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The Morning Plum

* Something is seriously wrong: Is there a point at which the torrents of outside cash flooding the midterm elections will prompt some kind of consensus among the political classes that we're entering dangerous new uncharted territory and that something needs to be done about it?

Two breaking stories seem to be functioning as a bit of a wake up call. One good read comes from Ken Vogel, who takes a hard look at yesterday's announcement that Karl Rove's group will dump over $4 million into the midterms, concluding that an astonishing 75 percent of it is coming from undisclosed donors.

"The expenditure highlights a trend that has shaped the midterm campaigns and could have far-reaching consequences in American politics: the shift to anonymous political activity," Vogel concludes.

And: The U.S. Chamber of Commerce takes another hit over the story about foreign money possibly fueling its campaign contributions. The New York Times edit board sharply dismisses the Chamber's denials and excuses, making the obvious point that "it is impossible for an outsider to know whether the group is following its rules."

* Dems underselling their accomplishments? My post yesterday on that poll showing widespread ignorance about the scope of this Congress's accomplishments, and the resulting lack of Dem enthusiasm, has generated some smart commentary around the Web.

Kate Pickert notes this reveals the perils of Dems underselling their accomplishments in order to avoid scaring independents about government overreach.

And Jon Chait says the fact that Dems can't recognize that this is "the most successful period of liberal governance in more than four decades" is more proof of Dems' addiction to that losing feeling:

This is, objectively, a very productive Congress. Now, right-wingers think it's been productive at dystopian, freedom-destroying confiscations of wealth that remind them of an Ayn Rand novel. But clearly Congress is doing a lot. The fact that Democrats think Congress has accomplished little is evidence of some kind of chronic depressive tendency.

* Even the Connecticut Senate race is too close for comfort? Aaron Blake reports that national Democrats are sinking over $1 million more ad cash into the contest, which was once seen as an easy win for Richard Blumenthal and Dems.

* Dems on defense everwhere: Interesting polling from The Hill, which surveys a dozen key toss-up House races all over the country and finds the GOP candidates leading in eleven of them, though in many cases the races remain nailbiters.

* But: Dems still think they can hold the House by winning on the margins.

* Not your daddy's GOP: Dana Milbank looks at the voting records of many leading Republicans going back a generation and finds that they would have had no place in today's Republican Party.

* And: Few GOP candidates are using the Pledge to America in their campaigns.

* "I'm you" update: Fun read from Jonathan Capehart, who really, really, really doesn't want Christine O'Donnell to be him.

* Pennsylvania Senate race goes to Hong Kong: My story the other day on GOP candidate Pat Toomey's year in Hong Kong is the subject of a new DSCC ad.

* Is Sharron Angle winning? A Fox poll finding Angle ahead by three points has generated some discussion, but the sample seems to be weighted in favor of conservatives.

* And Angle goes dark: Even though the claims have been repeatedly debunked, she's back with a lovely new ad charging that Harry Reid voted to give all kinds of goodies to illegal aliens -- and this spot features a bunch of swarthy young men sneaking around in hopes of taking your jobs and money:

Eric Kleefeld points out that the college students and construction workers in the ad "all appear to be white."

What else is happening?

By Greg Sargent  | October 6, 2010; 8:32 AM ET
Categories:  2010 elections, Campaign finance, House Dems, House GOPers, Immigration, Morning Plum, Senate Dems, Senate Republicans  
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Next: House "moderates" will be even more awesome and powerful next year

Comments

On his radio show this afternoon, leading right-wing talker Glenn Beck and his producer Pat Gray openly mocked the Cranick family. After playing a news clip explaining the situation, Gray adopted a southern drawl and began to mock Gene Cranick’s explanation of how the county’s firefighters refused to help his family.

Beck then went on to complain that “those who are just on raw feeling are not going to understand” that the county’s actions in refusing to assist the Cranicks were justified. He explained that America will be having the “argument” about the case of the Cranicks and that it will go “nowhere if you go onto ‘compassion, compassion, compassion, compassion’ or well, ‘they should’ve put it out, what is the fire department for?’” Beck then went on to say that the Cranicks would be “spongeing off their neighbors” if the fire department had helped them put out their fire. The radio host concluded his rant by saying “this is the kind of stuff that’s going to have to happen, we are going to have to have these kinds of things”:

Posted by: pragmaticstill | October 6, 2010 8:47 AM | Report abuse

Greg,
I wouldn't take too much stalk into FOX polls. They are just a subsidiary of Rasmussen polls.

