reflectivepundit

Bailout Vote Analysis: Empirics

by David Epstein and Sharyn O'Halloran

A lot of numbers are being analyzed to understand the bailout vote yesterday. See for instance the NYT article (and great graphic) and the WaPo analysis of why the bill fell short.

We took legislators' left-right policy preferences as measured by their now-standard Nominate scores, the square of the Nominate score, and their degree of risk as measured by the Cook political report. We then estimated the probability of voting for the bailout as a function of these three variables and found all of them to be highly significant (details available on request).

The picture of the findings looks like this (click for a larger image):

From this we can make three observations:

1) There were partisan effects: Democrats were more likely to vote for the bailout than Republicans, all else equal. Even the most liberal Democrats from safe seats voted for the bill at about a 30% rate, while the most conservative Republicans voted at 10% or less.

2) The vote failed due to a defection from the wings; both liberal Democrats and conservative Republicans voted against the bill. This is an unusual, but not unique, voting pattern -- we'll examine the reasons for it in our next post.

3) Electoral risk played a role; as members faced tougher challengers, their probability of voting for the bill fell. Going from a safe seat to one that leans your way, and then from leaning to toss-up, costs about 20% likelihood at each step.

This is all pretty straightforward, and runs with most of the conventional wisdom to date. What can be done to get those extra dozen or so members on board is less clear; we fear that the only realistic answers will either water the bill down significantly or make the vote much more partisan than it already is.

Insuring Against Financial Katrinas

by Sharyn O'Halloran

Here is an idea: why does the Fed not guarantee normal risk-return ratios from cataclysmic events like the collapse of a major counter party or aggressive naked short selling, much like FEMA is supposed to do with natural disasters? (OK-- bad example, but you get the idea.) These are exactly the cases when the normal functioning of markets fails and government can play an effective role.

In the current crisis this would mean that government would set aside funds for when a large institution's portfolio comes under attack, perhaps funded by premiums. Just like FEMA won't insure property that's too close to a flood zone, you do not have to back sub-prime or Alt-A loan vehicles, which raise the risk of moral hazard. Instead, they can guarantee those parts of the portfolio that represent normal risk ratios—perhaps those designated similar to qualified loan assets or investment grade.

If an institution comes under stress (like AIG), the guarantee/insurance on the core of its portfolio would minimize risk, making it less likely that it will be downgraded, which in turn prevents a run on its swap contracts and allows it to borrow from the markets at more reasonable rates so that it can raise capital. Maybe these can be written into loan agreements. This seems like the right balance between market-based incentives and regulatory intervention, without being pro-cyclical like higher reserve requirements.

Bailing Out the Bailout

by David Epstein and Sharyn O'Halloran

The great bailout of ’08—the proposed $700 billion taxpayer loan to Wall Street—is not just a step but a leap into uncharted waters. The administration wants to transform the Treasury into a Super Regulator with the authority to purchase and dispose of toxic mortgage-related assets (in a singly unbounded manner). Supporters of the bailout are seeking to calm our worries by emphasizing its similarities to the 1989 creation of the Resolution Trust Corporation (RTC) that helped end the savings and loan crisis. They are also pressing for legislation that is as “clean” as possible, by which they mean that the Treasury will have little or no oversight, and extraordinary discretionary powers while performing its financial feats of derring-do.

These arguments, however, conflict with each other. The 1989 Financial Institutions Reform Recovery and Enforcement Act that created the RTC was indeed successful, but it was anything but “clean.” That bill was 321 pages long, as compared with the Treasury’s draft legislation, reported out over the weekend, which is all of two pages, despite the fact that the RTC bought and sold assets of only $18.8 billion, 1/40^th the value of the current mortgage mess.

A close comparison of the two bills reveals more differences in their approach to financial rescues. We used the same coding scheme as in our book, Delegating Powers, and came up with the following findings. Of the 15 provisions in the current draft legislation, 8 delegated authority to the executive branch. This 53% “delegation ratio” is 49% higher than the comparable ratio for the RTC bill. And 22 of the 42 major provisions in the RTC bill constrained delegated authority—through such devices as time limits, spending limits, rulemaking requirements and appeals procedures—as opposed to only 5 out of 15 in the proposed mortgage bailout. So the current bill both delegates more and constrains less than its predecessor, in an environment where even the experts are less sure of the correct course of action.

