Two recent financial reform developments jumped out at me for the cognitive dissonance they caused. First, the Senate released a proposal to create a resolution authority for large financial firms. Yves Smith had previously dismissed the idea as a boondoggle for several reasons, including this: “Investment banks were seen as normal enterprises, at risk of bankruptcy, before the meltdown, yet that did not prevent Bear, Lehman, and Merrill from getting themselves into trouble that ultimately proved fatal. And the leaders of these enterprises did not take meaningful financial hits…a lesson surely not lost on other bank CEOs.” In other words, the specter of a government euthanist will not scare anyone straight.

The Senate’s action was immediately preceded by Tim Geithner’s extravagant praise of the skill, foresight, wisdom and courage of Tim Geithner. His basic message was: at the most acute part of the crisis we pulled the economy back from the brink through bold, decisive action. If the timing of the bill and the braggadocio are not coincidence the message seems to be: We were lucky enough to have someone as great as Geithner at the helm this time, but we need legislation to make sure it gets taken care of next time (that the bill postulates a next time has not seemed to trouble many observers).

In Simon Johnson’s response he coins a phrase - “too big to save” - that I hope becomes part of the discourse:

In truth, “too big to fail” is not the worst thing we should fear – our financial institutions are now on their way to becoming “too big to save”. In 1929-30, even if the federal government had wanted to put in place a big fiscal stimulus, it could only have mounted something around 1 percent of GDP; the financial shock of that day was much bigger.

(On a related note, it seems entitlement (Social Security/Medicare) and military spending (which is ostensibly discretionary but functionally mandatory given our imperialistic nature) probably helped cushion the blow caused by the collapse of private sector spending. None of that was in place during the Depression and that had to have made it worse, no? In short, yay socialism!)

The conceptual flaws and inadequate scope of a resolution authority seem obvious enough that the remarks of Federal Deposit Insurance Corp. Chairwoman Sheila Bair caught me off guard: “Ending too big to fail by creating an effective resolution regime that will apply to large financial institutions is the key to ensuring that we end the need for future bailouts.” I have a vague but favorable impression of Bair, based mostly on liking how she rightfully and openly antagonized Geithner last year. I may have overestimated her commitment to reform, or mistaken a salvo in a turf war for a willingness to stake out a politically unpopular position. Either way, her remarks brought me up short.

So did TARP overseer Elizabeth Warren. She has been a tireless champion for financial reform, as a quick review of her Huffington Post tag list shows. She always seems to be on the right side, and emphatically so. But on two separate occasions recently she has been agnostic on the location for the proposed Consumer Financial Protection Agency (CFPA).

In a HuffPo interview she said, “Where the agency sits on an organization chart is less important than its functional independence.” Then to Charlie Rose: “This is less about real estate and more about genuine independence.” (But in the same response acknowledged the Federal Reserve is “not interested” in regulating areas covered by the CFPA where it already has authority!)

The idea of “functional independence” seems plainly unrealistic. Real estate matters. Position on the org chart matters. If the CFPA is ultimately in Ben Bernanke’s chain of command - even only by a long, dotted diagonal line - it will inevitably reflect his priorities. Functional independence requires actual independence. I simply do not understand why Warren treats it so lightly, even if accompanied by the good things she mentions such as a separate funding source. It seems like a very Wall Street-friendly position to take from someone who has consistently prioritized Main Street.

These criticisms of Bair and Warren are not intended to be harsh, stinging rebukes. I think highly of both of them, and on the topics where I formed my good opinion of them I hope they succeed. But on these two issues it would be nice to hear at least a little elaboration from them.

The neocons may finally gone too far (via). There seems to be an actual backlash building against this latest smear. It’s kind of funny to observe what counts as “over the line” in Washington. Right wing lunatics have been casually impugning the patriotism of anyone who question their sadistic, authoritarian agenda for years. Why is this the straw that broke the camel’s back? Anyway, I won’t look a gift horse in the mouth. If it looks like people in the capital are finally figuring it out, better late than never.

Backlash is relative, of course. It isn’t hard to find voices on the right that approve of not just McCarthyite tactics but McCarthy himself. If you’ve only taken to heart one thing I’ve ever written, make it this: Some people are beyond the bounds of civilized discourse and their opinions need not be consulted. I don’t care about Dick Cheney’s opinions on anything unless they are expressed as part of a war crimes trial. His supporters don’t deserve space to provide to “balance” those opposed to war crimes. They should not be appearing on any respectable outlet, and in fact at this point any outlet that provides a forum to them is by definition not respectable.

Right wing extremism is sharply on the rise. Guess the Department of Homeland Security was right.

