Things to Read on the Morning of April 15, 2014

April 15, 2014

Must-Reads:

  1. Felix Salmon: Yes, the SEC Was Colluding with Banks on CDO Prosecutions: “Back in 2011, I asked whether the SEC was colluding with banks on CDO prosecutions. And now, thanks to an American Lawyer Freedom of Information Request, we have the answer: yes, they were. This comes as little surprise: it beggared belief, after all, that every bank would end up being prosecuted for one and only one CDO. But now we have chapter and verse…. It’s quite impressive how quickly and accurately Goldman nailed the amount of money that it would have to pay the SEC to settle the case: when it took three months to come to the $550 million settlement, I for one assumed that Goldman had to be dragged kicking and screaming to that point. In fact, however, Goldman was happy to offer half a billion dollars right off the bat. The tough part of the negotiation was… over the question of whether the SEC, with the Abacus prosecution successfully under its belt, would then go after Goldman for a dozen other deals which were functionally equivalent. The answer was a clear no… the SEC quietly assured Goldman–but not the public at large–that none of those deals would result in any charges. And with the Goldman deal now public knowledge, we can assume that the same nod-and-a-wink deal was struck with all the other one-and-only-one CDO bank prosecutions: Citigroup, JP Morgan, Merrill Lynch (which evidently included Bank of America), Mizuho Securities, Wachovia, Wells Fargo, UBS…. Basically, there’s a CDO lottery, and, thanks to the way in which the SEC cozied up to the big banks, the average CDO investor has a very small chance of having won it…”

  2. Ezra Klein: The Right Can’t Admit that Obamacare Is Working: “Obamacare’s successes are… conservatism’s successes. The individual mandate is a conservative idea–and it’s working. Liberals were skeptical that private insurers would compete on price even absent a public option–but they are. High-deductible health plans are a longtime conservative solution for health costs–and Obamacare is spreading them far and wide. But conservatives can’t take credit for any of this, much less build on it…. Many think Obamacare is basically working despite the Obama administration’s best efforts. The roll-out really was a disaster, the law remains unpopular, and estimations of the Obama administration’s competence are still low. The public would gladly flock to a political party that had a real plan for improving Obamacare, and a serious claim to being able to manage it more professionally. Luckily for the Obama administration, Obama Derangement Syndrome ensures Republicans are still far, far away from being that party.”

  3. Daniel Kuehn: Strong and Weak Forms of Gender Pay Gap Skepticism: “Critics assert… that invocation of the gender pay gap is usually of the form ‘the entire 23% gap is discrimination by employers’. Rarely is any evidence offered that this is what most people claim…. Strong claim: The conditional difference in means is the amount of discrimination between men and women in pay and therefore there is little discrimination because women choose different occupations, majors, etc. Weak claim: The conditional difference in means is the amount of discrimination between men and women in pay and therefore there is little discrimination but there might be other social problems we don’t like…. So what are the issues with Steve’s post?… You can’t simply control for occupation and major and call it a day because people select into occupations and majors based on expected wages, and that selection process influences the observed wage distribution…. The framing problem…. Steve uses ‘discrimination’ to refer to discrimination in the salary determination and ‘sexism’ to refer to everything else. With these definitions in hand he starts off his video by telling people (like Perry and Biggs did) that the pay gap is an economic ‘myth’, and that ‘it’s “mostly” not discrimination’…. This muddies the waters…”

  4. Austin Frakt: What happened to offsetting coverage expansion costs?: “I’m old enough to remember when a good deal of the Affordable Care Act’s coverage expansion cost was to be offset by cuts to Medicare. I also recall that many critics of the ACA said Congress and the Administration would not uphold those cuts, that they’re politically unrealistic. I agreed with that critique, at least in part. Now we have solid evidence that critique was on target, at least as far as Medicare Advantage (MA) is concerned. Last week, the Centers for Medicare & Medicaid Services, once again, failed to uphold scheduled cut payments to MA plans…. I’ve long argued that MA payment rate setting needs to be further insulated from politics. The much maligned IPAB could serve such an insulating role…. Ironically, it’s attacked from some of the same quarters that question the government’s resolve in upholding ACA cuts to Medicare…. As far as MA is concerned, it’s not clear that the existing governing structures are willing and able to do the job…”

