I've been reading the debates touched off by Julian Sanchez's post on "a systematic trend toward "epistemic closure" in the modern conservative movement".  I'm nervous about wading in because almost anything I say is bound to offend someone I like.  I'm especially sensitive--perhaps oversensitive--to the way that anything I proceed to say about conservative people outside the northeast runs the risk of sounding a lot like that fifties moderate whose work one occasionally comes across:  "Of course, I just love negroes--they're all so musical and I don't know how I'd get my house cleaned without our Bessie.  But why can't they be a little more patient about this civil rights mess?"

I actually think there are a bunch of questions packed into this discussion which haven't been necessarily very clearly delineated:  there are overlapping conversations about the conservative base, the conservative wonketariat, and the conservative poltiical leadership.  The one I'm most interested in is the conservative intellectual environment, so that's mostly what I'll talk about, though they are all connected.

Weirdly, the word I keep coming back to when I read a lot of these discussions is "privilege".  It's a word I get a huge amount of flack for using, from my conservative readers; and I've no doubt that I am going to inspire any number of bitter and angry rants from the other side for daring to apply it to a movement which is (overwhelmingly) majority white.  But I nonetheless think that this might be a useful concept to describe a lot of what I'm reading.




Conservatives are, not to overlabor the obvious, marginalized in the cultural elite, even though they are powerful in the political elite.  (At least some of the time, anyway).  Obviously there's been an enormous amount of ink shed about why this is, but my experience of talking to people who might have liked to go to grad school or work in Hollywood, but went and did something else instead, is that it is simply hogwash when liberals earnestly assure me that the disparity exists mostly because conservatives are different, and maybe dumber.  People didn't try because they sensed that it would be both socially isolating, and professionally dangerous, to be a conservative in institutions as overwhelmingly liberal as academia and media.

It's actually fascinating to watch the inversion of liberal and conservative positions on this one.  Liberals essentially seem to be saying that hey, they don't all get together in the tenure committee and agree to deny any conservatives tenure.  I believe them!  But I'm not sure why they think this means that the disparity is therefore not a problem.  As I wrote years ago, somewhere, I doubt many bank hiring committees in the fifties got together and voted not to hire any negro bank managers.  Yet, somehow, they didn't hire any negro bank managers.

Why not?  Because things like social networks, subtle bias, and tacit norms about what constituted the boundaries of acceptable traits in bank managers did all the work for them.  And I doubt they got many black applicants, because after all, why on earth would you bother?  Better to try to start a small business, or get a job as a Pullman porter, where you had a realistic shot at making a decent income.  A poll of black high school students would probably have indicated a very small number expressing ambitions to fill jobs that realistically simply were not available to non-white, non-male candidates.  But this is not evidence that there is something different about blacks that makes them not want to be successful corporate executives.

It is equally maddening that conservatives understand this about potential conservative graduate students, but not about potential black CEOs--and yes, I think this remains a problem today.  I'm not sure that affirmative action is the answer, but that's a different post.

So while I completely agree that there is no one-to-one equivalence between right and left, as Ta-Nehisi writes, I'm considerably less sure about what that implies.  First of all, I think Ta-Nehisi overstates his case to some extent:

In this specific case, the trouble is that the right's quackery is not merely peddled by it's fringe, but by some of its most prominent members. During the 2000 campaign, George W. Bush didn't dispatch a couple of junior functionaries to Bob Jones University, where interracial dating was literally banned at the time, he dispatched himself. In 2002, it was not a small time junior congressmen who asserted that things would have been better under segregation, it was the highest ranking Republican in the Senate. 
In 2005, it was not merely a fringe group of party activists who called for interference in the Terri Schiavo case, it was the Republican president of United States. It was---yet again--the highest ranking Republican in the Senate dispensing a neurological diagnosis on a woman in Florida, from his office in Washington.
In 2007, when Trent Lott announced his resignation from the Senate, it was not merely state party officials claiming the good senator had been railroaded, it was his Republican fellow Senators. During the 2008 race, it was Mike Huckabee, runner-up for the presidential nomination of his party, who claimed to not believe in evolution.

Ta-Nehisi neglects to mention that it was also the Republicans who kicked Trent Lott's butt out of the leadership for saying those things--as they should have.  And while I am in absolutely no way defending Bush's campaigning at Bob Jones university, I think it has to be noted that Barack Obama didn't send some minor campaign functionary to attend the church of a minister who was saying some pretty whacked out things; he sent himself.  Every Sunday. 

I don't think that this made him unfit to be president, and I stand by what I wrote at the time.  But I don't think you can tar Bush with the one while giving Obama a walk on the other . . . at least, not when the topic is "Our favorite fringes".  And the same goes double for conservatives who gave Bush a walk, then attacked Obama.  I'm willing to cut Jeremiah Wright a little more slack because white bans on interracial dating seem to me to be obviously more dangerous than the racial anger of a man who grew up on the wrong side of segregation.  But he is very definitely a member of the fringe, and I certainly hope Obama wasn't endorsing all his ideas by attending his services.

It's obviously no surprise that the lunatic BS of our own side doesn't strike us nearly as forcefully as the absolutely appallingly unforgiveable wingnuttery of the opposition.  But I think this goes beyond that--and in a way that is important to understanding Jeremiah Wright, and the angrier right wing talk radio hosts.  I am sure both would be appalled by the comparison, but the point here is not to draw moral equivalence between them; it's to point out how power dynamics work.

I expect I'll get a derisive response from liberals at the thought of explaining what I see in the current Republican party thusly, given that the party tends to be strongly identified with the racial majority of the country.  But privilege is not binary; it's contextual.  Again, to state the obvious, you can be privileged on one dimension, and a victim of privilege on another  Being a member of the white upper middle class does not protect me from male privilege.

