Category: Equitablog

Should-Reads:

1. Adrianna Macintyre: Another red state just caved on Obamacare: “So, is Indiana signing up for Obamacare’s Medicaid expansion? Yep, but don’t expect the governor to frame it that way. ‘From the very beginning of my tenure as governor, we’ve been saying no to the Affordable Care Act in Indiana’, Pence said at today’s press briefing. ‘Medicaid is not a program we need to expand, it is a program we need to change’. Pence has proposed to expand an existing state program, the Healthy Indiana Plan, to extend affordable coverage to all Hoosiers below 138 percent of the federal poverty line. Indiana would pay for that expansion using Obamacare’s Medicaid expansion funds. Healthy Indiana is popular with its beneficiaries, but the program would have to change to become Obamacare-compliant. Right now, for example, it imposes annual and lifetime dollar limits, doesn’t cover maternity care, and requires monthly contributions from most enrollees. The Department of Health and Human Services made it clear that some of these rules were unacceptable if Indiana wanted federal funds for a full Medicaid expansion. He’s billing this move as an ‘alternative’ to Medicaid expansion, because the state is seeking permission from the feds revamp the Healthy Indiana Plan. But Indiana’s special expansion still needs to play by Obamacare’s rules…”

2. Barry Ritholtz: What Does “This Time Is Different” Really Mean?: “Valuation always matters…. What you pay for a stock or index will ultimately determine the return it generates over time. What is never different is the behavior of investors. It is always driven by greed and fear. That is simply human nature at work. We all understand the basic formula for valuation… P/E…. ‘Stocks can be defined as cheap (the rule of 20, which adds the inflation rate to a stock index’s price-earnings ratio) or fairly priced (forecast P/E), somewhat overpriced (12-month trailing P/E) or wildly overpriced (Shiller’s cyclically adjusted P/E).’… Templeton was not suggesting was for investors to ignore the many factors that actually impact valuation… because they are ‘different’ than they were previously…. Should one ignore inflation rates of 12% or bond yields of 2%? Of course not. This is a nuanced but important difference. In 1974, the P/E ratio of the S&P500 was 7.33, but inflation was running at 11% and the 10 Year bond yield was 7.4%…. Identifying when metrics that matter change is very different than recognizing when the collective madness of the crowd no longer believes valuation makes a difference…”

3. Isaac Chotiner: Narendra Modi’s Election and the Future of India: “It’s easy to describe Modi to people who have never heard him speak, or read about his past. He is a depressingly familiar type. He is secretive; he is vindictive; he has creepily authoritarian tendencies (a woman in Gujarat was placed under surveillance by Modi for months in a controversy that somehow didn’t seem to register with voters); he ricochets between aggression and self-pity in a manner familiar to anyone who has heard nationalists of any stripe; and he is simply incapable of sounding broad-minded. During the 2002 Gujarat riots, hundreds of people (mostly Muslims) were killed in communal violence on Modi’s watch. (This is why he has been denied a United States visa for many years.) The extent of Modi’s role in spurring on the horrors has been extensively debated; suffice it to say that he once said his only regret about the mass murders was that he didn’t handle the media well enough. Modi is also known for his close ties to unsavory, right-wing Hindu fanatics, notably in the Rashtriya Swamyamsevak Sangh (RSS), which he joined when he was very young. Arguably Modi’s closest confidante is Amit Shah, who has been accused of numerous crimes, including murder, and whose attitude to Muslims might be euphemistically described as unwelcoming. (He likes to talk about ‘appeasement’ of Muslims and said this election was about ‘taking revenge’ on them.)”

Should Be Aware of:

Continue reading “Things to Read on the Afternoon of May 16, 2014” →

Zach Goldfarb (2012): Economists, Obama administration at odds over role of mortgage debt in recovery: “”One year and one month before President Obama won reelection…

…he invited seven of the world’s top economists to a private meeting in the Oval Office to hear their advice on what do to fix the ailing economy…. Nearly all said Obama should introduce a much bigger plan to forgive part of the mortgage debt owed by millions of homeowners who are underwater on their properties….

Obama was reserved in response, but Treasury Secretary Timothy F. Geithner interjected that he didn’t think anything of such ambition was possible. “How do we get this done through Congress?” he asked. “What could we actually do that we haven’t done?”

Fits awkwardly with the sentence in Tim Geithner’s memoirs about how he wishes the administration had done more. What, exactly? Suppose that Geithner had persuaded Obama to nominate a Glenn Hubbard capable of building bipartisan congressional coalitions to run the FHFA and thus mortgage refinancing in January 2009. What more does Geithner now wish had been done?

John Scalzi: Freshman Freakouts: “This piece in the New York Times magazine…

…talking about the differences in graduation rates between the kids in the upper economic levels (and the ones whose parents went to college) and the ones at lower levels…. Roughly speaking, one of the best indicators of whether you’ll finish college at all is whether your parents did; without that knowledge base (and economic leg up) things become rather more difficult. The story covers how the University of Texas…. The article interested me because to no small extent it is about me, or at least people like me…. I had, in fact, gone through that upheaval and transition period–but in high school, not in college. I went to a private college prep boarding school as a scholarship student, and my freshman year there was a mess….