Kathryn Jean Lopez has the latest example of why it is impossible to parody the modern right. See this too. It’s as though they expect us to have complete amnesia about the Bush years. I just…really?

There’s always seemed to be tension between our military and our mercenaries, but this takes it to a whole new level. A few more incidents like that and even the fans of Pentagon socialism might have trouble justifying fat contracts.

Your tax dollars at work, brainwashing you.

Cynthia Kouril’s best stuff gets right to the heart of an issue and bristles with righteous indignation; this is a great example. She’s my favorite new blogger of the last year or so (I don’t know how long she’s been at it, but it seems relatively recent). She’s written about this before, and funny enough my take on it was “If Holder gets kneecapped on the KSM trial I hope he considers ‘resign in protest’ one of his options.”

Capone ended up getting nailed not for the crimes but for not paying the taxes on them. Maybe such secondary pitfalls will ensnare the banksters too (via). Also this from Yves:

the ability to get the markets to fall on cue when regulators are threatening to do things that are inconvenient has now become a critical source of power for the financial services industry.

Jack Balkin writes “we have developed polarized parliamentary-style parties in a constitutional system not designed for parliamentary government.” The implications are enormous.

Ben Smith is an asshole. He lavished attention on the ACORN story and wrote know-nothing pieces of anti-journalism like “The videos proved a rallying point for conservatives who had long accused the group of fomenting voting fraud.” Whether they were rallying around something legitimate is irrelevant; the fact of their rallying is politically interesting and therefore worthy of coverage. Then he wrote that this criticism was “more or less right”: “reporters, being used to tuning out charges against ACORN, were slow to realize that this was a time when the group’s opponents had the goods.” They had the goods! And when that same intrepid investigator was charged with a felony by rushing to his defense with “If true, that’s substantially less nefarious than trying to bug phones.” (“If true” I will christen the Smith Hedge, because the Asshole Hedge would be impolite.) He basically passes along wingnut talking points with a few weasel words thrown in for cover. And when it all blows up he passes along a block quote from another outlet with no additional commentary. Considering the unabashed cheerleading for O’Keefe, and the ACORN story in particular, you might think this would be a cause for a moment’s reflection. Not in the manic, ahistorical world of Ben Smith!

Another example of Smith’s deplorable work is how he rushed to give cover to the DOJ smear campaign by writing “the Justice Department’s choice right now to disclose a number, but not the name, of former detainee lawyers is a tempting target for the right.” Who cares if it’s a legitimate, or even ethical, tactic? Its temptingness renders it worthy of uncritically reporting on. God what a jerk.

Athenae had more on the ACORN story:

Maybe at this point we can finally start saying to ourselves that these Young Republican Activist Hotnesses live to engage in cheap douchebaggery and gotcha nonsense about nothing that will ever hurt a single soul. Maybe after they’ve been wrong about everything, over and over and over again, maybe after it’s been demonstrated that not a single one of their explosive iTeam reports has led to anything but their supporters having egg all over their faces, maybe after the benefit of the doubt has been extended time after time after time to these rich assholes and never to the people who are the targets of their frat-house antics, we can start to say you know, let’s try something else this time. Something fresh. Something new.

Let’s try assuming that the kind of people who would do this shit are full of crap from the start, and save ourselves the embarrassment later.

Great moments in journalism. This too, though it’s par for the course on Rupert Media (US edition). Here’s the latest on Rupert Media (UK edition).

Spencer Ackerman:

We tend to speak of torture and indefinite detention as two different things. And it’s true that they’re notionally distinct. But imagine yourself placed into a cell for months or for years and abused, without anyone listening to your pleas to be brought before a judge and read the evidence against you, without any ability to contest or challenge what the interrogators tell you that you’ve done. And it drags on for years and years — just you and the guards and maybe the others imprisoned near you, the days counting down without anything changing. To have to find within you the remainder of your faith in something that will at least allow you to make sense of what has happened to you, if not actually set you free. That is, itself, torture.

It made me wonder, hearing these accounts: what if Jay Bybee or John Yoo or David Addington or John Rizzo or Jim Haynes or Alberto Gonzales or George Tenet or Donald Rumsfeld or Dick Cheney or George Bush had to taste what this was like? The weight of the apparatus they created, bearing down upon them? It should, of course, never happen, because the most important thing in this world is justice, and justice is no less necessary for the iniquitous than it is for the good. But would any American experience this for himself or herself and not immediately see how plainly evil — evil — it is to subject someone to this treatment, no matter who they are or what they’ve done?

Pretty much any story with a headline starting “McCain, Lieberman team up” is guaranteed to make me feel queasy.