The point is that when one group has privilege, and the other doesn't, the response isn't symmetrical, a fact that the dominant group tends to spend a lot of time remarking upon.  The out-group is angrier, and prizes its group identity--"conservative"--over weaker affiliations like "journalist" or "sociologist".  The angrier the out-group gets, the more uncomfortable and hostile the dominant group gets . . . which, of course, makes the out-group even angrier.

The dominant majority further reinforces the effect because membership of "journalist" or "sociologist" comes to be defined by "not having a strong allegiance to groups such as 'conservative'."  Which further weakens conservative ties to those professional identities.

That's why you have black newspapers, and Jewish magazines, and Irish arts centers, but no "Bland:  The Magazine of the American White Middle Class".  The dominant group doesn't enforce its group identity the way the out-group does.  It doesn't have to.  It gets to decide what constitute the acceptable modes of behavior, sources of authority, and ways of knowing.  The privileged group doesn't need its own institution specifically devoted to advancing its interests.  All it needs is a sigh, and a sneer

This is the core of privilege: for the dominant group, it is passive, while for the minority it is an active experience.  If you're a nice liberal urban media professional, you do not do anything to enjoy the perks of affinity with all the other nice liberal urban media professionals.  And you don't have to renew your membership in the white male club in order to enjoy the many professional benefits of belonging.  Only for the people who have to choose between identities does it require any thought.  The dominant group can assert and enjoy power without even knowing it is doing so.  So instead of cutting the out-group a little slack because of the problems created by exclusion, the tendency is to be less charitable because it's hard to see their plight, or identify with them.  If you're enjoying all the passive benefits of privilege, the anger, and the strong lust to reinforce group identity, seems, well, kinda crazy. Maybe morally wrong.  But definitely crazy.  And most of us are not driven to positively engage with the insane . . . or with people who think we are insane.

I think this explains a lot of what I see on Fox News, and also, what I see from liberals who are enraged by it. 

This has practical importance for the conservative movement right now, and especially (to return to my area of greatest interest) for the intellectual core of the movement.  Conservatives created their own institutions because it was hard to get traction within the existing ones: not only did they feel excluded from academia and the media and entertainment spheres, but to add insult to injury, they could not convince the dominant group that this was due to anything except the inherent superiority of the dominant group.  So, like other such excluded groups, they created  their own papers, magazines, and think tanks to mirror the universities and newspapers that seemed increasingly closed to them after World War II. 

But while ideologically driven journalism and policy work can be excellent, it's also in some ways inherently problematic.  I'm enough of a fuddy-duddy to think that journalism and academic work should not be subordinated to political goals--that indeed, one's political ideology should be driven by the sort of questions asked by journalists and academics. But if you are at an explicitly mission-driven institution, these goals will always be in tension, even if you agree with the mission.

I've never worked at either a liberal or a conservative political magazine, but from the outside, those tensions don't seem noticeably less at one than the other--you don't see liberal think tanks doing a lot of studies on "Teacher's Unions:  Major Obstacle to Improving Urban Schools" or liberal magazine articles titled "More Abortions:  The Unfortunate Side-Effect of Legalization". But I think there is a difference, which is driven by that unhappy dynamic between in-group and out-group.  To wit: conservatives at political institutions find it hard to get hired by non-ideological institutions. 

It is not impossible to go from conservative ideological media to the elite mainstream press, and indeed people have done it.  But the people I know who have managed are noticeably moderate.  They also tend to be absolutely brilliant, rather than merely solid reporters who really know their stuff--particularly if they are something other than the house conservative on an otherwise liberal opinion page. The political and technical standards for graduates of the Washington Monthly or Harpers do not seem to be quite that high.  (Don't get me wrong, it's still very high--but they don't have to be "the best liberal journalist in [insert city name here]").  So it becomes incredibly risky for even a talented conservative to buck the group consensus. 

The other problem is that both sorts of enterprises are dependent on donors who often have specific goals in mind--to paraphrase Noah Millman, they want work that shows how great vouchers are, not work that suggests how to fix the schools.  Academics have somehow managed to perpetrate a great scam--they get people to donate money to fund all sorts of research they don't agree with, just because those people have fond memories of the buildings where the research is taking place.  This is to the general benefit of society, but since these places aren't particularly conservative-friendly, the right has had to build institutions based on more . . . motivated . . . funding sources. 

Don't get me wrong; I think the donors to think tanks do an enormous amount of good.  But that funding model almost definitionally means that important kinds of work . . . broad based general inquiry with no clearly predictable results . . . is hard to get done.

This is not to say that conservatives are all close minded and liberals are all just bastions of tolerance and clear-thinking.  One need only read the comments threads of any of these posts to find unbearably smug folks congratulating themselves on how fortunate it is that all the crazy, unreasonable and ignorant people really are all on the other side . . . an assertion that is self-refuting. 

But most of the people on the right that I know think that there is a real intellectual crisis there . . . and to the extent that there are parts of the right I like and agree with, I am also worried.  The Reaganite cold-war coalition for tax cuts and military spending just isn't cutting it any more, and I'm seeing less and less interesting and original work on other sorts of policy.  Oh, I get a lot of great stuff illustrating why government solutions don't work . . . but I'm not getting much stuff telling me what does.  Except for tax cuts and vouchers, I mean. 

There are exceptions.  But when I look back at the bold experimentation of the Reagan era, I am deeply envious.  I see a lot more work devoted to preserving those gains than to striking out in new directions.  And I see huge energy funneled into rallying the base.  Not by doing anything, mind you . . . just by repeating how outraged we all are at the latest government failure.

Julian diagnoses this as the collapse of geography, but while I think this is possible, I'm not sure it works by forcing people in disparate areas to confront the pluralistic values of other locations.  The opposite, perhaps:  it's easier to find the people who agree with you, and just the people who agree with you, which reinforces the worst tendencies of both the dominant and the minority groups.  I think there's a lot of merit to Julian's argument for certain issues, like gay marriage, where this simply is a question of pluralistic urban values versus the geography-induced consensus culture of a small town.  But it doesn't explain how feelings about tax hikes and health care.