What kept me there, as it happened, was what UT is working on as well: mentoring, direct intervention and an unwillingness to let me allow my own insecurities convince me that I didn’t belong. I was fortunate to have a number of people make me their project, basically. And it worked…. I was fortunate to have my crises early; the thought of possibly screwing up at the college level fills me with a bit of retroactive dread. I’m glad University of Texas is trying things to keep those kids from the lower rungs of the ladder from falling off entirely. I approve, and I hope it continues to work…

The remarkable thing about this extended passage by Tim Geithner is the lack of any acknowledgment anywhere that Larry Summers was, in fact, right in his view: the Obama administration course as of March 15, 2009 was, in fact, putting us on the road to replicating and lost decades. No acknowledgement of that at all…

Tim Geither: Stress Test: “HORSHAM WAS as cold as one would expect of England in March….

I was already run down after months without much sleep…. I caught some kind of flu. On the military plane that took us home Saturday night, I was coughing, aching, and unhappy. The summit had not been a great success…. I had to review materials for a meeting the next day with the President and his economic and political advisers, many of whom were deeply skeptical about our financial repair plans. We would have to make the case for staying the course. I’m not a screamer, but I got a bit loud that night on the phone with Lee and Kabaker, and not just because the reception over the Atlantic was spotty. I was irked by a PowerPoint presentation that they had negotiated with Larry while I was away. The offending slides confronted the hypothetical of a bank that couldn’t raise enough private capital to fill the hole identified by its stress test: What would we do if we had to inject so much TARP capital that the bank was effectively nationalized?

Continue reading “From Tim Geithner: Stress Test: Thursday Focus: May 15, 2014” →

Should-Reads:

1. Jason Millman: Another Conservative Governor Mike Pence of Indiana Finds a Way to Expand Medicaid: “Pence last year insisted that he would only expand coverage if he could do it through the Healthy Indiana Plan…. The Obama administration maintained that Indiana couldn’t expand Medicaid through HIP because the program had an enrollment cap, and… cost-sharing… [that was] problematic. HIP’s design has been praised by conservatives for requiring Medicaid beneficiaries to be more conscious consumers because they take more financial responsibility for their care…. Pence will lift HIP enrollment caps, opening up the program to working-age adults earning less than 138 percent of the federal poverty level…. Under the expanded program, there will be two levels of coverage…. The lower coverage level requires co-payments for services, instead of monthly premiums. There are no co-pays, though, for preventive care and family planning services…. The HIP deductible is increasing from $1,100 to $2,500, but Indiana is covering those extra costs…. While [Republican] Obamacare opponents have criticized high-deductible individual plans under the health-care law, Pence says the HIP high-deductible plans are an intentional design feature…. Starting in 2016, Indiana will offer a new employer-based option. Those eligible for HIP can choose to enroll in the state program, or they can opt for a state contribution to help with the cost of employer-sponsored insurance. The choice is theirs…”

2. Duncan Black: Mark Rubio’s Pension Plan: “Raise the [Social Security] retirement age. Cut [Social Security] benefits for people on the upper end (the only way this saves money is if you cut the benefits of people who don’t make all that much money). And this: ‘Rubio wants to open up the federal Thrift Savings Plan–which is available to members of Congress and their staff–to people who don’t have access to a retirement plan through their employers. Similar to a 401(k), the thrift plan lets workers contribute up to $17,500 of their pay annually before taxes in a retirement account. The thrift savings plan also comes with lower fees than what most consumers are charged through private defined-contribution plans, Rubio said. “The twisted irony is that members of Congress–who are employees of the citizens of the United States–have access to a superior savings plan, while many of their employers–the American people–are often left with access to no plan at all,” Rubio said during the speech.’ Oh the twisted irony that a government plan is superior to private sector plans. Such twisted irony. Anyway, opening up the TSP is fine, but it isn’t going to help low income people because the problem for low income people is that they have low incomes…”

3. Nicholas Barberis, Robin Greenwood, Lawrence Jin, and Andrei Shleifer: X-CAPM: An Extrapolative Capital Asset Pricing Model: “More interesting is rational traders’ response to this development. We find that the rational traders do not aggressively counteract the overvaluation caused by the extrapolators. This is because they reason as follows. The rise in the stock market caused by the good cash-flow news–and by extrapolators’ reaction to it–means that, in the near future, extrapolators will continue to have bullish expectations for the stock market: after all, their expectations are based on past price changes, which, in our example, are high. As a consequence, they will continue to exhibit strong demand for the stock market in the near term. This means that, even though the stock market is overvalued at time t, its returns in the near future will not be particularly low–they will be bolstered by the ongoing demand from extrapolators. Recognizing this, the rational traders do not sharply decrease their demand at time t; they only mildly reduce their demand. Put differently, they only partially counteract the overpricing caused by the extrapolators…”

Should Be Aware of:

Continue reading “Things to Read on the Morning of May 15, 2014” →

Mark Thoma sends us to Lawrence H. Summers: The Inequality Puzzle: “Piketty’s treatment of inequality is perfectly matched to its moment….