Surveillance state expands. Oh, and that war we’re in? No, the other one. Yeah. You don’t need to know what’s happening.

Blogger Mickey Kaus is an abysmal reporter whose idea of journalism is grounded in passing along gossip, rumors and allegations based on their deliciousness and not their credibility. A couple years ago Matt Yglesias noted this method as it was practiced with the John Edwards affair story. (Yglesias’ archives on The Atlantic appear to be gone, but there is a cross post here.) Using the Kaus standard of rigor, one commenter wrote (still in Google cache as of today here) “Hey, you know what I hear, Mickey Kaus likes to fuck goats.” Thus an Internet meme was born, and Kaus’ rumored proclivities became the stuff of legend.

The fact that the story that spawned the goat rumor turned out to be true is irrelevant for reasons Kathy elaborated on here. Kaus traffics in rumors, which means not that he will never be right, just that he typically will not be - to destructive effect. A detailed list can be found here.

Anyway, this week Avedon alerted me that he took out papers for a possible Senate run, and recommended the comment section. It included gems such as “It’s interesting that Mickey hasn’t knocked down the goat-blowing allegations yet. Not that I believe them. But the fact that he’s been silent for so long on this issue is very curious.” and (this one made me laugh till I had tears in my eyes) “Kaus has a massive Get Out The Goat operation.” Oh Internet how I love you so.

I WISH I COULD WRITE LIKE Jon Swift, may he rest in peace. Via.

Though it is very magnanimous of Vitter to accept responsibility for his transgressions, is he really to blame? After the Hollywood left redefined marriage, it must have been a very difficult and confusing time for him. The failure of the passage of the Federal Marriage Amendment must have taken a severe toll on him as he struggled to figure out what marriage really is if even gays can do it. As he grappled with the issue, is it any surprise that he found solace in the embrace of a disinterested paid companion?

Induction:

mathematical demonstration of the validity of a law concerning all the positive integers by proving that it holds for the integer 1 and that if it holds for an arbitrarily chosen positive integer k, it must hold for the integer k + 1

As I have written, it is all vanity. It gives them endless opportunities to flatter each other, cater to each other’s tender feelings and delicate sense of decorum, and generally act like a bunch of insufferable snots - consequences be damned. As a bonus, there is always the chance that your number will come up on some issue and suddenly you have the leadership or (be still my heart) an entire caucus falling all over themselves to fawn over you. Who doesn’t like getting lots of special attention?

Even assuming Senate Democrats wanted to stop the stalling, there is another obstacle: timidity. They are terrified of unpleasantness. Anything that provokes a temper tantrum on the right causes them to spring in to action to placate the GOP. The noise is simply intolerable. They do not care if they do the right thing, they just want it to stop. Which is what leads them to vote to defund ACORN over a fraud or condemn rhetoric by liberals that has been gleefully used by conservatives. They just want quiet.

They are as bad on substance. As Dan Froomkin put it, “[Rahm] Emanuel is a Bush Democrat - but not in that he has learned the lesson about the value of holding firmly to core values. He is a Bush Democrat in that he has allowed Republicans to traumatize him into submission.” On national security, civil rights, torture, you name it: They are terrified of being characterized as weak, and unwilling to challenge what “weak” really is.

With those enormous caveats in mind, here is how they could overcome Republican defiance. First, identify an ordinary nominee. Pat Leahy’s office helpfully published just such a list, so let’s start at the top: Barbara Milano Keenan. I had not heard her name before, nor I suspect have most people.

Next, begin the confirmation process - and put all other business on hold until it passes. (This would cause the mother of all hissy fits, which I am sure would be intolerable to Senate Democrats’ fragile nerves, but let me dream, OK?) Make them do an actual filibuster on it. Here is Jonathan Bernstein (via) on why it will not work: “it is true that if the minority couldn’t keep forty-one Senators on board that they could be defeated. However, that seems highly unlikely in general[.]” I disagree, particularly as it dragged on. Seeing day after day of a whole parade of Republicans collaborating to prevent the confirmation of Barbara Milano Keenan - whom most Americans would not know if they woke up in bed with - would cause an increasingly widespread reaction to set in: “What the hell is wrong with them?”

If Democrats could muster the courage (again, I know, dream) to stare them down, Republicans would take an absolutely massive hit in public opinion. When a vote finally happened they could either vote as a bloc, reinforcing the bad reputation, or vote to approve and look like hypocrites.