What might explain it is that the new communications strategies mean the out-group is finding it easier to reinforce its own counter-identity.  Being descended from one of America's more numerous and storied out-groups, I see the benefits of that--but also the considerable drawbacks.  And in the case of conservatives, I think it's a real problem for a political moment that demands some fairly innovative solutions to some really deep problems we're facing.  Okay, we don't want a VAT.  But where is the workable plan for closing the budget deficit, given the political and practical constraints of existing entitlements?

Conservatives used to spend a lot of time complaining about the liberal media--and indeed, I have occasionally joined them.  But it now strikes me that this was basically very healthy for the right.  Everyone in the movement was frequently and forcefully confronted with the best the opposition had to offer; they could not be content with preaching to the choir.  They were muscular--and liberals flabby--precisely because liberals didn't really understand what they were up against.  Now it looks to me as if conservatives are often voluntarily putting themselves in the same cocoon.

(On a side note, this implies that liberals are not doing themselves any favors when they allow themselves to get genuinely enraged about the existence of Fox News.)  

All that said, I'm conscious of how limited my perspective is.  Limited in time, because the present almost always seems either much better or much worse than the past; we airbrush away all the little speckles.  It may be that I think the conservative movement was more vibrant in the past because I'm collapsing decades of people and their work into a smaller time frame--the way many people imagine that the Fitzgeralds and Hemingway and Gertrude Stein and Dorothy Parker all sort of lived in one flat in Paris.  And limited in scope, because let's face it:  I live in Washington DC.  I grew up on the Upper West Side.  The only people I know in small towns are a few relatives.  My perception of what is happening there is mostly mediated by a media that, umm, is pretty liberal and almost definitionally, not living in small towns of a conservative bent.

But I don't think it's just that.  The Republican party is not putting forward bold new ideas; it's energy lies in thwarting the Democrats' policy plans, and doing more tax cuts.  No matter how much I would like to see many of those plans thwarted, I don't think this is enough.  And some of the fault has to lie with the intellectual centers--the think thanks, the magazines--which don't seem to be delivering a core of new ideas that they can take to voters. When I look at the institutions of the right, it seems to me that a lot of time is spent reassuring itself about what is already believed, rather than challenging itself to find innovative new directions to take the movement--or even better describing the problem.  Too much Fox News, not enough God and Man at Yale.  I think I understand, institutionally, why this is happening--and I think mainstream institutions have to bear some of the blame.

And yet, who cares who's to blame?  The New York Times cannot fix the problems on the right.  Only conservatives can do that. 

I suspect I'm going to provoke an angry reaction from many quarters with this post--particularly from think tankers and journalists at ideological outlets who will tell me that I've missed a whole bunch of important work.  But this is not an attack on think tanks, or on political magazines--my fiance works for a political magazine, for which I held the deepest respect long before he joined the staff.  And there is great work coming out of a lot of think tanks on any number of fronts.  The problem from my perspective is that the right is doing a better job of engaging with itself, and its own anxieties, than of engaging with the broader intellectual culture--which is allowing the intellectual culture to once again turn its back on the right.  That makes it harder to create new ideas that have traction--and by extension, harder to advocate for the good ideas they already have.

Whales and humans linked by ‘helpful grandmothers’ BBC

Extinction of Woolly Mammoth, Saber-Toothed Cat May Have Been Caused by Human Predators Science Daily (hat tip reader John M)

Tibetan Adaptation to High Altitude Occurred in Less Than 3,000 Years Science Times (hat tip reader John M). I think I’ve seen similar findings for Peruvians in the Andes.

When the scientific evidence is unwelcome, people try to reason it away Guardian. Some of you no doubt are familiar with the studies mentioned, but a nice recap nevertheless.

Is Julia Gillard the new Bob Hawke? Larvatus Prodeo

The Glittering Prizes: War Crime Continues to Pay Chris Floyd

Jobs and Democrats, Tobin Harshav, New York Times. The article blurb on the first page: “Not even liberal bloggers believe the White House spin on the economy.” Um, I must confess I avoid, as much as I can, “liberal bloggers” who buy the Team Obama party line. John Mauldin, along with others, shredded the ugly aspects of today’s report, 362,000 jobs added in the birth/death adjustment (with the BLS insisting jobs are being added in respectable numbers in hospitality and construction) and the drop in unemployment a function of the departure of discouraged workers from the labor pool

Almost Surreal in its Delusions Michael Panzner

ECRI Weekly Leading Index Growth Lowest In 13 Months Ed Harrison

Biggs Cuts Stock Investments by Half as Risk of Recession Grows Bloomberg. This is funny, I recall Biggs being very bullish when the S&P was higher, see Barton Biggs Says U.S. Stocks Oversold, Sees ‘Big Pop`: Video (May 27, S&P at 1068) and Biggs Sees Buying Opportunity on Overblown Europe Fears: Video (May 20, S&P at 1071)

Protestants Can’t Trade Paul Kedrosky. Hah! Explains a lot.

Obama’s public touch grates with business Financial Times

Hedge-Fund Lending Draws Scrutiny Wall Street Journal

Market Microstructure and Capital Formation Rajiv Sethi

BP: the inside story Financial Times. This is intriguing, and there is no way of telling how much is BP spin versus a reasonably realistic account. The intriguing bit is the story contends that BP really did not know how bad the leak was early on and it really did believe the top kill would work. Those are awfully convenient, from a liability standpoint, but they could actually be true, and if so, this says that BP was a company massively unaware of the limits of its capabilities.

