Poisoning the Well
I have read many times recently that Democrat's use of the budget reconciliation process to pass health care reform will "poison the well' for any future cooperation with Republicans in getting legislation passed. I fail to see how this is much of a threat. Republicans have shown so little appetite for compromise on any legislative efforts, their opposition is assumed. Threatening to withhold future cooperation only means they're going to continue the status quo. Democrats need to call their bluff and finish the legislation.
There was a time a few months ago when there was an opportunity for a grand bargain along the lines of the "group of 14" that broke a logjam on federal court nominations. That group consisted of seven Democrats and seven Rebublicans who broke party lines and agreed to end Democratic filibusters of certain Bush nominees in return for Rebublicans ending their consideration of doing away with the filibuster rule (funny how filibuster fortunes have turned).
When the health care reform bills were languishing a while back, Rebublicans were at the peak of their bargaining power. What a few Republican senators should have proposed at the time was an agreement to prevent filibusters of certain other Obama administration priorities in return for Democrats' agreement not to use the budget reconciliation process to pass health care reform. It would never have passed, but the administration could have been confident that other legislation would get through.
Now it's too late. Obama's very public second effort to save health care reform means they will not step back from this priority. Republican opposition to every bill will continue. The importance of the senators from Maine will rise again, and recruiting of Sen. Brown of Massachusetts on individual bills will be hot and heavy. The Democratic senators from Montana and Arkansas will bring home new highways and farm subsidies, and Sen. Schumer will get lots of practice on keeping the others in line. Little else will get passed. All that's left is the competing spin about who's to blame.
There was a time a few months ago when there was an opportunity for a grand bargain along the lines of the "group of 14" that broke a logjam on federal court nominations. That group consisted of seven Democrats and seven Rebublicans who broke party lines and agreed to end Democratic filibusters of certain Bush nominees in return for Rebublicans ending their consideration of doing away with the filibuster rule (funny how filibuster fortunes have turned).
When the health care reform bills were languishing a while back, Rebublicans were at the peak of their bargaining power. What a few Republican senators should have proposed at the time was an agreement to prevent filibusters of certain other Obama administration priorities in return for Democrats' agreement not to use the budget reconciliation process to pass health care reform. It would never have passed, but the administration could have been confident that other legislation would get through.
Now it's too late. Obama's very public second effort to save health care reform means they will not step back from this priority. Republican opposition to every bill will continue. The importance of the senators from Maine will rise again, and recruiting of Sen. Brown of Massachusetts on individual bills will be hot and heavy. The Democratic senators from Montana and Arkansas will bring home new highways and farm subsidies, and Sen. Schumer will get lots of practice on keeping the others in line. Little else will get passed. All that's left is the competing spin about who's to blame.
Supreme Court Inherits the Wind Passed by William Jennings Bryan
The Supreme Court's recent majority decision to grant a stay prohibiting the closed circuit broadcast of the proceedings of the Proposition 8 (gay marriage ban) trial in California was presented as being simply based upon the trial court's failure to follow its own guidelines for amending court rules. You have to read the dissent, however, to realize how political the majority had to have been to take the action they did. The dissent states that by six criteria the Supreme Court should have refused the stay.
Rather than address the merits of the case, I'll just say that the dissent appears to be more grounded in law and precedent. So why would the majority have ruled to keep the trial off the airwaves?
The Proposition 8 trial is a constitutional challenge against a California law passed by referendum which prohibits same-sex marriage. Its defenders are primarily Christian conservatives claiming to be protecting the historical definition and "sanctity of marriage". The challengers are led by gay rights activists bringing an equal protection argument against a law they believe is based on social bias.
