We will, in fact, be greeted as liberators.
From today’s paper, the U.S. counterinsurgency strategy in Afghanistan reduced to meaningless chartjunk:
As if Edward Tufte’s diagnosis of the state of our verbal and statistical reasoning in the era of PowerPoint — “Power corrupts; PowerPoint corrupts absolutely” — needed any confirmation.
Make sentences, not bullet points.
Jim Manzi steps off The Corner and says something truly original about the “effectiveness” debate, an evolutionary argument way smarter than the kind of evidence-free, Saddam-has-WMDs ranting one usually hears in that blighted neighborhood:
Let’s assume arguendo that torture works in the tactical sense that I believe has been used so far in this debate; that is, that one can gain useful information reliably in at least some subset of situations through torture that could not otherwise be obtained. Further, assume that we don’t care about morality per se, only winning: defeating our enemies militarily, and achieving a materially advantaged life for the citizens of the United States. It seems to me that the real question is whether torture works strategically; that is, is the U.S. better able to achieve these objectives by conducting systematic torture as a matter of policy, or by refusing to do this? Given that human society is complex, it’s not clear that tactical efficacy implies strategic efficacy.
When you ask the question this way, one obvious point stands out: we keep beating the torturing nations. The regimes in the modern world that have used systematic torture and directly threatened the survival of the United States — Nazi Germany, WWII-era Japan, and the Soviet Union — have been annihilated, while we are the world’s leading nation. The list of other torturing nations governed by regimes that would like to do us serious harm, but lack the capacity for this kind of challenge because they are economically underdeveloped (an interesting observation in itself), are not places that most people reading this blog would ever want to live as a typical resident. They have won no competition worth winning. The classically liberal nations of Western Europe, North America, and the Pacific that led the move away from systematic government-sponsored torture are the world’s winners.
Now, correlation is not causality. Said differently, we might have done even better in WWII and the Cold War had we also engaged in systematic torture as a matter of policy. Further, one could argue that the world is different now: that because of the nature of our enemies, or because of technological developments or whatever, that torture is now strategically advantageous. But I think the burden of proof is on those who would make these arguments, given that they call for overturning what has been an important element of American identity for so many years and through so many conflicts.
Could it be that when Darwinian competition occurs at the level of national systems, “survival of the fittest” means “survival of the most civilized”?
Geithner re-announces his public-private plan for toxic assets. Leaving aside the boring details, the plan amounts to what?
• corporate statism
• crony capitalism
• lemon socialism
• Groucho Marxism
The answer, of course, is … all of the above.
Nate Silver, live-blogging last night’s Republican response to Obama, as delivered by Bobby “Kenneth the Page” Jindal:
If it sounds like Jindal is targeting his speech to a room full of fourth graders, that’s because he is. They might be the next people to actually vote for Republicans again.
(h/t Matt, as ever)
The dean of the bank M&A bar speaks to the Financial Times:
“If the phrase ‘height of stupidity’ has any meaning, it would be shown if they nationalise a US bank,” said Rodgin Cohen, chairman of law firm Sullivan and Cromwell, who has advised on many of the past year’s biggest bank rescue deals and recapitalisations.
Mr Cohen stressed that the nationalisation of a large global bank had never been tested and the unintended repercussions of such a move could be severe, particularly in relation to any of the bank’s foreign subsidiaries. He favours a plan that would infuse banks with more capital and extract bad assets from their balance sheets as quickly as possible, to boost confidence in the institutions.
“Given time, these institutions have enormous earnings capacity,” he said. “If you start to take out these bad assets, we’ll start to see confidence rebuilt. It can turn around, and it will turn around.”
And when it does turn around, we want to make sure our guys are still in charge so they can privatize the gains and share them with us.
Looks like the rent-seekers have found their mouthpiece.
Roubini says that if we don’t like the sound of nationalization, we should call it “receivership” instead.
Calculated Risk suggests “pre-privatization” for a slight shift in emphasis.
Yglesias goes all in:
I say we go further and call it “awesome capitalist cowboys” just to ensure that everything’s really in tune with American cultural norms. Everyone loves cowboys!
Oh, what the hell — call it a “tax cut” and let slip the stress-testers. Raise up the Resolution Trust Corporation. Party like it’s 1989.
(h/t Matt for the linguistic trend-spotting)
Martin Wolf writes in today’s Financial Times:
The new plan seems to make sense if and only if the principal problem is illiquidity. Offering guarantees and buying some portion of the toxic assets, while limiting new capital injections to less than the $350bn left in the Tarp, cannot deal with the insolvency problem identified by informed observers. Indeed, any toxic asset purchase or guarantee programme must be an ineffective, inefficient and inequitable way to rescue inadequately capitalised financial institutions: ineffective, because the government must buy vast amounts of doubtful assets at excessive prices or provide over-generous guarantees, to render insolvent banks solvent; inefficient, because big capital injections or conversion of debt into equity are better ways to recapitalise banks; and inequitable, because big subsidies would go to failed institutions and private buyers of bad assets.