Antidote du jour:

Andy Grove, who lead Intel to dominance of an extremely competitive, risky industry, has a very important opinion piece at Bloomberg (several readers pointed to it, including John M, dr, Crocodile Chuck). He makes a series of points that are the polar opposite of the de facto US industrial policy, of the naive view that the US can have a viable society based on “knowledge workers”, rentiers, and service industries that depend on their earnings. Sadly, my Washington contacts tell me that the belief that the US cannot compete in anything other than financial services is deeply entrenched there, no doubt fed by media stories that draw misleading inferences from appealing-seeming case studies (see this New York Times story and Richard Kline’s able shredding in comments yesterday here and here for an example)

One thing American businessmen have utterly lost sight of is the importance of providing employment. The focus on “maximizing shareholder value” when shareholders are on the very bottom of the liability side of the balance sheet, not merely legitimates but extols screwing other stakeholders to the extent management can pull it off (and management, suborned via stock-related compensation, has gotten very good at doing just that). By contrast, in Japan, entrepreneurs like Konosuke Matsushita are revered not because they got rich, but because they created good jobs for many people.

Only some of Grove’s stature could poke such a stick in the eye of visibly floundering conventional wisdom that nevertheless remains firmly entrenched because it serves those at the top of the food chain very well (it doesn’t hurt that his piece is exceptionally well argued). My only quibble is that he unintentionally supports the fiction that we don’t have industrial policy in America. Following the money demonstrates the reverse; tax breaks, subsidies, tariffs, and what issues are front and center tell you who the favored children are, including financial services, Big Pharma, the sugar industry, and real estate. And this isn’t as radical an idea as he intimates. Australia, which ranks above the US in the Heritage Foundation’s dubious Economic Freedom Index (the Heritage Foundation clearly never had an encounter with the ATO, which makes the IRS look like pussycats), has very clear priority industries. For instance, its Commonwealth Scientific and Industrial Research Organisation (CSIRO) is one of the world’s biggest science organization and is focused around priority industries for Australia, with its main divisions being information sciences, energy sciences, agribusiness, manufacturing and minerals, and environment (the latter is involved both in new tech and minimizing adverse consequences of current industrial activities).

Please do read this thoughtful article in full and discuss in comments (if you have trouble with the Bloomberg link, as I did, please try here).

Brad DeLong asks:

When would it be time to judge the Irish experiment in preemptive fiscal austerity to be a failure, Tyler?

The immediate question is whether Ireland had a choice in the first place.  When it comes to total external debt, private plus public, Ireland is in one of the most desperate situations.  (Be careful, though, some published figures include financial institutions to which the Irish government has no real liability and thus overstate Irish external debt by quite a bit).  Ireland doesn't have the same flexibility as do Germany and the United States, nothing close to that.  Read this article for an estimate of the change in primary fiscal balance required for Ireland; it's scary and doesn't indicate a lot of flexibility, which supports the conventional wisdom on Ireland, from the OECD, the European Commission, from Ireland itself, and arguably you add the IMF to that list as well. 

Furthermore, Ireland as a small, open economy experiences a relatively high degree of fiscal leakage.

By the way, you shouldn't simply assume that the initial fifteen plunge in gdp was due to fiscal caution; Ireland was after Iceland perhaps the most overextended country in the crisis.

Here's a Morgan Stanley analysis of Ireland, which basically suggests "it's complicated."  It also suggests a reasonable chance the current strategy will work out OK.  It is complicated, and the mere fact that spending is a component of national income accounts doesn't mean that more spending is always a good thing. 

Ireland in fact has done a negative fiscal stimulus.  Earlier, Ireland made the mistake of joining the Eurozone.  See also this study of Ireland, 1987-89, an earlier decisive and successful fiscal adjustment, in the days of the Irish Punt.  The Euro today makes matters harder for Ireland, yet that doesn't imply they have greater license to spend today, in fact it can imply the contrary.

Paul Krugman pointed out that the fiscally tighter Ireland did not have a better CDS price than the more wishy-washy Spain.  Yet Ireland has a bigger external debt problem, may be less protected by "too big to fail," is a smaller nation, and has less control over its destiny; the (roughly) equal price may reflect what is a superior Irish effort.  In any case, Spain is hardly a walking advertisement for not going the Irish route.

The Irish also hope that whatever output they "leave on the table" today, they can make up with Solow catch-up growth.

If you would like to read a brief on behalf of Irish stimulus, try this.  The author admits that Ireland would have to significantly raise corporate taxes, a former linchpin of its growth (whether you think that efficiency-enhancing or international rent-seeking, it is still true).  Is it worth it?  How much would such a policy damage Irish growth and credibility?

Kevin O'Rourke also has good but scattered writings on the topic of Irish stimulus.  His first preference is greater fiscal federalism within the EU.  Last month he also wrote that, lacking such a reform, Ireland had no choice.

This June, Irish consumer confidence hit a three-year high.  Here's one estimate that wages have been falling four to five percent a year, and will continue to fall, plus the Euro has been falling.  You could argue there has already been an adjustment in the twenty-five percent range.  None of that is proof of recovery, but there are some green shoots.  Here is the very latest report, indicating that economic growth may be resuming; admittedly it's just a forecast from the government.  Exports are showing growth and retail sales are rising slightly.

The Irish Times reports today: "For the first time in three years, there are now more reasons for hope than for despair.  This week a raft of indicators, when taken together, give grounds to believe that the foundations of a jobs-generating recovery are falling into place."

Do interpret that with extreme caution.  For various debates, follow The Irish Economy blog, including in the comments.

On these critical questions, in the pro-stimulus for Ireland posts, I don't see a level of detail which would rebut these quite mainstream, not-emanating-from-the-gamma-quadrant opinions -- that the Irish did more or less the right thing in a very unpleasant situation. 

The Irish experiment remains an open book.  In the meantime, it's simply not true that the pre-emptive austerity advocates are committing some kind of economic malpractice.  Three years out from now, let's compare Ireland to the other PIIGS.

The stress tests conducted on 19 large American banks by the US Treasury in 2009 were an amazingly effective exercise in salesmanship and sleight of hand. Banking industry experts, including Bill Black, Chris Whalen, and Josh Rosner, dismissed the process as mere theatrics: too little staffing and not enough “stress” in the economic forecasts and loss assumptions (particularly on second mortgage). My pet peeve was that the banks ran the tests on their trading books using their own risk models, the very ones that had performed so well in preparing them for them in the runup to the crisis.