Wall Street Bailout vs. Iraq War: Comparing Price Tags

By Brigitte L. Nacos

There is good reason to be shocked about the price tag attached to the proposed rescue package for Wall Street and by extension for the whole financial system and the overall economy. $700 billion is no chicken feed. Members of congress must resist efforts by the White House to rush them once again into an uninformed decision. While a massive government intervention is inevitable, allowing the Secretary of the Treasury and the administration sole control over the initiative would violate the legislative chambers’ responsibilities. At minimum, Representatives and Senators must insist on oversight and transparency and then some. 

Yet, as inconceivably high the number is—$700 billion, it is astounding that the same people, who are up in arms over the likely costs of bailing out Wall Street at the expense of taxpayers, are compliant in the spending of comparable sums for the Iraq war. Add to that the cost of the Afghanistan war and other post-9/11 counterterrorism measures abroad and at home, and pretty soon the $700 billion bail out doesn’t look that shocking any more. 

The fact is that the responses to the 9/11 attacks—the prudent measures and, more so, the controversial and outright wrong ones—cost us far more than the projected bail-out of Wall Street. 

The National Priority Project keeps track of what that war costs the American taxpayers. As I check the ticker at this moment, the Iraq War alone has cost us close to $556 billion—and there is no end in sight. While the Iraqi government accumulates billions in oil money, we keep on spending and spending.

The fact is that the responses to the 9/11 attacks—the prudent measures and, more so, the controversial and outright wrong ones—cost us far more than the projected bailout of Wall Street.

More McCain Blunders

by David Epstein

Just a quick hint to the McCain campaign: real experts get their numbers right.

McCain actually said that Palin knows more about energy than "anyone else in the world." Well, people who are true experts don't make a mistake like saying that Alaska produces 20% of the nation's energy, when the correct number is 3%.

Then they don't "correct" themselves by saying they meant 20% of our oil and gas, when the correct number is 7% .

Then they don't have a spokesperson (real experts don't have spokespeople) say that Alaska produces "15-20%" when the real answer is under 15%.

Not only is this driving Palin's negative ratings sky-high, it's really pissing the press off. They started out really liking McCain, but now they're back in the world of having to assume that everything -- every single thing -- that McCain, Palin, or their staffers tell them is a lie and not to believe anything that hasn't been fact-checked.

The blizzard of negative coverage the McCain campaign is getting is quickly eroding any post-convention bounce the Reps might have had. Looking back on it (meaning all of three weeks ago, which is a lifetime in campaign-years), if McCain had debunked Palin's story about the Bridge immediately, said how this was "straight talk," and how he wasn't going to have a campaign based on lies, he'd probably still be up in the polls. But now he's dragged his reputation into the mud, removing his one true asset from his campaign.

Earmarks: A Small Point

by David Epstein

First, a small point about earmarks. McCain is now trying to defend himself on the subject of Palin's pork barreling by saying that she "vetoed a half a billion dollars in earmark projects--far, far in excess of her predecessor."

This confuses the "earmarks" that the reporters are talking about (or trying to talk about) with regular state-level pork-barrel spending. Palin can't veto federal earmarks, because she's, you know, a governor, meaning that her role is to ask for earmarks, not veto them.

As to vetoing more than her predecessors, anyone who knows how the budget game is played knows that the state legislature -- Alaska's, in this case -- asks for more projects than they can get, knowing that the governor will veto some of them to display his/her diligence in protecting the public fisc.

As Alaska's state budget goes up along with the price of oil, the legislature will naturally propose more spending, and the governor will veto more. What would be more revealing would be if she vetoed a greater percentage of pork-y requests than her predecessors, but of course no actual reporter could possibly know so much about policy to figure that out and ask the question, so we'll have to rely on those with access to the data to try and get this straight.

Why, as Brad DeLong says, can't we have a better press corps?