Similarly, in 1925 the Scopes trial amounted to a constitutional challenge against a Tennessee law forbidding the teaching of evolution in school. Assisting in the prosecution of a teacher charged under the law, and by extension defending the law, was Williams Jennings Bryan, a three-time Democratic presidential nominee. The trial was highly publicized and was broadcast throughout the country. Bryan actually became a witness and set himself up (or was set up) as defender of the view that the Bible fully described man's creation. Although his testimony was legally meaningless and the judge terminated his cross-examination after only a couple of hours, the trial is partly remembered for the bombast of his testimony. Thirty years later the play "Inherit the Wind" was written based on the events of the Scopes trial.
The Supreme Court majority's decision to disallow broadcast of the Prop 8 trial should be seen as their cover of protection to anti-gay-marriage witnesses from any embarrassment they might suffer at the airing of their views at trial.
Rather than address the merits of the case, I'll just say that the dissent appears to be more grounded in law and precedent. So why would the majority have ruled to keep the trial off the airwaves?
The Proposition 8 trial is a constitutional challenge against a California law passed by referendum which prohibits same-sex marriage. Its defenders are primarily Christian conservatives claiming to be protecting the historical definition and "sanctity of marriage". The challengers are led by gay rights activists bringing an equal protection argument against a law they believe is based on social bias.
Similarly, in 1925 the Scopes trial amounted to a constitutional challenge against a Tennessee law forbidding the teaching of evolution in school. Assisting in the prosecution of a teacher charged under the law, and by extension defending the law, was Williams Jennings Bryan, a three-time Democratic presidential nominee. The trial was highly publicized and was broadcast throughout the country. Bryan actually became a witness and set himself up (or was set up) as defender of the view that the Bible fully described man's creation. Although his testimony was legally meaningless and the judge terminated his cross-examination after only a couple of hours, the trial is partly remembered for the bombast of his testimony. Thirty years later the play "Inherit the Wind" was written based on the events of the Scopes trial.
The Supreme Court majority's decision to disallow broadcast of the Prop 8 trial should be seen as their cover of protection to anti-gay-marriage witnesses from any embarrassment they might suffer at the airing of their views at trial.
Detroit Public Schools and Hope
The National Assessment of Educational Progress (NAEP), administered in association with the U.S. Department of Education, is used to measure what students know and can do in academic subjects. For the first time in the test's 40-year history, Detroit Public Schools students took part this year. The mathematics results for large urban districts were released last week. Detroit students scored the worst that any district's students had ever scored on the test.
Scoring the worst of urban districts is one thing, but scoring the worst of any district ever is something else entirely. Between two-thirds and three-quarters of the students in the combined grades did not reach "basic" skills, defined as those "that are fundamental for proficient work at each grade." We need to look at why this may have happened and what actions could possibly be taken to improve the competency of Detroit's public school students.
There are several potential causes for this: lack of adequate teaching resources; failure to devote teaching resources in the school hours available; failure by parents to enforce homework demands made on students; and kids that are actually not mentally equipped to learn the subject matter, possible due to "negative selection" of students left in the district. Additionally, there also may be an attitude throughout the district, and the city for that matter, that there really is no point in trying; that certain factions have rigged the system for profit and patronage and any hope of personal advancement is a waste of effort.
I'll mostly leave the teaching resources to someone else's musings. There should be comment out there already on that subject, and if there's not, that's a problem, too. I'll start with the students.
Is it possible that only the "dumb" kids are left? Talented students have been leaving the district for as long as there have been well-equipped private or suburban schools and parents with the resources to get their kids into them. Eventually this leads to just the poor kids left in the public schools. Studies have long confirmed a strong correlation between income level and academic achievement, so the deficit of achievement should not be a surprise, even if the magnitude is.
Even within the district, city-wide "magnet" schools siphon off talented students. Neighborhood schools are left with the students whose performance, potential, or parents could not get them into a magnet school. Without a seed population of good students, the rest of the kids may have little way of recognizing exactly what is good effort and achievement. They may achieve even less of their natural capability than they would have with better examples next to them in class.