But the Treasury’s Tinkerbell strategy worked. If they could create enough confidence, if they could get enough people to applaud, the banks would live – at least for a while. The spectacle of daily coverage in the business press of the tests, including the howls-on-cue from the banksters, outraged by supposedly-unreasonable demands the Administration, created the impression that Something Was Being Done. And the Treasury did get one critical bit right: it had a credible process for making sure the banks would be able to plug any capital shortfall it identified, and that was by having able to have the government pony up the money to fill any shortfall they identified that the banks couldn’t fill on their own.

Imitation is the most sincere form of flattery. The ECB and European bank regulators are copying the US playbook for the stress tests, with results for 100 banks expected to be released around July 23. But the European authorities seem to have failed to understand why the US effort worked. The first was that Team Obama is particularly good at PR, and it used those skills to full advantage. Despite considerable evidence otherwise, it got the press to convey the message that the tests were tough, and the banks really were sound. Second, Geithner & Co. had a kitty they could draw on.

By contrast, the Europeans have been simply dreadful at the optics of their various rescue operations, with disarray and disagreements covered extensively by the media. Admittedly, this exercise is being conducted by bank regulators, so it is likely to be more cohesive, but “more cohesive”, with a process involving agencies in different countries, may not be cohesive enough. And “show me the money” is a major problem. The reason for this exercise is concern over possible sovereign debt losses. Who is going to back up the banks at risk? Um, sovereign states, admittedly ones not considered at risk of default (France and Germany), but whose ability to bail out their own banks is limited for practical and political reasons.

A story in today’s Financial Times provides confirmation of the skeptics’ concerns:

After another fast-moving news week, as it emerged that about 100 European institutions will be included in the tests – four times the size of the original group – some bankers are confident that the expanded programme will reveal that much of the banking sector is healthier than investors think…

But big questions remain about how rigorous the expanded tests will be, particularly with respect to the sector’s exposure to Greek, Spanish and other eurozone sovereign debt

Institutions will be asked to disclose their total sovereign debt holdings, and the tests will now include a loss rate or so-called haircut of about 3 per cent on all eurozone sovereign debt investments, according to several sources.

Let’s see how this all stands up. Eurobank exposure to Club Med sovereign debt is roughly $900 billion (note this excludes debt to eastern Europe, another possible source of tsuris). A 3% loss on that is $27 billion.

Ahem, let’s take a more skeptical view. Eurobank holdings of Greece’s government debt is $190 billion. Williem Buiter, now chief economist at Citigroup and a bit of an expert on sovereign default, estimated the haircut on a Greek restructuring at 20% to 25%. But S&P later downgraded Greece, and remarked:

At the same time, we assigned a recovery rating of ‘4′ to Greece’s debt issues, indicating our expectation of “average” (30%-50%) recovery for debtholders in the event of a debt restructuring or payment default. The ‘AAA’ transfer and convertibility assessment is unchanged.

Yves here. Do the math. Even if you assume the low end of Buiter’s now-charitable estimate, banks will take losses on Greece alone of $38 billion, 41% greater than the level provided for in the stress tests. If S&P is nearer to the mark, the losses will be $95 to $133 billion.

And the more Greece takes new loans before its debt is restructured (a restructuring or default looks inevitable; no country in the modern era has ever had this high a percentage of debt to GDP in a currency it does not control paid its creditors in full), the worse off the banks that hold debt now will be. The new loans will be senior to the current debt, which means the writedowns on the now-outstanding sovereign debt is likely to be high.

Analysts are discussing which banks will need to raise capital:

Friday’s edition of the Financial Times reported the expectation among bankers that the likes of Spain’s Banco Popular, and Monte dei Paschi and Banca Popolare di Milano in Italy were likely candidates for capital raisings.

All three said they had no capital-raising plans. Banco Popular said it was one of the best capitalised banks in Europe, with a core tier one capital ratio of 8.8 per cent.

BPM said its core tier one ratio was 7.9 per cent. Like tier one, core tier one ratio is a measure of capital strength.

At the same time, there were suggestions in Spain that policymakers were considering going further than counterparts elsewhere in Europe, increasing the required ratio for passing the tests in an effort to boost the confidence value of the exercise.

The FT took note of investor doubts:

News of the tests’ increased rigour has not fully eased concerns about transparency.

“The stress test idea is a shambles,” said one senior analyst in London.

“The whole thing is a complete joke.”

He said that the market’s expectations of securing meaningful disclosures through the tests were so low that any useful information would be a welcome surprise. “Ironically you might just get a boost if there are any decent disclosures at all,” he said.

Maybe the Europeans will pull a rabbit out of the hat, but the odds do not appear to favor them. John Gapper, in a comment on the stress tests, is doubtful:

Even some of those who in principle support the idea of banks being honest with investors are worried about the forthcoming European bank “stress tests” – successors to tests on US banks last year. “I have a horrible feeling that this will turn out to be an exercise in damaging confidence,” says one bank analyst….

The worst case is that southern European banks, loaded with bonds denominated in euros, will turn to governments for relief and trigger another sovereign debt crisis. Spain, which is trying to solve a crisis among its cajas – regional savings banks – is a potential victim….

he tests were certainly a turning point in confidence in Mr Geithner himself, who had suffered a rough few months in the job. Whether it turned the tide for banks is less clear; the US stimulus and other measures to restore consumer and business confidence were large factors.

In addition, European banks’ problems are more intractable and complex, and probably less amenable to a quick fix. For one thing, there was little question last year that the US could afford to rescue banks if it had to, whereas European governments are now heavily in debt.