Posted by: maritza1 | October 6, 2010 8:59 AM | Report abuse

Yes, this is the most successful period of liberal governance in over four decades but think, man, think!

The period you hark back to is Lyndon Johnson's "Great Society". That is socialism by another name and it created the bloated monster known as WELFARE.

What was America's reaction to all this??

Richard Nixon.

Johnson slid into the ashheap of history and Nixon.........well, you know.

Posted by: battleground51 | October 6, 2010 9:00 AM | Report abuse

@pragmaticstill - the man seems to have stepped out of a Doonsebury strip, doesn't he.

Posted by: bernielatham | October 6, 2010 9:05 AM | Report abuse

It is incredible, Bernie. At what point do these lunkheads look in the mirror or listen to themselves and realize that what they are advocating and defending as "American" is not even close?

Posted by: pragmaticstill | October 6, 2010 9:08 AM | Report abuse

From Greg Mitchell's twitter thingey...

"Just got an email from Carl Paladino spokesman Michael Caputo: "You are clearly a d*uche bag." Re: my piece"
http://twitter.com/GregMitch

Posted by: bernielatham | October 6, 2010 9:11 AM | Report abuse

Dirty, Harry Reid tried very hard to give ILLEGAL "immigrants" the biggest "goodie" of all time. AMNESTY and easy, cheap, American citizenship.

All in the hope that those illegal masses would become Democrats and vote for Reid and all the rest of his Obamacrat cronies and thus stave off their defeat by an enraged electorate of real Americans.

Foiled again, Dirty Harry! Your nefarious plan was foiled by true blue, Americans. Truth, justice, and the American way!

Angle's ad is right on target.

Posted by: battleground51 | October 6, 2010 9:14 AM | Report abuse

@prag - I think we can see it as a corner of American history but just one of the really ugly corners.

Jonah Goldberg taxes his brain...(NRO front page)

"We need clear and public standards for killing citizens"

Posted by: bernielatham | October 6, 2010 9:16 AM | Report abuse

@Q.B. I read your post responding to my theocracy charges. I concede it is well thought out and would seemingly make sense and perhaps it's because of my lack of communication skills in my original post that I think you are misguided..ie maybe I misguided you.

But if we may revisit...this is what you took out of my original post...

"You think someone like Demint should support liberal policies if he is "truly" a Christian, but you condemn him for supporting conservative positions based on Christianity."

That's not my point. My point is simply the hypocrisy involved is overwhelming.
I'd just as soon let him leave his religion at home, but we know that's not going to happen. And so if he must bring it to the table could he at least be consistent.

My further point would be...and this is where you will respond with the word "liberal" and I get that...but think about what I'm saying here...do you really want to couch conservatism as not compassionate and liberalism as compassionate. My further point is that it is sad to me personally that DeMint and his ilk not only are inconsistent in the application of their "Christian" beliefs but they always err on the side of for lack of a better word being mean. They are like the old Dana Carvey character on SNL the "Church Lady".

Specifically Demint rails against sex outside of marriage...against gays...he wishes to literally discriminate against those folks while he continually ignores this part of Christ's teachings...

Matthew 25:40 And the King will make answer and say to them, Truly I say to you, Because you did it to the least of these my brothers, you did it to me.

While SOME posters seek to continually demonize ANYBODY who needs help...and I readily concede there are people gaming the system..poor, middle class and wealthy...there are a huge number of my brothers who are in need and so I am moved to be concerned about them. Is that really such a bad thing?

I shall not try to speak for you Q.B. You can answer that last question for yourself.
And keep in mind I am well aware that our disagreements about policy really revolve around two major areas...morality..what we are currently discussing...and EFFECTIVE policy. That's a different discussion altogether. I get that you really believe tax cuts work, trickle down is the way to go..and we can argue those points as we often do at a later time. And so two points Q.B. Morality...and effective policy. If I thought trickle down truly lifted all boats and made life better for everybody I'd side with you on trickle down. That's not been my observation.

Posted by: rukidding7 | October 6, 2010 9:18 AM | Report abuse

The party of the people. Michael Steele has no idea of what the minimum wage is.
http://tpmdc.talkingpointsmemo.com/2010/10/michael-steele-has-no-clue-what-the-minimum-wage-is-video.php?ref=fpb

Recall the Republican congressman about five years back who estimated the average income of Americans to be $250,000.

Posted by: bernielatham | October 6, 2010 9:27 AM | Report abuse

@battleground: "and Nixon.........well, you know"

And Nixon was as much of a liberal as LBJ. We got someone to the right of McGovern, but just barely.

