial system than people chosen at random, just as it makes sense to think that a successful director knows more about making movies than I do. When people reach positions of prominence in a given field, it makes sense to think that their opinions about the field they work in are entitled to some deference*. It takes a lot to completely forfeit any right to that deference. But the people in the financial services industries have managed to pull it off.

And that's what Mark Haines doesn't get.

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‘Cause I Wanna Put it Up on the TV Screen

by Eric Martin President Obama, in an unprecedented video message directed to the Iranian people as their Nowruz celebration (new year) got underway, offered an early indication of a possible new direction for US/Iranian relations.  Obama's words are being rightly praised for their respectful tone, and appeals to diplomacy.  The decision to reach out in such a manner, and the rhetoric employed, both represent a … Read more

A CDS Question

by publius Dean Baker at CEPR has authored a short and helpful primer on the AIG controversy (pdf here).  One interesting question posed is how exactly the federal government is treating AIG’s massive credit default swap (CDS) obligations. As Baker notes, most CDS’s were purchased by parties that didn’t own the actual underlying instrument (e.g., … Read more

The Voices of Obama

by publius Via Ezra, I saw this Zadie Smith essay praising the multiple voices of Obama – voices on full display in Dreams from My Father.  I’ll admit to skimming the essay in places, but one upshot is that Obama doesn’t have one “true” authentic voice.  He has many – and that’s a good thing, … Read more

My Occupation’s Known, but Not Why I Occupy

by Eric Martin

In a recent post, I took issue with Andrew Exum's claim that counterinsurgency (COIN) practitioners are reluctant to endorse undertaking COIN-based missions - a skepticism that stems from their first hand knowledge of the enormous costs and decades-long timetables involved, and of the uncertainty of achieving successful outcomes despite the considerable investments. As Fester recently wrote at Newshoggers:

COIN today promises the same type of inputs [as efforts in Vietnam and Algeria] — ten to twenty year wars, operational costs of one to two points of annual GDP at a time of structural deficits and domestic fiscal crisis — with the same type of outcomes — weak, client states in need of continual support in secondary or tertiary areas of interest. 

What's not to love?  While Exum is perhaps accurate in describing the position held by most COIN gurus with respect to new missions calling for the use of the military, many of the most prominent COIN practitioners tend to show a willingness – enthusiasm even – for applying COIN to ongoing military engagements such as Iraq and Afghanistan. 

Here, Exum might chide me for confusing "operational doctrine with strategy": COIN doctrine merely informs as to the best methods to conduct a military engagement, not whether or not the engagement makes sense/is worth it from a strategic point of view.  Thus, COIN practitioners are telling us how to best conduct our current operations, not whether or not it's strategically wise to continue those operations.  However, in practice, the majority of COIN experts are rarely, if ever, sticking to the strictly "operational" side of that equation. 

For example, in that earlier post, I linked to a CNAS report written by four of the leading COIN scholars arguing why a 5-10 year military/diplomatic commitment in Afghanistan was necessary.  It wasn't about operational doctrine – it was a strategic argument for maintaining a military presence in Afghanistan and warning of the outcomes if their plan is not followed.

In that same post, I examined certain claims made by one of the CNAS report's authors – David Kilcullen – in response to Andrew Bacevich's critique of Kilcullen's book, The Accidental Guerilla.  In defense of that book, Kilcullen pointed out that he warned that pursuing military intervention as counterterrorism policy "plays into the hands of the[e] [al-Qaeda] exhaustion strategy" that is designed to bleed us of resources by getting us to overreact by using military force in response to terrorist attacks/threats.  Further, in response to Bacevich's claims to the contrary, Kilcullen wrote in favor of "containment strategy" over attempts by the US to transform other societies. 