His work richly deserves all the attention…. Painstaking empirical research… transformed political discourse… a Nobel Prize-worthy contribution… elegant framework for making sense of a complex reality… theorizing is bold and simple and hugely important if correct…. I have serious reservations about Piketty’s theorizing as a guide to understanding the evolution of American inequality…. Piketty makes a major contribution by putting forth a theory of natural economic evolution under capitalism…. Books that represent the last word on a topic are important. Books that represent one of the first words are even more important. By focusing attention on what has happened to a fortunate few among us, and by opening up for debate issues around the long-run functioning of our market system, Capital in the Twenty-First Century has made a profoundly important contribution.

Michael Lewis: ‘Stress Test,’ by Timothy F. Geithner – NYTimes.com: “The story Geithner goes on to tell blames everyone and no one.

The crisis he describes might just as well have been an act of God. Basically no one noticed what was happening inside the financial system until after it happened. A few of the important people with a privileged view expressed concerns about the risks being taken, but most said nothing. Geithner counts himself in the minority. ‘I began asking questions about capital: Do our banks really have enough?’ he writes, adding, ‘I was more worried than many of my colleagues, but I was not nearly worried enough’. His role in the run-up to the crisis was a bit like that of first mate on the Titanic, after the ship has been put on irreversible autopilot, and the captain has gone off to drink with the rich guys in first class…. He is immediately faced with an appearance problem: Before he can save any women and children, he has to rescue the drunks in first class who owned all the lifeboats….

Geithner has little sympathy for those who wanted to see Wall Street bankers held accountable for whatever it was they had done. ‘Old Testament vengeance’ is his pet phrase…. He thinks it was a mistake, for example, to allow Lehman Brothers to fail in September 2008, and writes that he would have prevented it if he could have. (He claims the Treasury and Federal Reserve lacked the authority to save it.)… Geithner sees the government’s response to the financial crisis mainly as a great success… clearly thinks people ignore the facts and judge with feeling rather than reason…. He finds it silly that many people believe Dodd-Frank changed nothing important. (Yet he never explains why the roughly 5 percent capital ratio it demands of the big banks is anything like a magic number for bank safety — and he does not mention the powerful case recently made by the economists Anat Admati and Martin Hellwig that the right number is at least 20 percent.)… Geithner seems genuinely to believe that the details of the behavior inside the financial industry are largely irrelevant…. But he doesn’t begin to explain why, if investors were so numb to risk, Wall Street went to such lengths to disguise that risk…. Finally, he seems to believe that the American financial system is now more or less fully reformed….

But that’s the wrong note to end on…. I doubt many readers will put his book down and think the man did anything but his best. On his feet he might have stammered and wavered. That in itself was always a sign he was unusually brave.”

Gabriel Sherman: Arthur Sulzberger, Jr., and Jill Abramson: “Sulzberger’s vague suggestion of ‘management’ issues only intensified the vortex of speculation…

…and a search for a single smoking gun–a conflict or breach so serious it would explain Sulzberger’s dismissal of his historic hire [Jill Abramson]…. “The unbelievable thing is that there actually is no ‘cause’ for this–no single thing, nothing,” a colleague said. “It was just a lot of accumulated backbiting.” As in many matters involving the executive editor of the New York Times, the story is as much about Arthur Sulzberger Jr. as his employee…. Abramson’s appointment in June 2011 triggered a flurry of positive profiles–which seemed to bother Sulzberger. “He does not like people who promote themselves,” a person close to Sulzberger said. “There was a threshold that was crossed… an interview she did with Alec Baldwin.”…

After a prolonged search in which the Times was without a CEO, casting an uncomfortable spotlight on Sulzberger, he finally chose former BBC director general Mark Thompson…. Abramson sent Matthew Purdy, a hard-charging investigative reporter, to London to examine Thompson’s role in the Jimmy Savile scandal at the BBC. Abramson’s relationship with the two executives never recovered. “Mark Thompson was fucking pissed,” a source explained. “He was really angry with the Purdy stuff.” So was Sulzberger. “He was livid, in a very passive-aggressive way. These were a set of headaches Jill had created for Arthur.”…

Other dynamics may have been in play, too…. Arthur’s son, Arthur Gregg Sulzberger… thought to be his probable successor, was by the end of his fact-finding intimately aware of feelings (and dysfunction) in the newsroom to an extent that has often eluded the Sulzbergers (most notably during the Raines era).  Still, it was the cold abruptness of the firing that has the newsroom stunned…. “This is incredibly un-Times-ian,” one female staffer told me. “It’s an undignified, unceremonious way to handle this. There’s many people who feel that.”