The next Republican president may be a neocon or a Big Government conservative like Bush, but I would wager they are going to be well to the right of Richard M. Nixon.

@pragmatic: clearly, some things have to be common public utilities that cover everybody. Even if it's not your house, quite frankly, it's in everybody's interest in the neighborhood that there not be a burned down house in it. Not to mention the whole fire spreading thing . . .

However, Cranick may have refused to pay $75 to protect his house from fire--he essentially refused to enter the social compact with his neighbors. He says he forgot, but what would you say in that situation? Of course, you would have paid the $75 for fire service, which is crazy-cheap.

Not to mention, they set their own house on fire by burning trash right next to it. I don't mean to be unsympathetic, but . . . well, really, you need to be burning trash next to your house? And you don't care about the environment . . . why?

Regarding Beck's take, it mystifies me. Wants to make the left's case for them? Because his argument seems more like a liberal cliche than a reasoned defense of the fire dept.

The real argument seems to me that (a) it's a long-standing (20+ years) arrangement (i.e., social compact) that someone chose (or forgot) to participate in, and Cranick's house was allowed to burn to the ground with all the officiousness and bureaucratic literality of any DMV.

A truly Machiavellian, greed-is-good private enterprise fire department would have almost surely realized the PR blunder of letting a house burn down, and would have put it out, then billed the man out the wazoo. Since Cranick offered to "pay anything" to have his house put out, clearly it wasn't an "evil profit motive" keeping them from putting his house out, but an obsequious observation of the bureaucratic strictures this particular social compact labored under.

Posted by: Kevin_Willis | October 6, 2010 9:28 AM | Report abuse

Like many posters I have my pet issues, and so those are issues I have obviously researched more than others. For me it is HCR, Defense and the massive inequality in our Wealth Distribution.

I wish to post from a very interesting study.
It shows that the American people, across the board, demographically and politically are far more in tune with my thoughts than those of posters who pooh pooh the thought of any wealth disparity or that it is a problem. (That would be you Kevin :-) )

"Americans vastly underestimate the degree of wealth inequality in America, and we believe that the distribution should be far more equitable than it actually is, according to a new study.

Or, as the study's authors put it: "All demographic groups -- even those not usually associated with wealth redistribution such as Republicans and the wealthy -- desired a more equal distribution of wealth than the status quo."

The report (pdf) "Building a Better America -- One Wealth Quintile At A Time" by Dan Ariely of Duke University and Michael I. Norton of Harvard Business School (hat tip to Paul Kedrosky), shows that across ideological, economic and gender groups, Americans thought the richest 20 percent of our society controlled about 59 percent of the wealth, while the real number is closer to 84 percent.

The respondents were presented with unlabeled pie charts representing the wealth distributions of the U.S., where the richest 20 percent controlled about 84 percent of wealth, and Sweden, where the top 20 percent only controlled 36 percent of wealth. Without knowing which country they were picking, 92 percent of respondents said they'd rather live in a country with Sweden's wealth distribution."

http://www.commondreams.org/headline/2010/09/24-5

And this study was actually being generous to the uber wealthy in our country because it only broke down distribution into quintiles. Imagine how folks would have reacted if they realized that it's not just the fact of the top 20% owning 84% but if you look more closely at the numbers you find that the top 1% own 38% of the wealth...the number the majority thought the top 20% should own.

Posted by: rukidding7 | October 6, 2010 9:31 AM | Report abuse

@bernie: ""We need clear and public standards for killing citizens"

Which was in reference to Obama doing just that (and his secret assassination list). Funny what things people focus on. ;)

Posted by: Kevin_Willis | October 6, 2010 9:38 AM | Report abuse

@ruk: "It shows that the American people, across the board, demographically and politically are far more in tune with my thoughts than those of posters who pooh pooh the thought of any wealth disparity or that it is a problem"

Clarity. I agree there is a huge wealth disparity, I just don't think it represents (in and of itself) the huge problem others think it does. '

Regarding my being out of tune with the great majority, I shall just quote Jonathan Swift: "When a true genius appears in this world, you may know him by this sign, that the dunces are all in confederacy against him."

/snark
"All demographic groups -- even those not usually associated with wealth redistribution such as Republicans and the wealthy -- desired a more equal distribution of wealth than the status quo"

BTW, I think a more equal wealth distribution is desirable in the abstract, and, when it happens organically, is beneficial. When it happens artificially, by government fiat, the results will tend to range from negligible to tragic.