Yet those concerns are not evident in Kilcullen's counsel as to the ideal way forward in Afghanistan now. The Kilcullen who took umbrage with Bacevich's review seems to be at odds with the Kilcullen who co-wrote the January CNAS report which happens to bear the title: "Tell Me Why We’re There? Enduring Interests in Afghanistan (and Pakistan)."  Furthermore, in testimony before the Senate Foreign Relations Committee in early February, Kilcullen staked out an even more ambitious agenda, with a longer timeline, than that set forth in the aforementioned CNAS report:

We need to do four things – what we might call “essential strategic tasks” – to succeed in Afghanistan. We need to preventthe re-emergence of an Al Qaeda sanctuary that could lead to another 9/11. We need to protect Afghanistan from a range of security threats including the Taliban insurgency, terrorism, narcotics, misrule and corruption. We need to build sustainable and accountable state institutions (at the central, provincial and local level) and a resilient civil society. Then we can begin a phased hand-off to Afghan institutions that can survive without permanent international assistance [ed note: Oh is that all!!!]. We might summarize this approach as “Prevent, Protect, Build, Hand-Off”. Let’s call it “Option A”.

Given enough time, resources and political commitment, Option A is definitely workable. But we need to be honest about how long it will take – ten to fifteen years, including at least two years of significant combat up front – and how much it will cost. Thirty thousand extra troops in Afghanistan will cost around 2 billion dollars per month beyond the roughly 20 billion we already spend; additional governance and development efforts will cost even more; in the current economic climate this is a big ask. The campaign will cost the lives of many American, Afghan and coalition soldiers and civilians, and injure many more. There are also opportunity costs: we have finally, through much blood and effort, reached a point where we can start disengaging some combat troops from Iraq. We need to ask ourselves whether the best use for these troops is to send them straight to Afghanistan, or whether we might be better off creating a strategic reserve in Central Command, restoring our military freedom of action and, with it, a measure of diplomatic credibility in the Middle East. [emphasis added]

As evident in Kilcullen's recitation of the four "essential strategic tasks," his testimony was not solely concerned with "operational doctrine." It was an effort to advocate for a particular strategy. However, one of the larger assumptions underlying that strategy – the notion that long term military occupation is an efficient means to deny terrorists room to operate and prevent attacks – is dubious at best, and mostly rejected by Kilcullen himself in his book.

As Kilcullen the author warns, it is an exceedingly expensive undertaking in terms of both blood and money. Steve Hynd grabs for the back of the envelope for some rough calculations in response to Kilcullen:

The DoD actually spends $2.7 billion a month in Afghanistan right now, but what's a few hundred million either way, right? Over fifteen years that bill comes to $846 billion while "additional governance and development efforts will cost even more." Basing some conservative guesstimates on what the ratio of military to reconstruction and other spending has been, those efforts will cost somewhere in the region of $35 billion, with at least another $17.5 billion to pay VA benefits for the inevitable toll in blood. Add in the $173 billion already spent and the $285 billion or so in debt servicing all that deficit spending will cost and the grand total will come to a cool $1.3 trillion. That's $1,300,000,000,000 for those who like to see all the zeroes. […]

And how about that cost in blood? Well, so far the war in Afghanistan has cost 667 US soldiers their lives. But the pace of casualties has been accelerating. 155 of those deaths were in 2008 alone and 2009 is set to be even deadlier. Afghan civilian casualties have been accelerating too – up over 40% in the last year – and somewhere between 10,000 and 30,000 have already died, along with more tens of thousands wounded or simply displaced as refugees.

Extend those casualty rates onward for another 10 to 15 years. That's the butcher's bill.

To state the obvious, terrorist attacks on US civilians are horrible, horrible events that we should seek to prevent. Disrupting terrorist safe havens is a legitimate and worthwhile objective. But like all such objectives, the costs cannot be ignored. Again, that's stating the obvious, but then, the obvious is frequently absent from our foreign policy discourse.