This gets us into the "nature vs. nurture" argument, except in this case both may be in play and we'd just be arguing about which is more to blame. In my view, each person has a natural maximum achievement that they are capable of reaching. (They never reach it, but I'll get to that in a moment.) There is wide variability between different people on how high their natural maximum is. Joe may have a natural ceiling that is much lower than Mary's, and Pat's may be way higher than Mary's. Together, and along with everybody else, they define that bell curve of people's innate ability.
Similarly, the environments in which students exercise and develop that ability vary widely. Some environments offer challenging, individualized attention, while others are basically the babysitting arena to which parents send their kids each day.
So they both vary - what's my point? I believe that the fraction of our natural ability that we actually achieve in life is very small, that practically none of us come anywhere near the maximum that we could achieve. This means that the variability of natural talent is diminished as a factor in determining our level of achievement. Were we approaching our maximums, the less able among us would reach a ceiling and stop progressing, while the more able would continue on to their higher maximums. As I don't believe that to be the case, the environments in which we learn take on more importance in determining how well we do.
If this is true, "negative selection" doesn't mean as much. So what if the natural abilities of the group of kids that remain in the district are less, on average, than those that left. Their maximum attainable achievement is many times higher than they are at right now, so improving their learning environment will help draw that out.
One approach would be to try to establish mentoring programs where good and good-hearted students from ANY district are rewarded (with credits or items of real value, like college vouchers or laptops) to come to neighborhood DPS schools on a regular basis and work with the students. Students will respond to good, real role models.
Another tactic would be to reward those teachers who demonstrably raise students' performance, and to withhold raises from those who do not. The idea that we should allow a teacher to "graduate" to higher pay just by showing up is as regrettable as promoting a student to the next grade level merely because s/he showed up.
One thing that that ass**** crook Kwame Kilpatrick got right was education. He gave two masterful speeches during his mayoralty that implored parents to start supporting their kids in education, mostly by enforcing attendance, homework and citizenship. He was right. I'm not a parent in the district, but somehow I think that to a large degree this hasn't happened yet.
Talking about the environment for Detroit's schoolkids eventually gets us into what they might strive for. The belief that achievement rewards success can be powerful. So what signals are the city and district sending to students? It appears to me that they're trying to tell students that if you cheat better than the rest, you'll be rewarded. That if you holler out of turn at enough school board meetings, you'll get enough camera time to get elected to that same board and earn a manager's salary for it. If you are friends with someone who gets elected to a city position, you'll get hired to city jobs ahead of people who actually trained for those positions. That if you're friends with someone higher up, you won't actually have to show up for your job either. That if you do your job honestly and report on malfeasance, you'll be fired for it (and threatened with worse). That if you shake down vendors vying for city and district contracts, you'll get wads of cash and be in position to repeat it. That if you set up a sham company to bid on city and district contracts that get approved by friends of yours, you and your friends will get a cut and it will all be paid for by someone else. How can the city's students NOT take that message from everything we've seen in Detroit for the last 35 years?
We need to make sure Robert Bobb's protection detail is manned and paid for by the state, because we need him to keep rooting out the crooks in the school system. We need the school board to keep acting like they have so the state will have cause to kick them out (again) and appoint an academic manager. We need the feds to keep up their prosecution of graft in the city. We need the city of Detroit to declare bankruptcy so that the state can take over its operations. We need Jennifer Granholm or her successor steer clear of politics (and anyone with any connection to Detroit government for that matter) in naming an administrator after the bankruptcy.
Why am I offering all these necessities predicated on replacing city and district hierarchies? Because the crookedness is too ingrained in them now for any hope of them reforming themselves. We've just seen the tip of the iceberg in corruption. (I've been told by someone who experienced it personally of malfeasance by a guy I went to grade school with, and have not seen it make the papers. He was relatively new in the position, so he obviously learned it from someone else there.)
The slate needs to wiped clean by someone else. They won't do it themselves.