Furthermore, European banks have inherent funding problems that their US and Asian counterparts lack – they are far more reliant on wholesale markets. US and Asian banks cover their loans with retail deposits, while Barclays Capital estimates the ratio of loans to deposits at European banks to be 120 per cent.

This leaves these banks vulnerable to a liquidity crisis…

Europeans do things in one way and Americans in another; Europe believes in discretion while the US likes openness even at the risk of embarrassment. We will soon find out if European banks can be salvaged by American methods and we had better hope so.

Precisely.

Every once in a while I come across an article, like the Washington Post report that follows, which seems almost surreal in its delusions.

Not only does the author take it for granted that we are in a "recovery" -- a dubious assumption, at best -- he also asserts that jobs are being "created" without noting the fact that many more have been and are being destroyed.

Then there is the notion that the President's policies have averted "disaster," which, to me at least, seems based on the fact that those who rolled the dice and lost when the bubble burst did not have to suffer the consequences of their actions (because they were bailed out with taxpayer funds).

Even worse, the author seems entirely sympathetic to the assertion that the Administration has found it hard to come up with the right solutions because of partisan politics and "the suspicions that some Americans harbor about an activist government." Sorry, isn't Washington's failure to do what it was supposed to in the first place one reason why people are wary about letting bureaucrats and politicians become even more involved in their lives?

There's plenty more wrong with "Economic Recovery Not Yet Reaching Americans, Middle Class Task Force Chief Says," but I'll leave you to judge the rest for yourselves:

A poster-size replica of the cover of "The State of Working America" hangs behind Jared Bernstein's desk in the Eisenhower Executive Office Building, next to the White House.

The memento is from Bernstein's former life at the pro-labor Economic Policy Institute, where he co-wrote a series of reports about the increasingly uncertain terrain confronting the nation's workers. It is also a reminder of the Main Street sensibility he brings to a White House economic team that's top-heavy with Wall Street experience.

In the administration's first year and a half, the team has helped pull the U.S. economy from the precipice. The federal government passed a massive stimulus plan, and President Obama pushed through far-reaching health-care legislation that proponents say will expand coverage and control costs. The administration is also close to a financial regulatory overhaul.

Economic growth, however shaky, has returned. The nation is again creating jobs, and the stock market has regained much of the value it lost in the dark days after the financial collapse of late 2008. Yet the unemployment rate hovers at the highest level in 28 years, and wages remain flat.

"Is the economic recovery really reaching the American people?" said Bernstein, Vice President Biden's top economic adviser. "And the answer to that is: Not yet."

It is a sentiment Obama himself has expressed, even as he credits his economic policies for averting disaster. But now the administration faces an even more daunting task: translating growth into shared prosperity.

Bernstein, 54, has pondered that challenge for nearly two decades, and as executive director of the administration's Middle Class Task Force, his job is to address it.

He said the reasons the middle class has not fared well in the modern economy are complicated. Increased globalization, technology, diminishing bargaining power for many workers, reduced unionization and slack in the labor market all share responsibility, he said.

While Bernstein thinks he understands the problem, he acknowledged that forging a solution is difficult, given the unrelenting political opposition and the suspicions some Americans harbor about an activist government. Complicating the picture is that the economy often moves in ways that challenge old assumptions.

Just before Obama took office, Bernstein co-wrote a report projecting the likely impact of the administration's $787 billion stimulus bill. The report accurately projected the legislation's effect in cushioning the economic contraction. But employers cut many more jobs than the administration or forecasters anticipated. The unemployment rate crested at above 10 percent, not at the report's predicted 8 percent.

"It tells you that employers were going to squeeze as much as possible from workers," Bernstein said.

'Different orientation'

Bernstein followed an unusual path to a job where he helps brief the president and vice president several times a week. A graduate of the Manhattan School of Music, he worked first as a bass player, sometimes gigging with famous musicians in Greenwich Village nightclubs. He gave that up for social work in hopes of addressing the chilling depravation that seemed to be everywhere. "I remember walking over homeless people to get to work," he said. "That was a symptom that something was very sick in society."

He went on to earn a doctorate in social welfare at Columbia University before going to the Economic Policy Institute. There he helped document the plight of working Americans who found themselves with fewer guaranteed pensions, increased job volatility, skimpier raises and more inequality. Bernstein found that his economic ideas meshed with those of Obama. After the election, Biden summoned him to his Delaware home for an interview to be his top economist.

"Jared has a history of seeing economic policy through the lens of low-income and middle-class Americans," said Lawrence Mishel, president of the institute. "That is a different orientation than some others" in the administration.

'Economic recipe'

Although some of Obama's economic advisers -- particularly National Economic Council Director Lawrence H. Summers and Treasury Secretary Timothy F. Geithner -- are often viewed with suspicion because of their past Wall Street connections, Bernstein says he has not had an ideological conflict with them. "This notion that there are deep Wall Street sympathies somewhere on the economic team is just completely absent, and I am involved in the high-level discussions," he said.

The test the team now faces is how to nurture the fledgling recovery and channel it into the lives of everyday Americans. Recently, Obama has called for more stimulus, money aimed at saving hundreds of thousands jobs in cash-strapped states. But Congress has balked, saying the nation cannot afford the debt. That frustrates the administration.

In the short term, Bernstein said, the economy needs stimulus, followed by budget discipline and then efforts to subdue health-care costs in the long run.

"That's the economic recipe," he said. "But the political recipe is much more challenging."

Filed under: Industry

Nissan has launched one of the first interactive iAd mobile marketing campaigns for the new Apple, Inc. (AAPL) iPhone 4, and it's taking the chance to promote its new all-electric Leaf passenger car. Although hybrid vehicles have been around in the U.S. for years (think Toyota Prius), all-electric cars have been limited to those teeny-tiny, mileage-limited vehicles. Nissan wants to change that with the four-door Leaf sedan.

Continue reading Nissan To Open U.S.-Based Electric Car Assembly Plant

Nissan To Open U.S.-Based Electric Car Assembly Plant originally appeared on BloggingStocks on Fri, 02 Jul 2010 18:30:00 EST. Please see our terms for use of feeds.