That is step one. Once Keenan was confirmed, go to the next name on the list. Rinse and repeat until the list is cleared. Then move on to more prominent nominees, like Dawn Johnsen for OLC. If they obstruct, more bad PR: “Why will they allow a vote on Barbara Milano Keenan but not on Dawn Johnsen? Johnsen is eminently qualified etc. etc.” Keep moving up the ladder until the big issues like health care, financial reform and jobs bills are on the plate. At that point they will have enough of a track record to not be able to claim principle for any kind of roadblock. Either they engage or they further cement their reputation for corrosive cynicism.

To repeat: This is all predicated on the idea that Senate Democrats want to challenge delaying tactics and possess the backbone to see a confrontation through. The point is that they have the tools at their disposal right now. Anyone who talks about additional reforms as a solution is just blowing smoke.

* For some reason CNN decided to use black text on black background, so highlight all the text to read it. Back to post.

Here is a great example of his blogging style, and here is his last Blogroll Amnesty Day. And it’s hard to miss the unintentional foreshadowing in his final post.

More:

• Tom Watson
• skippy the bush kangaroo
• D. Aristophanes
• Diary of a Heretic
• blue girl
• Melissa McEwan
• jurassicpork
• James Wolcott
• John Cole

I didn’t know him and don’t have any personal stories to relate. I just knew him as a witty, original and perceptive voice on the Internet. He will be missed. My deepest condolences to his survivors.

Searchable versions of the OPR report and related documents are available here. They are primary sources for items like this.

Andrew Sullivan on torture. I can’t tell you how much I admire his sustained focus on the issue.

Seeing as how we can’t properly manage our hired guns it makes sense that we should stop using them altogether. This seems to be especially true considering that barring perpetual service in a war zone they will eventually come back to the good ol’ US of A to live among us civilians with whatever awesome new equipment and social mores they’ve acquired. But obviously that directly conflicts with the project to outsource our wars entirely, which I suspect is and will continue to be a higher priority.

Our image in the Muslim world would probably improve if we stopped killing Muslims. The Editors:

you shouldn’t kill people who haven’t done anything to you, because it isn’t nice. It’s considered bad manners, under most circumstances, which is why, in our day-to-day lives, most of us go out of our way to avoid “collaterally damaging” those around us, to the point of almost never firing Hellfire missiles anywhere there is even a remote chance of incinerating a baby. If one does happen to kill, say, 27 people one Sunday evening, one can expect to have to answer some fairly pointed questions, at least. Now, we are at war, and the longer it lasts the more it consumes us, but perhaps we could at least retain some small connection to our fellow humans and acknowledge that this was a mistake made by someone in uniform, but this mistake was made possible by deliberate policy. It doesn’t have to be a big song and dance, just something like “today we killed so-and-so, which we didn’t mean to do, but we did risk killing innocent civilians with our actions, which we feel is justified because so-and-so. We think it is worth killing civilians for this reason.” Acknowledgement, owning responsibility, that’s all.

I tend to feel that public diplomacy divorced from substantive policy decisions is transparent, condescending, credibility-destroying bullshit.

Speaking of The Editors, this is one of those issues where Republicans inadvertently make themselves useful (see this too (via)). Eric Holder seems to be trying to finesse his way through this long enough for attention to turn elsewhere.

Pat Leahy talked tough. Which does not inspire a whole lot of confidence. He did manage to swing into action on one issue though.

One of the links in the previous item is a 2007 story on the CIA torture tapes. That issue has not died down. As long as we don’t have clarity on war crimes issues like this will keep popping up. They won’t go away, and the sooner our leaders figure out there is no escaping history’s judgment on this the better.

Remember back to last April - less than a year ago - when conservative outlets were breathlessly reporting on the Department of Homeland Security’s warning about a rise in “rightwing extremist activity” that induced a spontaneous ragegasm on the right? Me neither.

Jennifer Hardy (née Koester) was part of the torture gang. Jennifer Koester. Commit to memory.

There’s a campaign to disbar the torture lawyers: “The Disbar Torture Lawyers campaign, which is part of a consortium that boasts over 120 transparency and watchdog groups, is now working to disbar Bybee and others complicit in advocating illegal interrogation methods.” I wish them great success.

Poland confirmed as black site location: “Warsaw air control service confirms that at least six CIA flights landed at disused military air base in northern Poland in 2003.”

Congressional Democrats are shameful cowards on terrorism. You know how one of conservatives’ big fears is that the left will run against George Bush for the next generation? One of mine is that Democrats in Congress will be in a state of suspended animation circa 2005 for the next generation:

Democratic leadership in the House was in disarray last night after having to withdraw the 2010 Intelligence Authorization Act, moments before it was to have been voted upon, as the result of a controversial anti-torture provision.