Scoring the worst of urban districts is one thing, but scoring the worst of any district ever is something else entirely. Between two-thirds and three-quarters of the students in the combined grades did not reach "basic" skills, defined as those "that are fundamental for proficient work at each grade." We need to look at why this may have happened and what actions could possibly be taken to improve the competency of Detroit's public school students.
There are several potential causes for this: lack of adequate teaching resources; failure to devote teaching resources in the school hours available; failure by parents to enforce homework demands made on students; and kids that are actually not mentally equipped to learn the subject matter, possible due to "negative selection" of students left in the district. Additionally, there also may be an attitude throughout the district, and the city for that matter, that there really is no point in trying; that certain factions have rigged the system for profit and patronage and any hope of personal advancement is a waste of effort.
I'll mostly leave the teaching resources to someone else's musings. There should be comment out there already on that subject, and if there's not, that's a problem, too. I'll start with the students.
Is it possible that only the "dumb" kids are left? Talented students have been leaving the district for as long as there have been well-equipped private or suburban schools and parents with the resources to get their kids into them. Eventually this leads to just the poor kids left in the public schools. Studies have long confirmed a strong correlation between income level and academic achievement, so the deficit of achievement should not be a surprise, even if the magnitude is.
Even within the district, city-wide "magnet" schools siphon off talented students. Neighborhood schools are left with the students whose performance, potential, or parents could not get them into a magnet school. Without a seed population of good students, the rest of the kids may have little way of recognizing exactly what is good effort and achievement. They may achieve even less of their natural capability than they would have with better examples next to them in class.
This gets us into the "nature vs. nurture" argument, except in this case both may be in play and we'd just be arguing about which is more to blame. In my view, each person has a natural maximum achievement that they are capable of reaching. (They never reach it, but I'll get to that in a moment.) There is wide variability between different people on how high their natural maximum is. Joe may have a natural ceiling that is much lower than Mary's, and Pat's may be way higher than Mary's. Together, and along with everybody else, they define that bell curve of people's innate ability.
Similarly, the environments in which students exercise and develop that ability vary widely. Some environments offer challenging, individualized attention, while others are basically the babysitting arena to which parents send their kids each day.
So they both vary - what's my point? I believe that the fraction of our natural ability that we actually achieve in life is very small, that practically none of us come anywhere near the maximum that we could achieve. This means that the variability of natural talent is diminished as a factor in determining our level of achievement. Were we approaching our maximums, the less able among us would reach a ceiling and stop progressing, while the more able would continue on to their higher maximums. As I don't believe that to be the case, the environments in which we learn take on more importance in determining how well we do.
If this is true, "negative selection" doesn't mean as much. So what if the natural abilities of the group of kids that remain in the district are less, on average, than those that left. Their maximum attainable achievement is many times higher than they are at right now, so improving their learning environment will help draw that out.
One approach would be to try to establish mentoring programs where good and good-hearted students from ANY district are rewarded (with credits or items of real value, like college vouchers or laptops) to come to neighborhood DPS schools on a regular basis and work with the students. Students will respond to good, real role models.
Another tactic would be to reward those teachers who demonstrably raise students' performance, and to withhold raises from those who do not. The idea that we should allow a teacher to "graduate" to higher pay just by showing up is as regrettable as promoting a student to the next grade level merely because s/he showed up.
One thing that that ass**** crook Kwame Kilpatrick got right was education. He gave two masterful speeches during his mayoralty that implored parents to start supporting their kids in education, mostly by enforcing attendance, homework and citizenship. He was right. I'm not a parent in the district, but somehow I think that to a large degree this hasn't happened yet.