Considering that the economic costs and death toll from even the most horrific of terrorist attacks (9/11) were lower and comparable, respectively, to the projected costs associated with ongoing operations in Afghanistan, the argument to pursue this strategy doesn't make much sense from a strictly cost-benefit computation. Some possible rejoinders are that the next attack could be bigger, attacks could occur more frequently with a safe haven in place and there is a value to the peace of mind of the civilian population that should be factored in (as a resident of lower Manhattan, I'm certainly sympathetic to the last prong).

But those responses all operate under some doubtful assumptions: (1) that there is no way to deny a safe haven absent the Kilcullen approach; (2) that terrorists require a safe haven as a base from which to launch attacks; (3) other than Afghanistan/Pakistan, there are no viable safe havens; and (4) despite our increased focus on the threat of terrorism, a safe haven in Afghanistan would enable future large scale terrorist attacks on US soil.

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AIG and the “Killed Virus” Theory

by publius I’ve seen a few comments critiquing the obsessive focus on the AIG bonuses.  The bonuses are, after all, a drop of a drop in the bucket of our overall costs.  Better to focus on the bigger picture – whether to nationalize; etc. The best response I’ve seen comes from commenter Andrew R. who … Read more

And Another Thing …

by hilzoy In the piece by Steven Davidoff about the AIG contract that I cited in my last post, he also writes: “This was not a boilerplate contract. Rather, it was highly negotiated. And it was highly negotiated to pay retention fees at high levels without regard to performance. This is obviously shocking. But it makes me … Read more

The AIG Contract

by hilzoy The contract guaranteeing employees of AIG's Financial Products their retention bonuses has been published. Since I am not a lawyer, and my impression is that contract law is not for the faint of heart, I haven't read it all the way through. Steven Davidoff at Dealbook has, however, and he teaches corporate law. … Read more

Good News

by hilzoy Today brought some very good news for members and veterans of the armed forces. First, Stop Loss — whereby a service member's term of service can be extended whether she likes it or not — will be ended: "The Department of Defense announced today a comprehensive plan to eliminate the current use of … Read more

OK, then.

by von I criticized offices in the Catholic Church for their decision "to excommunicate several doctors who performed an abortion last week on a nine-year-old girl who became pregnant with twins after alleged sexual abuse by her step-father."  The Archbishop in question also excommunicated the girl's mother–but declined to excommunicate the girl's step-father.   Fairness requires … Read more

Marcus and the Sanctity of Contract

by publius Ruth Marcus devotes her valuable op-ed space today to a defense of the sanctity of the AIG bonuses.  That’s annoying in and of itself, but that’s her prerogative.  The part I found most irritating (and revealing), though, was her absurd attempt to distinguish the sanctity of the AIG contracts from the UAW contracts … Read more

About that Referendum…

by Eric Martin There has been increasing chatter lately that the Maliki government may move to postpone – indefinitely – the national referendum on the SOFA slated for late July of this year.  Last week, in an interview with Middle East Progress, Sadiq al-Rikabi, a senior advisor to Maliki, launched a rather audacious trial balloon: I think that, … Read more

Do You Feel Lucky, AIG? Well, Do You?

by hilzoy I don't think that the Wall Street types have any idea at all how angry people are at them. We were angry before, but the business about the AIG bonuses — which is fairly small potatoes in the grand scheme of things — just sums things up perfectly.  If I were an investment banker making … Read more

AIG: The Commentary

by hilzoy Something about the AIG story is bringing out strange reactions. Chuck Grassley: "In a comment aired this afternoon on WMT, an Iowa radio station, Grassley (R-Iowa) said: "The first thing that would make me feel a little bit better towards them if they'd follow the Japanese model and come before the American people and … Read more

Animal Stories

by hilzoy Recently, we've learned that chimpanzees stockpile weapons in anticipation of future attacks. We've discovered that they not only use tools, but modify them to make them better. But macaques teaching their infants to floss? "Female monkeys in Thailand have been observed showing their young how to floss their teeth –using human hair. Researchers … Read more