Why then is the administration making what appears to be a blunder? It may be that it is hoping for the best. But it also seems it has set itself the wrong question. It has not asked what needs to be done to be sure of a solution. It has asked itself, instead, what is the best it can do given three arbitrary, self-imposed constraints: no nationalisation; no losses for bondholders; and no more money from Congress. Yet why does a new administration, confronting a huge crisis, not try to change the terms of debate? This timidity is depressing. Trying to make up for this mistake by imposing pettifogging conditions on assisted institutions is more likely to compound the error than to reduce it.
Just when you thought it was safe to have faith in your government:
Public-Private Investment Fund: One aspect of a full arsenal approach is the need to provide greater means for financial institutions to cleanse their balance sheets of what are often referred to as “legacy” assets. Many proposals designed to achieve this are complicated both by their sole reliance on public purchasing and the difficulties in pricing assets. Working together in partnership with the FDIC and the Federal Reserve, the Treasury Department will initiate a Public-Private Investment Fund that takes a new approach.
Public-Private Capital: This new program will be designed with a public-private financing component, which could involve putting public or private capital side-by-side and using public financing to leverage private capital on an initial scale of up to $500 billion, with the potential to expand up to $1 trillion.
Private Sector Pricing of Assets: Because the new program is designed to bring private sector equity contributions to make large-scale asset purchases, it not only minimizes public capital and maximizes private capital: it allows private sector buyers to determine the price for current troubled and previously illiquid assets.
I’m sorry, but … what? Private sector buyers are already allowed to determine the price of troubled/illiquid assets — it’s just that the price they are willing to pay is well south of the price banks are willing to accept. So is the “public” component intended simply to provide liquidity to potential buyers, à la TALF, or is it really meant to influence bid prices?
Say the “side-by-side” government financing takes the form of a non-recourse loan, or a senior limited partnership interest with a fixed return. (“We are exploring a range of different structures for this program,” announced Geithner at 11:29 am, setting off a wave of panic selling.) Say the private sector holders of the equity or residual interest only have to put up a fraction of the purchase price, limiting their downside exposure, while keeping unlimited upside. Will this encourage buyers to raise their bids? Presumably, we’re talking about private equity types here, never ones to leave money on the table, but suppose — just suppose — the government stop-loss is enough to close the gap between the bid and ask prices. What an accomplishment: the government insures the private sector buyers against risk of loss, the buyers generously offer to share their subsidy with the banks that sell the troubled/illiquid assets, and the taxpayer (oh, yeah … her) gets an upside participation in nothing at all.
What’s more likely, of course, is that the government financing/subsidy won’t result in bids high enough to persuade many banks to sell, because to sell would be to realize huge embedded losses, and to realize such losses would be to face insolvency. Which brings us back, after a long detour through Public-Private Neverland, to the actual centerpiece of the Financial Stability Plan, the nuke in its “arsenal” of financial resources, carefully camouflaged behind a screen of incoherent prose:
Capital Assistance Program: While banks will be encouraged to access private markets to raise any additional capital needed to establish this buffer, a financial institution that has undergone a comprehensive “stress test” will have access to a Treasury provided “capital buffer” to help absorb losses and serve as a bridge to receiving increased private capital. While most banks have strong capital positions, the Financial Stability Trust will provide a capital buffer that will operate as a form of “contingent equity” to ensure firms the capital strength to preserve or increase lending in a worse than expected economic downturn. Firms will receive a preferred security investment from Treasury in convertible securities that they can convert into common equity if needed to preserve lending in a worse-than-expected economic environment. This convertible preferred security will carry a dividend to be specified later and a conversion price set at a modest discount from the prevailing level of the institution’s stock price as of February 9, 2009. Banking institutions with consolidated assets below $100 billion will also be eligible to obtain capital from the CAP after a supervisory review.
Hmmm, let’s see … preferred security … converts into common equity … discounted conversion price … why, they must be talking about voting shares! The “n” word! Why don’t they just come out and say it?
Doesn’t matter. Treasury’s half-assed proposal has so undermined hopes for a shareholder bailout that the market now sees no alternative to nationalization. This (I submit) is why the big banks’ share prices dropped like they did today. At the close:
Citigroup — 22.8% of reported book value
Bank of America — 20.0% of reported book value
JP Morgan Chase — 68.1% of reported book value
From yesterday’s executive order on interrogations:
From this day forward, unless the Attorney General with appropriate consultation provides further guidance, officers, employees, and other agents of the United States Government may, in conducting interrogations, act in reliance upon Army Field Manual 2-22.3, but may not, in conducting interrogations, rely upon any interpretation of the law governing interrogation — including interpretations of Federal criminal laws, the Convention Against Torture, Common Article 3, Army Field Manual 2-22.3, and its predecessor document, Army Field Manual 34-52 — issued by the Department of Justice between September 11, 2001, and January 20, 2009.
With a stroke of the pen (and a whole lotta commas), Obama knocks down the Federalist Society’s entire pseudo-scholarly edifice, and fixes the beginning and end of the 2,688-day Lawless Interregnum.