Talking about the environment for Detroit's schoolkids eventually gets us into what they might strive for. The belief that achievement rewards success can be powerful. So what signals are the city and district sending to students? It appears to me that they're trying to tell students that if you cheat better than the rest, you'll be rewarded. That if you holler out of turn at enough school board meetings, you'll get enough camera time to get elected to that same board and earn a manager's salary for it. If you are friends with someone who gets elected to a city position, you'll get hired to city jobs ahead of people who actually trained for those positions. That if you're friends with someone higher up, you won't actually have to show up for your job either. That if you do your job honestly and report on malfeasance, you'll be fired for it (and threatened with worse). That if you shake down vendors vying for city and district contracts, you'll get wads of cash and be in position to repeat it. That if you set up a sham company to bid on city and district contracts that get approved by friends of yours, you and your friends will get a cut and it will all be paid for by someone else. How can the city's students NOT take that message from everything we've seen in Detroit for the last 35 years?
We need to make sure Robert Bobb's protection detail is manned and paid for by the state, because we need him to keep rooting out the crooks in the school system. We need the school board to keep acting like they have so the state will have cause to kick them out (again) and appoint an academic manager. We need the feds to keep up their prosecution of graft in the city. We need the city of Detroit to declare bankruptcy so that the state can take over its operations. We need Jennifer Granholm or her successor steer clear of politics (and anyone with any connection to Detroit government for that matter) in naming an administrator after the bankruptcy.
Why am I offering all these necessities predicated on replacing city and district hierarchies? Because the crookedness is too ingrained in them now for any hope of them reforming themselves. We've just seen the tip of the iceberg in corruption. (I've been told by someone who experienced it personally of malfeasance by a guy I went to grade school with, and have not seen it make the papers. He was relatively new in the position, so he obviously learned it from someone else there.)
The slate needs to wiped clean by someone else. They won't do it themselves.
What Program Did Panetta Cancel?
On 10 July 2009 five current inspectors general of US intelligence agencies released a report summarizing their investigation of the President's Surveillance Program, the Bush administration program that included the warrantless wiretapping exposed by the New York Times in 2005.
That same day a letter from Democratic members of the House Intelligence Committee to CIA Director Leon Panetta publicly reavealed that the CIA hid from Congress the existence of a secret program on orders from former Vice President Cheney. Days later it emerged that the CIA had planned kill squads that were supposed to target al Qaeda leaders in other countries, and that the program never went fully operational. This opened the floodgates of media opinion based on the assumption that the killing squads were the secret program Cheney ordered concealed.
The idea that these kill squads were the secret program that piqued Congress' ire, the one that generated all the interest when the letter revealed Panetta's cancellation of it, strains credibility.
First, why would the administration in 2001 hide a terrorist-killing program from the leaders of Congress and its Intelligence committees, the so-called "Gang of Eight"? Everyone at the time of the program's creation wanted the US to take action to stop terrorists. Congress would have been pleased to learn about and keep quiet about such operations. And numerous other like-minded operations were openly reported in subsequent years. Why all the secrecy about one that hadn't gone operational?
Second, who wouldn't think that the CIA was killing terrorists in other countries? Of course they are. So are numerous other "black" teams from defense intelligence units in the armed forces. This is what everyone assumes was authorized by the war powers resolution Congress gave to former President Bush after 9/11, a resolution which hasn't been rescinded. This is what the CIA has done for decades.
Third, there is an incongruity in the language used between the first days of the leak and the later reports of the assassination program. The coincidence of the PSP report and the revelation of Panetta's confession to Congress is an indicator that the terminated program was a part of the PSP, not assassination squads.
My hunch is that when the letter was made public, the continued sensitivity of the program required that a false but believable alternative be concocted to take its place. The terrorist-killing program fit that bill. Since the public can read in the papers that we are regularly killing terrorists with drones and missiles, they can still be confident that we haven't given up the offensive. But this one program, which supposedly had legal problems stemming from operating without authorization in the sovereign territory of our allies, could be sacrificed.
It seems to have worked; the story has evolved relatively quickly from the shock value of kill squads into discussions about how much Congressional oversight is required. As that is a boring argument, it too will soon fade away and the media's interest will shift to other matters. In a matter of about three weeks the whole story will have run its course.