Fareed Your Mind, and Check Your Ed

by Eric Martin Fareed Zakaria (whose GPS program on CNN is must-watch TV) tries to talk sense to those members of the foreign policy establishment that are rushing to pass premature – and shallow – judgment on Obama's initial foreign policy measures: The problem with American foreign policy goes beyond George Bush. It includes a Washington establishment … Read more

This Is My Mistake, Let Me Make it Good

by Eric Martin Stephen Walt looks at recent developments with respect to our Pakistan/Afghanistan policies and has some prescient warnings. For one, as discussed on this site recently, what we are attempting to accomplish in terms of eradicating al-Qaeda safe havens in Pakistan might be a task beyond our ability to complete – and one that we … Read more

And Another Thing …

by hilzoy To Edward Liddy: The next time you write to the representative of the janitors, teachers, police officers, and home health aides who now own 80% of your company and are being asked to continue to finance the lifestyles of the people who took it down, try for a different tone. Here, for instance: "I would … Read more

Bonuses At AIG

by hilzoy From the WSJ: "American International Group Inc. will pay $450 million in bonuses to employees in its financial products unit. That division was at the heart of AIG's collapse last fall, which compelled the U.S. government to provide $173.3 billion in aid to keep it running. Chief Executive Edward Liddy told Treasury Secretary … Read more

The Bush Doctrine: DOA at DOD? Part II

by Eric Martin As discussed in Part I of this two part series, Defense Secretary Gates enunciated a new, more circumspect and evidence-based standard for judging the advisability of deploying military force in the future.  The approach outlined by Gates represents a welcomed shift away from the Bush Doctrine's grounding in preventive war theory.  However, that approach to new military … Read more

Jumping the Galt

by Eric Martin I wanted to follow up on my previous post on the irrationality of Americans seeking to keep their incomes below $250,000 for fear of paying a slightly higher marginal rate with a couple of points – and a correction.  As commenter JanieM patiently and repeatedly pointed out in the thread to that post, I was using the … Read more

The Bush Doctrine: DOA at DOD? Part I

by Eric Martin Defense Secretary Gates continues to act and speak in ways that justify Obama's decision to keep him on.  His worth has been proven, thus far, by his willingness to champion some worthy goals for which Obama could use an ally like Gates who can provide bi-partisan cover and insider credentials.  Those objectives would include: making needed … Read more

“Bad Things”

by von I'm commenting on Publius' recent post, All That Chas, but I'm doing so on the front page because I'd like to head in a direction different from Publius' argument.  Publius writes: And the hyper-sensitive, hysterical attacks on critics of Israel’s current policies simply illustrate that – on some subconscious level – these people recognize that Israel … Read more

All That Chas

by publius I haven’t been able to weigh in on Chas Freeman (or much of anything lately) because of work, but it was a pretty sorry spectacle. There is, however, one silver lining. By being so hysterical, the anti-Freeman camp implicitly acknowledged the weakness of – and lack of self-confidence in – their arguments. Generally … Read more

Broadband Grants — A Worry

by publius On Tuesday, the Commerce Department held an introductory public meeting about the new broadband grants.  The different agencies with responsibility were on hand asking for public comments – the FCC, NTIA, and RUS (Rural Utilities Service).  So here’s mine – don’t let the broadband grants become a wasteful subsidy for national wireless carriers. … Read more

The pain au chocolat is the most terrible pain

by von (well, not the baked part) Discuss.  It's your unacceptable, unexpected mid-week open thread, after all. I shall be arming myself for the coming Nerf Apocalypse. p.s.  My personal opinion is that this title deserved a much more substantive post.  I mean, that's a seriously bad-ass title.  If it were a sandwich, it'd be a Rueben … Read more

Signs from the Times

by Eric Martin Allow me to extend congratulations to Ross Douthat who has just been tapped as the New York Times' newest columnist – presumably to replace the departing William Kristol.  I think the Timescould have done much worse than Douthat, who I consider to be quite readable and reasonable (within the limits imposed by his conservative outlook … Read more