The amendment was added in the House Rules Committee late on Wednesday and had not previously been vetted in committee. It would have criminalized the most extreme forms of “enhanced interrogation” and provided stiff sentences for intelligence officers or medical professions who engaged in them.

Republican opposition caused the Democrats to attempt to remove the provision from the bill on Thursday by a unanimous consent agreement. When the Republicans refused to go along, the Democratic leadership was forced to pull the bill entirely.

Yves Smith on the latest news from the financial sector:

The point of this exercise was to show that the Fed’s secrecy claim was bogus. The argument was that it needed to keep this information secret to protect Maiden Lane III’s positions from “traders” to maximize value. But if non-traders, with access to neither a Bloomberg data service or specialized databases that show CDO collateral, could put this much together from public information, clearly traders could go even further. Thus it was clear that it was the public, not the trading community, who was the real object of the secrecy campaign.

Michael Isikoff’s article is worth a read if you haven’t seen it yet. The latest evidence on how the White House cooked the books on intelligence, in this case with torture. It’s really amazing to me that we can now report a former vice president lied in order to justify torture and it is greeted in DC with a sense of ennui. Nothing’s shocking.

DougJ:

There are a lot of people out there who believe that our sorry state of affairs is caused by Glenn Beck and Rush Limbaugh and, if they’re really deluded, they’ll add “and on the left, Rachel Maddow and Keith Olbermann”. I know plenty of people who say things like this.

The truth is, it’s more the fault of Charlie Rose and Tom Friedman and David Brooks. Glenn Beck didn’t get us into Iraq.

Let it not be said that wingnuts never get off a good funny.

That’s Jeb fucking Bush casting doubts on other people’s intelligence. I’m fully aware that he’s supposed to be the smart one of the elder Bush’s brood, but that’s something akin to claiming Larry is the dignified one of The Three Stooges in my book.

In sports news, the Canadian women’s hockey team celebrated their gold medal victory with cigars and booze on the ice, then had to apologize and now the International Olympic Committee is investigating. Unbelievable. I’m an American and don’t think it was the slightest bit disrespectful. It may have been a once in a lifetime achievement and they had every right to live it up. They weren’t doing it in front of the other team, talking trash or otherwise being disrespectful, they were just spending a little extra time basking in the afterglow. It takes a pretty ungenerous spirit to begrudge them that. You win, you celebrate; that’s how it works. As for the underage drinking, how about this for a rule of thumb: On days when you win an Olympic gold medal the drinking age is suspended.

And by the way, the pictures at the link are completely charming.

I WISH I COULD WRITE LIKE digby:

Little Randian Paulites almost always turn into Big Business Wingnuts once they start making a paycheck, at which point their concerns about “corporatism” tend to morph into concerns about government spending money on people who aren’t wonderful producers like they are.

BONUS I WISH I COULD WRITE LIKE Adam Serwer (via):

The Senate is holding a hearing today where several current and former Blackwater employees will be testifying, but honestly the only way Congress would stop giving Blackwater money is if it started registering black people to vote.

The Department of Justice’s (DOJ) Office of Professional Responsibility (OPR) report on its ethics investigation for torture-approving lawyers has already generated some remarkable reactions. One of the few defenses came from former deputy counsel to George W. Bush Bill Burck and Bush’s former press secretary Dana Perino; it is an amazingly weak effort. For instance, they cite the counsel of one of the lawyers under investigation as an analyst, quote her defense of her client, and conclude she is “someone whose credentials and experience as a top-flight lawyer cannot be seriously doubted.” To which I can only respond, clownish is as clownish does.

They only address the issues in the report peripherally: “What makes this whole affair even more pointless is that OLC [Office of Legal Counsel] itself withdrew or superseded the relevant opinions of Yoo and Bybee during the Bush years.” That is, the fact that alleged lawbreaking ceased before the investigation obviates the need of it. Once wrongdoing stops there is no reason to pursue it; instead we need to move on and look forward. (Remember when conservatives used to accuse liberals of moral relativism?) They never try to address the central point though - what responsibility do the authors bear for helping construct our torture bureaucracy?

The closest they come is in citing former OLC head Jack Goldsmith - who withdrew the memos - as believing that “none of the interrogation techniques, including waterboarding, violated U.S. law. He also believed that Yoo had come to his views honestly and did not merely use them as a cover to justify torture.” That is simply obfuscation. The whole issue can be summed up as follows: Is waterboarding torture? (Yes.) Did the US waterboard? (Yes.) Is the US a signatory to the Convention Against Torture? (Yes.) Does the Convention require that any credible allegations of torture - even one time, even against an avowed enemy of the state, even against evil incarnate - be investigated? (Yes.)