But all of that leaves the question of what really was the program that Panetta terminated and then reported to the Gang of Eight. The viral spread of the first stories and a leaker's reference to "beyond wiretapping" indicates that it is related to and more publicly objectionable than the known program of tapping the international communications of certain foreign individuals. Whatever it is, if and when it is made public it will generate a firestorm of controversy about civil liberties and the power of the US government to monitor its citizens.
Finally, the story also brings into focus the Obama administration's nuanced and careful treatment of the balance between national security and governance. Reporting the program and its termination to Congress was a legal obligation, and the congressional intelligence committees are under legal obligation not to reveal classified matters. Until we have evidence of programs that Obama hid from Congress, we can assume that they're trying to show that they're following the law. But there is no way that the diversion of the storyline, from the mystery of what the secret program was to debating an oversight and balance of powers issue, was done without the active participation of the White House. They clearly saw the need to smother the fire that the Democratic leadership in Congress started by publishing the cancellation of a secret program.
The administration's legal disclosure obligation extends only to Congress, not to the American public. The administration clearly desires, for the moment anyway, the continued secrecy of the related "Other Intelligence Activities" activities in the report by the inspectors general. We can only hope that this is a temporary political decision, and that fuller release of the more invasive details of the PSP will await an environment when they can be put to more damaging use.
That same day a letter from Democratic members of the House Intelligence Committee to CIA Director Leon Panetta publicly reavealed that the CIA hid from Congress the existence of a secret program on orders from former Vice President Cheney. Days later it emerged that the CIA had planned kill squads that were supposed to target al Qaeda leaders in other countries, and that the program never went fully operational. This opened the floodgates of media opinion based on the assumption that the killing squads were the secret program Cheney ordered concealed.
The idea that these kill squads were the secret program that piqued Congress' ire, the one that generated all the interest when the letter revealed Panetta's cancellation of it, strains credibility.
First, why would the administration in 2001 hide a terrorist-killing program from the leaders of Congress and its Intelligence committees, the so-called "Gang of Eight"? Everyone at the time of the program's creation wanted the US to take action to stop terrorists. Congress would have been pleased to learn about and keep quiet about such operations. And numerous other like-minded operations were openly reported in subsequent years. Why all the secrecy about one that hadn't gone operational?
Second, who wouldn't think that the CIA was killing terrorists in other countries? Of course they are. So are numerous other "black" teams from defense intelligence units in the armed forces. This is what everyone assumes was authorized by the war powers resolution Congress gave to former President Bush after 9/11, a resolution which hasn't been rescinded. This is what the CIA has done for decades.
Third, there is an incongruity in the language used between the first days of the leak and the later reports of the assassination program. The coincidence of the PSP report and the revelation of Panetta's confession to Congress is an indicator that the terminated program was a part of the PSP, not assassination squads.
My hunch is that when the letter was made public, the continued sensitivity of the program required that a false but believable alternative be concocted to take its place. The terrorist-killing program fit that bill. Since the public can read in the papers that we are regularly killing terrorists with drones and missiles, they can still be confident that we haven't given up the offensive. But this one program, which supposedly had legal problems stemming from operating without authorization in the sovereign territory of our allies, could be sacrificed.
It seems to have worked; the story has evolved relatively quickly from the shock value of kill squads into discussions about how much Congressional oversight is required. As that is a boring argument, it too will soon fade away and the media's interest will shift to other matters. In a matter of about three weeks the whole story will have run its course.
But all of that leaves the question of what really was the program that Panetta terminated and then reported to the Gang of Eight. The viral spread of the first stories and a leaker's reference to "beyond wiretapping" indicates that it is related to and more publicly objectionable than the known program of tapping the international communications of certain foreign individuals. Whatever it is, if and when it is made public it will generate a firestorm of controversy about civil liberties and the power of the US government to monitor its citizens.