Read | Permalink | Email this | Comments



Apple - Electric car - Nissan Motors - Toyota Prius - United States

Filed under: Advanced Micro Dev (AMD), Alcoa Inc (AA)

Alcoa, Inc. (AA) is expected to report Q2 EPS on July 12. AA overall option implied volatility of 52 is above its 26-week average of 46 according to Track Data, suggesting larger movement.

Advanced Micro Devices, Inc. (AMD) is expected to report Q2 EPS on July 15. AMD July put option implied volatility is at 58, August and October is at 53; verses its 26-week average of 52. AMD option volume of 64K contracts compares to put volume of 11K contracts, according to Track Data suggesting traders taking positions for price movement.

Biogen Idec Inc. (BIIB) and Allergan, Inc. (AGN) options are on the most active list, with elevated volatility as shares rally.

Update is by Stock Specialist Paul Foster of theflyonthewall.com

Options Update: Alcoa Volatility Increases, Shares Near 11-Month Low originally appeared on BloggingStocks on Fri, 02 Jul 2010 18:00:00 EST. Please see our terms for use of feeds.

Permalink | Email this | Comments



Alcoa - Option - Biogen Idec - Business - Allergan

Filed under: Private Equity, Best Buy (BBY), RadioShack Corp (RSH)

You may be interested in buying an HDMI cable or a cell phone from RadioShack (RSH), but it looks like a few private equity companies and one competitor may be interested in buying the entire company. According to dealReporter, RadioShack had set a July 1 deadline for non-binding indications of interest from any company that was looking at buying the company.

Analysts are speculating that the same private equity companies that were mentioned in a June 1 New York Post article -- Blackstone Group, Kohlberg Kravis Roberts, Bain Capital and TPG -- might still be interested in the consumer electronic retailer. That same article also mentioned that Best Buy Co., Inc. (BBY) may be interested in clearing the competitive landscape by acquiring RadioShack.

Continue reading Radio Shack: Takeover or Acquisition Target

Radio Shack: Takeover or Acquisition Target originally appeared on BloggingStocks on Fri, 02 Jul 2010 17:30:00 EST. Please see our terms for use of feeds.

Permalink | Email this | Comments



RadioShack - Best Buy - Private Equity - Bain Capital - Kohlberg Kravis Roberts

Filed under: Competitive Strategy, Microsoft (MSFT)

Much has been written in recent years about the waning relevance of the world's largest software company, Microsoft Corporation (MSFT). The cancellation of some of of Microsoft's mobile efforts just this week, after two short months, as well as seeming uncertainty about its overall strategy outside operating system and productivity software, has made its stock languish for years.

Continue reading Microsoft's Still-King Relevancy In Tech: By The Numbers

Microsoft's Still-King Relevancy In Tech: By The Numbers originally appeared on BloggingStocks on Fri, 02 Jul 2010 17:00:00 EST. Please see our terms for use of feeds.

Read | Permalink | Email this | Comments



Microsoft - Microsoft Corporation - BloggingStocks - Operating system - Monopolies and Oligopolies

Filed under: Allergan (AGN)

It appears that U.S.-based drug makers and cigarette companies caught the attention of traders Tuesday -- at least, that's what they're searching for.

If you want to know what stocks traders are interested in right now at this very second, you need look no further than what's hot in Google.

Here's what's hot Friday:

Continue reading Allergan, BJ's Wholesale and Others Heating Up in Google

Allergan, BJ's Wholesale and Others Heating Up in Google originally appeared on BloggingStocks on Fri, 02 Jul 2010 16:30:00 EST. Please see our terms for use of feeds.

Permalink | Email this | Comments



Allergan - Google - United States - BloggingStocks - Genzyme

Filed under: After the Bell, Apple Inc (AAPL), Cisco Systems (CSCO), General Electric (GE), Intel (INTC), Bank of America (BAC), S and P 500, DJIA, NASDAQ

Total nonfarm payroll employment fell by 125,000 in June as the number of temporary census workers dropped by 225,000, according to the Labor Department. Most analysts expected the June unemployment numbers to be better. The market did sell of substantially until about 1 PM. That is about the time that traders who are still around begin to leave for the 4th or July holiday. The small band that was left bid the market back up to near even. Volume was so light, it was hard to detect a trend.

The closing bell numbers:

Dow 9,686.48 -46.05 (-0.47%)
S&P 500 1,022.58 -4.79 (-0.47%)
Nasdaq 2,091.79 -9.57 (-0.46%)

Continue reading Closing Bell: Stocks Flat Going Into The Holiday (GE, BAC, CSCO, INTC, AAPL)

Closing Bell: Stocks Flat Going Into The Holiday (GE, BAC, CSCO, INTC, AAPL) originally appeared on BloggingStocks on Fri, 02 Jul 2010 16:00:00 EST. Please see our terms for use of feeds.

Permalink | Email this | Comments



Apple - Bank of America - Cisco Systems - General Electric - Dow Jones Industrial Average

Stocks closed broadly lower Friday after the latest unemployment and factory reports added to the evidence supporting a sluggish U.S. recovery. Light volume going into the July 4th holiday weekend means next week's trading will be more telling.

Continue reading Stocks Limp to Losses on Weak Jobs and Factory Data

Stocks Limp to Losses on Weak Jobs and Factory Data originally appeared on DailyFinance on Fri, 02 Jul 2010 16:30:00.

Filed Under: Economy, Investing, NYSE, Video

Permalink | Tweet this! | Comments

Filed under: Electronic Arts (ERTS), Activision Inc (ATVI), Technology, Take-Two Interactive (TTWO)

Take-Two Interactive (TTWO), whose competitors in the video-game industry include Activision Blizzard (ATVI) and Electronic Arts (ERTS), is doing good business with its Red Dead Redemption title. But is that enough to make you want to buy the stock?