The fact that Goldsmith believes waterboarding is not torture is irrelevant. Waterboarding is torture. There is abundant case law supporting that. Yoo could not honestly have come to another belief because it would have required willful ignorance of precedent. That seems to be the route Yoo actually took, but rather than exonerating him it only makes him more culpable. Yet even that is largely irrelevant; it might matter when it comes to establishing intent, but that only goes so far. Ignorance of the law is no excuse, which you can verify yourself if you’ve ever tried to talk your way out of a speeding ticket.

It is simply astounding that this is the best defense torture apologists can come up with: launch substance-free character attacks against the other side, insist any action amounts to criminalizing political differences, call for impunity in the name of looking forward and claim the kids really meant well. It is basically an entirely insubstantial response.

A wide variety of commentators have pointed out crippling deficiencies in the report. First, an in-house investigation should not inspire confidence even under the best circumstances. In the immortal words of Willem Buiter, self-regulation is to regulation as self-importance is to importance. On those lines, bmaz posted several links about the author and concluded: “It seems David Margolis has his own institutional interests that present an appearance of conflict with his duties to protect the public from malevolent lawyering by DOJ attorneys, especially high ranking ones.”

Jack Balkin wrote that this cozy review was done according to a standard that would only have found fault under almost impossibly extreme circumstances. (He followed up with this as well.) Scott Horton noted that redactions in the report were “made to protect political figures at the White House and CIA, and potentially other agencies, from embarrassment” instead of from national security concerns (and it partially failed there too). David Cole, correctly predicting the exoneration in the report a couple of weeks ago, contrasted its characterization of the torture lawyers as having used “poor judgment” with the more reasonable treatment of their actions as war crimes by a Spanish judge.

The report is simply a mess. It was constructed under terrible conditions using a compromised process by a professional whitewasher. That is not an accident; there is an irreconcilable tension between those inside the DC establishment and those outside it. Many in the Beltway’s political and media elite stand to look very bad, if not criminally liable, for America’s barbaric treatment of detainees. It is obvious they want the issue to just go away. The OPR report is the latest example of something that could have started to chip away at the stonewalling, but failed. Instead it just slapped a few more bricks into place.

You wrote:

In short, regulation has a spotty track record lately. Economist Barry Ritholtz acknowledged that and pointed to a new approach when he wrote a recent proposal “would not have prevented this crisis, but it would reduce taxpayer exposure to Wall Street speculation.” Since regulation depends on human intervention, it would be good to have a simple mechanism that reduced the public’s exposure to abuse.

Allow me to clarify what I wrote, as I think you may be misinterpreting my perspective somewhat:

The Volcker rule would not have prevented the current crisis; rather, it addresses new taxpayer risks created by the bailouts. Under the Volcker rule, the firms that engage in leveraged speculation should no longer expect Uncle Sam being there to backstop them.

Hence, you must choose: Either you have a proprietary trading desk, or you are a depository bank that benefits from FDIC insurance. Just not both.

As to the actual causes of the crisis, you could (and should) read Bailout Nation, but the short version is here.

My response:

I think the ease with which Goldman became a bank holding company implies that in a crisis it would still be able to extract some kind of backstop protection from the government. Moreover, a full reinstatement of Glass-Steagall (which is how I understand the thrust of the Volcker rule) wouldn’t help in the brave new world of CDO’s, CDS’s, high frequency trading, and other novel developments. Even as (mere) regulation it doesn’t strike me as addressing the current environment very effectively.

The bigger point is that I’ve come to see regulation as a perpetual cat-and-mouse game. Wall Street firms seem almost destined to have the advantage in looking for ever more complex and creative ways to get around whatever rules they can’t neutralize and regulators they can’t capture. The best structure can’t guard against being starved of resources or gorged with cronies and incompetents.

The idea of a public option bank or a CFPA in addition to regulation is appealing because they make no attempt to enforce any kind of good conduct by Wall Street. The former bypasses the system completely and as George Washington wrote about the latter:

Remember, credit default swaps didn’t bring down the economy because they are toxic while all other financial vehicles are pure as the driven snow. CDS brought down the economy because they were the choice du jour of the looters.

If we outlaw CDS (which I have argued for in the past), then the looters would create some other instrument for looting.

What I was trying to get at is that in the current environment proposals for new regulation like Volcker are (relatively speaking) small ball because they play into a system the financial system has already demonstrated it can manipulate. By all means do them, but do them after the non-regulatory changes. I think those are the changes that will best insulate taxpayers from risky behavior by Goldman et. al.