Finally, the story also brings into focus the Obama administration's nuanced and careful treatment of the balance between national security and governance. Reporting the program and its termination to Congress was a legal obligation, and the congressional intelligence committees are under legal obligation not to reveal classified matters. Until we have evidence of programs that Obama hid from Congress, we can assume that they're trying to show that they're following the law. But there is no way that the diversion of the storyline, from the mystery of what the secret program was to debating an oversight and balance of powers issue, was done without the active participation of the White House. They clearly saw the need to smother the fire that the Democratic leadership in Congress started by publishing the cancellation of a secret program.
The administration's legal disclosure obligation extends only to Congress, not to the American public. The administration clearly desires, for the moment anyway, the continued secrecy of the related "Other Intelligence Activities" activities in the report by the inspectors general. We can only hope that this is a temporary political decision, and that fuller release of the more invasive details of the PSP will await an environment when they can be put to more damaging use.
Eliminating Mark-to-Market is a Stupid Idea
MarketWatch reported yesterday (11 March 2009) that the "Republican Study Committee", a group of conservative Republican lawmakers, is recommending the elimination of mark-to-market, or fair value, rules which require financial institutions to value their assets at the price they would currently fetch in the market. They seem to believe that banks will be considered well-capitalized if only they can continue overstating their net assets.
Their argument relies on the perception that the market for asset-backed securities is "frozen". This term is a smoke-screen. The reason that banks consider the market frozen is that they cannot get bids for their assets at anywhere near what they want for them. There is capital on the sidelines that would seek to acquire these assets, but the continuing recession makes the revenue stream for them, mortgage payments, less and less certain. So in this highly risky scenario the assets are worth only pennies on the dollar. Banks don't like that answer, so they're saying the market is frozen.
What is their alternative, though? If they admit that the long-term prospects for getting value out of their assets is very low, they concede that their balance sheet is teetering toward insolvency. If they contend that those assets have greater intrinsic value than the market currently recognizes, they get to keep their jobs for a little longer.
That is not how investors are protected, however. Companies are required to report the financial state in quarterly filings. Auditors are required to sign off on those results. And ratings agencies are supposed to look at the filings and render objective opinions about the likelihood of that institution's being able to make good on their obligations. It all starts with what the banks report on themselves. The end-run around mark-to-market rules leaves auditors and ratings agencies little regulatory justification for disputing a company's inflated opinion of the value of its assets, and therefore leaves potential investors and lenders open to greater losses.
The weakening of mark-to-market rules is corporate welfare, plain and simple. For all Republicans' moaning about entitlements and bailouts, here they're tossing a great multi-trillion dollar bone to banks at the expense of investors and future economic growth.
Their argument relies on the perception that the market for asset-backed securities is "frozen". This term is a smoke-screen. The reason that banks consider the market frozen is that they cannot get bids for their assets at anywhere near what they want for them. There is capital on the sidelines that would seek to acquire these assets, but the continuing recession makes the revenue stream for them, mortgage payments, less and less certain. So in this highly risky scenario the assets are worth only pennies on the dollar. Banks don't like that answer, so they're saying the market is frozen.
What is their alternative, though? If they admit that the long-term prospects for getting value out of their assets is very low, they concede that their balance sheet is teetering toward insolvency. If they contend that those assets have greater intrinsic value than the market currently recognizes, they get to keep their jobs for a little longer.
That is not how investors are protected, however. Companies are required to report the financial state in quarterly filings. Auditors are required to sign off on those results. And ratings agencies are supposed to look at the filings and render objective opinions about the likelihood of that institution's being able to make good on their obligations. It all starts with what the banks report on themselves. The end-run around mark-to-market rules leaves auditors and ratings agencies little regulatory justification for disputing a company's inflated opinion of the value of its assets, and therefore leaves potential investors and lenders open to greater losses.
The weakening of mark-to-market rules is corporate welfare, plain and simple. For all Republicans' moaning about entitlements and bailouts, here they're tossing a great multi-trillion dollar bone to banks at the expense of investors and future economic growth.