Should-Reads:

  1. Paul van de Water: Why Raising Health Reform’s Threshold for Full-Time Work Would Be Counterproductive: “Health reform requires employers with at least 50 full-time-equivalent workers to offer coverage to full-time employees or pay a penalty. Critics claim that employers are shifting some employees to part-time work to avoid offering them health insurance. As the Wall Street Journal has reported, however, recent data provide scant evidence of such a shift. And there’s every reason to expect the impact to be small as a share of total employment. Raising the threshold from 30 to 40 hours would make a shift toward part-time employment much more likely–not less so. Only about 8 percent of employees work 30 to 34 hours a week–that is, at or modestly above health reform&’s 30-hour threshold. But 43 percent of employees work 40 hours a week and thus would be vulnerable if the threshold rose to 40 hours…”

  2. The Irish Times on Barry Ritholtz: Finding Investment Insight Online: “The granddaddy of market bloggers, money manager Barry Ritholtz started his Big Picture blog way back in 2003. More than 25,000 posts later, he remains the best in the business. Ritholtz has a nose for smelling the manure that all too often passes for fact, delivering opinionated but evidence-based analysis…. In recent years, his blog has become more investment-oriented, with less attention paid to trading matters. It is also a little more mild-mannered, especially since he became a Bloomberg columnist, although he still doesn’t suffer fools gladly. Just look at his comments disclaimer!”

Should Be Aware of:

  1. Fernando Duarte and Thomas Eisenbach: On Fire-Sale Externalities, TARP Was Close to Optimal: “Imagine that many large and levered banks suffer heavy losses and must quickly sell assets to reduce their leverage. We expect the market price of the assets sold to decline, at least temporarily. As a result, any other financial institutions that happen to hold the same assets will experience balance sheet losses through no fault of their own —a negative fire-sale externality. In this post, we show that the vulnerability to fire-sale externalities was high during the crisis and that the capital injections of the government’s Troubled Asset Relief Program (TARP) helped reduce it considerably. In fact, we argue that given the total amount injected, TARP was close to optimal…”

  2. Timothy Cogley et al.: Optimized Taylor Rules for Disinflation When Agents are Learning: “Highly volatile transition dynamics can emerge when a central bank disinflates while operating without full transparency. In our model, a central bank commits to a Taylor rule whose form is known but whose coefficient are not. Private agents learn about policy parameters via Bayesian updating. Under McCallum’s (1999) timing protocol, temporarily explosive dynamics can arise, making the transition highly volatile. Locally-unstable dynamics emerge when there is substantial disagreement between actual and perceived feedback parameters. The central bank can achieve low average inflation, but its ability to adjust reaction coefficients is more limited.”

  3. Scott Lemieux: Is Ayaan Hirsi Ali Being Denied A Symbolic Degree The Death Of Academic Freedom? (SPOILER: No.): “The intro to Ross Douthat’s last column: ‘EARLIER this year, a column by a Harvard undergraduate named Sandra Y. L. Korn briefly achieved escape velocity from the Ivy League bubble, thanks to its daring view of how universities should approach academic freedom….’ The punchline: ‘It would be a far, far better thing if Harvard and Brandeis and Mozilla would simply say, explicitly, that they are as ideologically progressive as Notre Dame is Catholic or B. Y.U. is Mormon or Chick-fil-A is evangelical, and that they intend to run their institution according to those lights. I can live with the progressivism. It’s the lying that gets toxic.’ These accusations of bad faith and intolerance makes this nicely sanitized version of why people found Hirsi Ali’s past comments objectionable even more irritating: ‘Hirsi Ali’s invitation was withdrawn because of her sweeping criticisms of Islamic culture….’ ‘Stinging’ and ‘sweeping’ criticism is a rather anodyne way of characterizing Hirisi Ali’s arguments… that (not radical but all) Islam must be ‘crushed’ and that if the Constitution doesn’t permit all Islamic religious instruction to be banned, so much worse for the Constitution. The double standard here is the opposite of what Douthat claims; if she had made similar comments about the Jewish or Roman Catholic faith…. And as for the implication that Brandeis’s ornamental degrees are now reserved for liberals only, Douthat should speak with his colleague David Brooks, who received one in 2011…”

And:

April 15, 2014

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