And his:

There was a very specific run of actions that incubated, fed and accelerated the crisis

1. Start with ultra low rates (which caused bond managers to scramble for yield),
2. Permit Ratings Agencies to “sell” their AAA rating to Wall St investment houses
3. Do not regulate, the non-bank, lend-to-securitize subprime mortgage lenders
4. Completely exempt derivatives from normal scrutiny, disclosure and reserve requirements (making them unique when compared with every other financial instrument, thanks to the CFMA),
5. Allow massive leverage of investment houses far beyond historical net cap rules,
6. Put into effect Federal Pre-emption rules that prevent states from enforcing their anti-predatory lending rules.
7. Allow banks to marry WallStreet thanks to the repeal of Glass Steagall,

Some of these changes caused the crisis, others made it much worse.

Note that all of this took place during a 30 year period where the dominant economic beliefs were:

• deregulation was always a good practive;
• markets know better;
• Big firms can regulate themselves

I hate to sound like a broken record, but Dick Cheney is shameless and is eager to be publicly guilty. He has made his life an open, defiant challenge to the US government. Does anyone have the courage to take him down, and unleash the inevitable whirlwind? Or does the entire DC establishment prefer to live in quiet, peaceful acquiescence? Those are the only options at this point. Cheney wants to cast as wide a net of complicity as possible; he wants not just his White House implicated but future ones. Not just the White House, but the executive branch. Not just the executive branch but the legislative and judicial branches as well. He wants as much company as possible so he does not go down as a singular villain. It is working, and will continue as long as our leaders prefer to put their immediate comfort over their obligations. Andrew Sullivan:

Cheney himself just set in motion a chain of events that the civilized world must see to its conclusion or cease to be the civilized world. For such a high official to escape the clear letter of these treaties and conventions, and to openly brag of it, renders such treaties and conventions meaningless.

On the same topic, it’s extremely important to keep in mind that the instruments of torture are being wielded throughout the government. And it’s all the worse because we know better. It is not a matter of an out of control president authorizing some cheap thugs to engage in sadism through secret, out of channel directives. It is about the creation of a torture apparatus by the executive branch, the promotion of it by the legislative and the allowing of it by the judicial. It can fairly be said: This is America.

The Friday night news dump was a big one this time. House Judiciary Chairman John Conyers announced hearings in response, which on the face of it is not terribly encouraging. Conyers is an ornery bastard, though (and I write that with great affection) so it’s possible something may come of it.

Cheney is even crazier than many of us suspected, by the way.

Sullivan also had an amazing article on the complicity of the Catholic church in torture. Try to make the time if you haven’t read it yet. This too. He was a busy guy this week.

Our image in the Muslim world would probably improve if we stopped killing Muslims.

Cynthia Kouril linked to the Hobbs Act (along with the useful exhortation “read the link, trust me”). Excerpt:

While the definition of extortion under the Hobbs Act with regard to force, violence or fear requires the obtaining of property from another with his consent induced by these means, the under color of official right provision does not require that the public official take steps to induce the extortionate payment: It can be said that “the coercive element is provided by the public office itself.”

This is the kind of thing I don’t follow as closely as I should, probably because I feel sufficiently occupied trying to keep track of America’s wrongdoing to focus on other countries. It is a fascinating story though.

Matt Taibbi’s latest, with caveats from lambert and Yves.

I usually avoid the rapid back and forth that happens with hot topics but this from William Jacobson struck me as somewhat dishonest:

TP [Think Progress] then suggested that readers watch the video. But anyone who actually watched the video would realize that TP’s presentation was a complete distortion and TP’s characterization of what Brown said was misleading. The video is below, here is the relevant portion of what Brown said:

Well It’s certainly tragic and I feel for the families obviously that are being effected by it. And I don’t know if its related but I can just sense not only in my election but since being here in Washington people are frustrated. They want transparency. They want their elected officials to be accountable and open and talk about the things affecting their daily lives. So I am not sure if there is a connection, I certainly hope not, but we need to do things better.

Brown then went on about the issue of whether “populist rage” caused the attack

You don’t know anything about the individual, he could have had other issues. Certainly no one likes paying taxes, obviously, but the way we’re trying to deal with things and have been in the past at least until I got here is, there’s such a log jam in Washington, and people want us to do better, they want us to help solve the problems that are affecting Americans in a very real way….

There was nothing Brown said which treated the attack lightly, or connected the attack to Tea Party or populist anger. In fact, Brown said just the opposite and his tone was one of concern.

Carter watch, part 3. Previously.

Just imagine if the president had been this smart, dedicated and vigilant on terrorism in 2002.