According to the AP, the game sold 1.5 million copies in the month of May. That's relatively impressive, but it unfortunately did not meet the expectations of Michael Pachter, who is an analyst for Wedbush Morgan. He was thinking 1.8 million copies was doable. Even so, you have to hand it to management for a robust launch.

Continue reading Take-Two Interactive: Buy or Sell?

Take-Two Interactive: Buy or Sell? originally appeared on BloggingStocks on Fri, 02 Jul 2010 15:20:00 EST. Please see our terms for use of feeds.

Read | Permalink | Email this | Comments



Take-Two Interactive - Electronic Arts - Activision - Video game - Red Dead Redemption

Filed under: Forecasts, Good news, Google (GOOG), Yahoo! (YHOO), Newsletters, McDonald's (MCD), Netflix, Inc. (NFLX), Adobe Systems (ADBE), AutoZone Inc (AZO), Best Buy (BBY), Kroger Co (KR), Chipotle Mexican Grill'A' (CMG), News Corp'B' (NWS), Economic Data, S and P 500, DJIA, Initial Public Offerings, Stocks to Buy, Northrop Grumman (NOC), Genzyme (GENZ), Stock Picks

With all the mixed signals driving uncertainty and worry lately, the consensus has been a foggy windshield with no clear direction. We can't even tell if one of the largest bear market rallies in history is fizzling or pausing.

On Wall Street, uncertainty is certainly a buzz killer for the irrationally exuberant. If you need a towel to wipe away the fog, take a look at Your Cheat Sheet to the Psychology of Market Cycles.

While contemplating where we're headed, let's take a look at some data points that indicate the US has the potential to lead the world out of this recession ...

Continue reading Early Financial Fireworks Hit the Markets; Will the U.S. Emerge the Leader in the Second Half of Year?

Early Financial Fireworks Hit the Markets; Will the U.S. Emerge the Leader in the Second Half of Year? originally appeared on BloggingStocks on Fri, 02 Jul 2010 15:00:00 EST. Please see our terms for use of feeds.

Permalink | Email this | Comments



Google - Adobe Systems - Yahoo! - Northrop Grumman - Chipotle Mexican Grill

Filed under: International Markets, Newsletters, Mutual Funds

"I'm now spotting an opportunity with Templeton Global Income Fund (GIM) -- a closed end fund that is run by one of the finest international bond managers, Dr. Michael Hasenstab," says Richard Band.

(Incidentally, Richard Band has just earned his own accolades; his Profitable Investing advisory was just named the nation's #1 financial newsletter for editorial excellent for 2010 by SIPA, the newsletter industry trade association.)

Band continues, "In recent months, as we all know, fears of a pan-European sovereign-debt crisis have knocked down the euro.

"What many investors don't realize, though, is that the panicky selling has also spilled over into the Asian currencies. They've fallen against the dollar, even though most Asian countries remain on a rock-solid financial footing.

Continue reading Templeton Global Income (GIM): A 'Stellar' Record

Templeton Global Income (GIM): A 'Stellar' Record originally appeared on BloggingStocks on Fri, 02 Jul 2010 14:30:00 EST. Please see our terms for use of feeds.

Permalink | Email this | Comments



Mutual fund - BloggingStocks - Business - Investing - Bond

Filed under: Forecasts, DJIA, NASDAQ

To be sure, it was not a week for the bulls. Data for job creation, jobless claims, and manufacturing are signaling an economic slowdown.

However, one experienced observer of economic activity is arguing that all is not lost yet, regarding the still-young U.S. economic recovery. Former U.S. Federal Reserve Chairman Alan Greenspan argued that the recovery is undergoing a "typical pause" that will be structured by the performance of the stock market, CNBC reported.

Continue reading Greenspan Says Recovery Is Pausing, Sees Wealth Effect As Pivotal Growth Engine

Greenspan Says Recovery Is Pausing, Sees Wealth Effect As Pivotal Growth Engine originally appeared on BloggingStocks on Fri, 02 Jul 2010 14:00:00 EST. Please see our terms for use of feeds.

Permalink | Email this | Comments



Alan Greenspan - Federal Reserve System - Stock market - BloggingStocks - CNBC

Filed under: Indices, Market Matters, Money and Finance Today, ETF Investing, Personal Finance

Twenty years ago, Nathan Most invented the exchange-traded fund (ETF) as a simple mutual fund that trades on exchanges like a stock. Then other creators like Blackrock Inc. (BLK) joined in, creating ETFs for commodities as well as exotic ones that double and triple returns. They are called 2x and 3x shares.

When first introduced, ETFs were shunned, mainly because investors knew little about the way they worked. Slowly, they gained momentum, and now there are some 260 such funds trading $40 billion globally. On some days, more than four out of ten trades on U.S. stock exchanges involve ETFs.

Continue reading The New World of ETFs

The New World of ETFs originally appeared on BloggingStocks on Fri, 02 Jul 2010 13:30:00 EST. Please see our terms for use of feeds.

Read | Read | Permalink | Email this | Comments



BlackRock - Exchange Traded Fund - Mutual fund - Business - Investing

Filed under: Market Matters, Financial Crisis

For months European leaders have grappled with capping or deferring bank bonuses. Now a final deal has been approved by the European Parliament. It affects bank pay for the 27-nation bloc.

The final agreement would have bank employees defer 40% to 60% of their bonuses for at least three years. Half of the money would have to be paid in shares or other instruments tied to the bank's performance. In addition there is a clawback provision in which the bank can force an employee to give back all or part of the bonus if the employee took a bad risk.

Continue reading European Parliament Sets Deferment of Bank Bonuses

European Parliament Sets Deferment of Bank Bonuses originally appeared on BloggingStocks on Fri, 02 Jul 2010 13:00:00 EST. Please see our terms for use of feeds.

Permalink | Email this | Comments



European Parliament - Bank - European Union - BloggingStocks - Business