Earmarks: 3 Big Points

by David Epstein

OK, now to three big points on earmarks/the Bridge To Nowhere (BTN). In general, Dems should be running a campaign against the Republicans, not Sarah Palin. But at the moment, the BTN is a real embarrassment for the Reps; the media keep mentioning how Palin keeps repeating the claim even though it's false; consequently, it's taking the Reps off their message; it emphasizes the fact that McCain has morphed into just another candidate who will do anything to get elected; and if reporters keep asking about it McCain might just throw one of his patented temper tantrums in front of the cameras, which would really not be good.

So, three points on the BTN, as it's playing out in the media right now. I remind you of the oft-repeated money quote: "I told the Congress 'thanks, but no thanks,' for that Bridge to Nowhere. If our state wanted a bridge, we'd build it ourselves."

1) The whole point is that she was for the bridge exactly when Alaska didn't have to pay for it themselves; she only wanted it when the feds were going to pick up the biggest part of the check. Rather than show how independent Alaskans are, then, the whole episode reminds us that they've made a living for years soaking the rest of the taxpayers for wasteful pork barrel projects in their state.

2) What kind of appropriations process does the quote imagine? Something like the following, I guess:

Evil Congress: "This is Congress on the phone. We've appropriated money for your state to build a bridge to nowhere."

Sarah Palin: "No, we really don't want a bridge."

EC: "No, we insist! You must build this bridge. You cannot refuse us!"

SP: "Oh really?"

EC: "Yes, we will force you to build this bridge, no matter how inefficient it is, not matter how few people it serves, and no matter how much you protest!"

SP: "Thanks, but no thanks, for that Bridge to Nowhere. If our state wanted a bridge, we'd build it ourselves."

I mean, even clueless national reporters must know that this isn't how things work -- Congress doesn't ordinarily try to foist spending projects on unwilling states. The bridge, as we all know, was a pet project of Ted Stevens, Chair of the Senate Appropriations Committee, not some vague, detached entity called Congress, and was only abandoned when it became a national embarrassment. For Palin to say she ended the project is like Cornwallis saying he ended the Revolutionary War when he surrendered at Yorktown (and then running for election on a Peace Platform).

3) It's interesting to speculate how this all came about -- how the line ever got into her speech. After all, it isn't like she went around Alaska saying this in years past -- Alaskans would have known better.

My guess is that it's something like this. It's the day before Palin's big speech, and the Republican speech writers have only 24 hours or so to come up with something. So they ask her about the one big embarrassing thing most Americans knew about Alaska before all this, and that was the Bridge to Nowhere. (Especially since McCain is so anti-earmark that he previously attacked the BTN by name, even accusing it of having contributed to the bridge collapse in Minnesota last year(!).)

So Palin says, "Oh, no problem. I ended that project all on my own." And the speechwriters say "Great!" and make a big deal out of it in the speech.

Then they get all this pushback and ask her, "I thought you said you stopped the project? Everyone says you were for it." And she says, "Well, I was, but then I stopped it. True, it was after the feds cut off all the money for the project, but then I ended it!" "Sheesh....." And they know they have to go on and try to defend the obviously indefensible for as long as they can.

Reverse Gender Discrimination and the McCain/Palin Camp

By Brigitte L. Nacos

Surveying media coverage of Senator Hillary Clinton during the primary season and the media treatment of Governor Sarah Palin since she became the GOP’s vice-presidential candidate, E.J. Dionne asks in the Washington Post, “Is there one standard for Hillary Clinton -- a tough one -- and another, permissive standard for Sarah Palin?” The answer is crystal clear: Whereas most in the media seemed to compete for the top prize in the destruction of Hillary’s candidacy, they have lost their bark when it comes to Sarah’s run for the second highest office in the land.

During the primary season, I posted repeatedly on the media’ gross gender discrimination against Senator Clinton. Dionne’s example here is instructive: After Hillary falsely claimed that she had come under sniper fire, when she visited Bosnia more than a dozen years ago, the media never let her forget her mistake. There has not been a comparable reaction after it was established that Palin and her handlers lied when they claimed that she visited U.S.troops in Iraq. Never mind that Hillary had actually visited Bosnia at the time but Sarah did not make it into Iraq and counted a stop-over in Ireland as visiting a foreign country.