I have a problem with this:

One big reason that the economy stabilized last summer and fall is the stimulus; the Congressional Budget Office estimates that without the stimulus, growth would have been anywhere from 1.2 to 3.2 percentage points lower in the third quarter of 2009. The stimulus will continue to trickle into the economy for the next couple of years, but as a concentrated force, it’s largely spent. Christina Romer, the chair of President Obama’s Council of Economic Advisers, said last fall, “By mid-2010, fiscal stimulus will likely be contributing little to further growth,” adding that she didn’t expect unemployment to fall significantly until 2011. That prediction has since been echoed, more or less, by the Federal Reserve and Goldman Sachs.

Sunday funny: I found this comment to be wholly hilarious. (Original post.)

I WISH I COULD WRITE LIKE DougJ:

Movie-goers are pickier about the believability of movies than pundits are about the believability of politicians’ claims.

UPDATED BELOW

The theory on how to best protect the public from private sector wrongdoing consists basically of regulation. From the Federal Reserve Act nearly a century ago to the Securities and Exchange Commission (SEC) during the Depression to the Environmental Protection Agency (EPA) in 1970, we have largely trusted that a federal authority could effectively monitor, and if necessary punish, businesses.

Regulation’s limitations became too obvious to deny during the Bush years. The EPA, not exactly a pit bull to begin with, became almost totally, laughably ineffective (via). To be fair, environmental protection has been derided by conservatives as business unfriendly, myopic, job killing do-gooderism run amok for decades. It is not surprising that the agency had trouble getting the widespread support needed to sustain real vigilance. Also, compared to some of its sister agencies the EPA was a paragon of rectitude.

Even under the best circumstances regulation is destined to be under perpetual assault from those who would benefit from its absence. If you look, for instance, at the way Goldman Sachs Group Inc. (which incidentally is an anagram for “a cad churning smog slop”) installed a revolving door between its boardroom and Washington, it becomes unsurprising that regulation of it has ceased (here is this week’s scandal).

The neutering of regulatory bodies may paradoxically cause those in them to have a positively exalted view of themselves. For example, here is Simon Johnson’s mild take on Goldman’s latest: “If the Federal Reserve were an effective supervisor, it would have the political will sufficient to determine that Goldman Sachs has not been acting in accordance with its banking license. But any meaningful action from this direction seems unlikely.” Contrast that with Minneapolis Fed President Narayana R. Kocherlakota’s almost messianic view of the Fed:

My theme here is that this improvement in our economic situation is attributable in large part to actions taken by the Federal Reserve. I will emphasize that the Federal Reserve was only able to undertake these actions because of the expertise and information it had acquired as a supervisor of the nation’s banks. My conclusion is that stripping the Federal Reserve of its supervisory role would needlessly put a Great Depression on the menu of possibilities for our country.

(He appears, by the way, to be another inflation crusader. Look at the last two paragraphs of page six for a truly bizarre scenario on the dangers of inflation. I particularly like the line “Suppose that households believe prices will rise.”)

In short, regulation has a spotty track record lately. Economist Barry Ritholtz acknowledged that and pointed to a new approach when he wrote a recent proposal “would not have prevented this crisis, but it would reduce taxpayer exposure to Wall Street speculation.” Since regulation depends on human intervention, it would be good to have a simple mechanism that reduced the public’s exposure to abuse.

Think about the surprisingly durable support for a public health insurance option. It bypasses regulation completely. It says to the industry: do what you want, charge what you want, chart your own course - we will not interfere; we’ll just be over here with our own operation that folks can pick if they want. Those who wish to reduce their exposure to the wonders of laissez faire capitalism can sign up. The rest can go with you. What rugged individualist could possibly object? (The main objection to it - that it would undercut the private sector and drive it out of business - raises the obvious question: then what value is the industry providing?)

Similarly, Brent Budowsky recently called for a “public option bank” that would offer a small menu of simple, ordinary services for those who prefer not to take their chances with Citibank or Bank of America. It would not impact the private sector in the slightest - no new taxes, regulations or hoops to jump through. It would just provide an alternative to those who wanted reduced exposure. Those with a taste for swashbuckling capitalism can throw in with Wall Street, those who prefer less excitement can have it.

The “quarantined risk” model will not work for everything. You cannot very well have a government protected patch of the environment and let industry turn the rest into a Superfund site, for example. It does mark the emergence of a new possibility, though, and one that would be an excellent hedge against failed regulation. If it keeps getting traction look for even its most innocuous expressions to be ferociously opposed, because it will represent not just a change in policy or political alignment, but a change in the way we think.

UPDATE: Ritholtz responds.