By labeling even criticism and questioning of Palin by and in the media or from any other quarter as sexist, the McCain/Palin campaign has pulled of an astonishing swift-boating act: they intimidated and pressured the talking and writing fourth estate into practicing reverse discrimination/reverse sexism in favor of the female candidate and at the expense of her male counterparts.

This is the new rule of the general campaign season: simply because she is female, the least known candidate in the race must be treated soft and gentle. When Charles Gibson interviewed Palin last week, he followed that rule and was still attacked for displaying gender bias. From what I saw and heard, Gibson was not at all tough but remained cool and professional in the face of Governor Palin’s—let’s say—inadequate performance.

Some of the media watchdogs are now actually helping to enforce the new female protection tenet by dwelling on remarks that have nothing to do with the untouchable Sarah or express legitimate concerns—but are deemed sexist by a McCain/Palin team whose agenda, ironically, does not promise to end true discrimination against women.  

To Counter or Not to Counter Attacks by a “Pit Bull with Lipstick”

By Brigitte L. Nacos
One has to hand it to the former mayor of an Anchorage suburb and current governor of thinly populated Alaska: Her shots at the news media were heard around the nation’s newsrooms. Now it seems that most talking heads in radio and television and journalists in the serious print press—contrary to liberal bloggers--treat Palin with kid gloves.

Justified complaints against gender bias in the media did not change the anti-Hillary attack-dog antics of the Chris Matthews, Keith Oldermanns, Jack Caffertys, Maureen Dowds, and the likes. But the self-proclaimed “pit bull with lipstick” and designated attack dog of the McCain-Palin team has managed to handcuff most newsrooms by accusing them of vilifying her family and her unmarried pregnant teenage daughter in particular. 

Americans, including Senator McCain who selected her as his running mate, do not know much about Sarah Palin’s background; they know far less about the past of the surprise Republican vice-presidential candidate than about McCain himself and the Obama-Biden team.

The few, perfectly legitimate, justified, and thorough efforts to investigate and report on Governor Palin’s public record as small-town mayor and governor of Alaska have been met with indignation and wild accusations by the candidate and her cheering section in the Republican party. 

To be sure, children under 18 in particular should not be the targets of investigations and disclosured by the media or their parents political opponents. But the governor's pleas for her family's privacy would be far more convincing if she did not exploit her own off-springs and future son-in-law as props in her staged appearances and if she stopped to falsely accuse the Obama camp of spreading lies about her family's most private realities of life. 

Tactically, it may well be best for Obama, Biden, and their camp to concentrate on McCain and more or less ignore Palin.

But it is perfectly fine to question and respond to Palin's accusations point for point.
If pit bulls attack, the targets must defend themselves as strongly as they possibly can.

Palin must learn a basic lesson: if you contend for one of the highest offices in the land, you must be able to take the heat—or get out of the kitchen of high stake politics. 

As for the mainstream media elite, they need to heed the following advice: If you still believe that you were granted freedom of the press in order to discharge your responsibility as watchdog on behalf of citizens and voters, you need to fully inform the electorate about the strengths and weaknesses of all candidates during presidential campaigns—including a female candidate for the vice-presidential office.

Palin Isn't the Story

by David Epstein

OK, two things about Palin. First, the Democrats should follow Biden's lead here. This is a campaign to be run against Republicans, not Sarah Palin, and not even (to a large degree) against John McCain. So don't hit her on her lack of experience -- the national press will do that for you. Just keep saying that she supports the failed Republican policies of the last eight years that we desperately need to break with.

The one statement they should make about her choice (Are you listening Obama folks? Say this word for word...) is,

"The country will have the chance in the weeks ahead to learn more about Sarah Palin and her qualifications for the second-highest office in the land. For the moment, we are glad to see that John McCain now agrees that it is a person's judgment and positions on the issues, not their age or years of experience, that qualify them for the position of commander in chief."

Second, when Palin goes on about how small towns are different, how they're an Eden where everyone knows each other, someone has to ask her how well she knew the librarian in her small town that she tried to fire for not banning books, then backed down under pressure. Doesn't sound *completely* Eden-like to me...