Also, there is a point where an obsession over wealth ratios, via quintile then fractions of quintiles, begins to sound more like numerology than statistics. ;) Apropos of nothing, just sayin'.

Posted by: Kevin_Willis | October 6, 2010 9:46 AM | Report abuse

@kevin - That (9:12) is s a really bright post. Well done.

We humans make all sorts of errors of prudence or in lack of foresight. In this case, both the family for their burning methodology and the FD decider.

Our social compacts have as a fundamental part of their function, the mitigation of such doofushood. But of course the design of those compacts will often themselves be subject to precisely the same doofushood. And this particular social compact in place is not one, I'll note, that American communities broadly have copied. And I doubt we'll now see a stampede in that direction. On the other hand, if Norquist had his way...

Posted by: bernielatham | October 6, 2010 9:52 AM | Report abuse

@Kevin...again I think you'd agree that this entire wealth disparity argument breaks down into the same two issues that I pointed out earlier to Q.B.

There is the moral aspect...or as you perhaps have referred to it..the abstract.

Then there is the actual efficiency of the policy. Again there are studies that show that societies with bad wealth distribution patterns (i.e. the U.S. Again perhaps you can call it coincidence but the two worst economic disasters in our history..the Great Depression and the Great Recession BOTH occurred when wealth distribution patterns reached our current levels) have economies that perform more poorly as measured by the usual metrics..GDP..inflation..etc. In other words Kevin there are actually pragmatic reasons to be concerned about the fact that our wealth distribution has been skewed so heavily towards the uber wealthy and is growing even more concentrated with every passing day. It's not just a moral issue...it's a practical issue...it's effing up our economy!

Posted by: rukidding7 | October 6, 2010 9:55 AM | Report abuse

Re the now infamous fire. As a poster suggested yesterday why couldn't we have it both ways...OK the guy didn't pay his $75
Put the freaking fire out and then hit him with a huge fine for non payment. Everybody wins...the firemen get to do their job...the guys still has a house...and his neighbors are still motivated to pay their $75 or face the possibility of a huge fine if the F.D. has to respond to their homes.

Posted by: rukidding7 | October 6, 2010 10:07 AM | Report abuse

I also agree in principle, KW, with what you are saying but are we then to take the social compact a step further and investigate whether a homeowner has paid his taxes before putting a fire out?

But my larger point is the reaction of those standing back from the situation and suggesting that the Cranick's got what they deserved. When did the attitude of the country become "I got mine, eff the rest of you?"

Posted by: pragmaticstill | October 6, 2010 10:08 AM | Report abuse

@bernie: "On the other hand, if Norquist had his way..."

Fortunately, he won't. And neither will Axelrod or Soros or Kristol or Goldberg. The brilliance of our system (and, to a lesser extent, most parliamentary systems) is that, as messy as it is, there is no unitary leadership, or control. No one person or group ever gets 100% of what they want, although they almost always get more than what their opposition wants.

But back to the fee-for-service fire protection--that model is clearly a poor one, especially in our society. While a utilitarian idealist might object and say that all of society should be re-ordered so that (a) nobody would expect anything different and that (b) people would just pay their fee for service, and not forget, and that would solve everything. But a much simpler process is to adopt the common model, in that fire service is treated as a public utility in most places, and if you live in an area, you are billed for it, and what you pay includes putting out all fires, not just those of residents currently paying the bill.

As I think I mentioned, it's not in the larger neighborhood's best interest to have a house burn down. It's dangerous not to put out burning buildings, no matter who paid what, and can potentially cost lives. The aftermath is much worse than just putting out the building . . . yet, if you do fee for service, then there are problems with letting people pay at the last minute (upping the fee to $750 for putting out a fire if you don't pay the fee might be one way, though). In the long run, it's probably in everybody's best interest for fire protection to be considered a public utility, and covered either in the utility bill, or via taxation.

Plus, if I'm the insurance company that insured the Cranick's house, I sue the fire department. There is an argument to be made for gross negligence, even if they honored the letter of the contract. "And what happens, after the fact, if it turns out your records were incomplete? What if, in fact, he had paid, and has a record of it? What if someone had died while you were there, in a position to put out the fire?" etc, etc.

The more I think of, such officious fee-for-service fire protection seems like an exceedingly poor model.

Posted by: Kevin_Willis | October 6, 2010 10:16 AM | Report abuse

The poll out of the Hill was very interesting. I listened to a discussion about it on C-SPAN. Mark Penn was hired to do the polling. There has been a lot of polling of Senate races, but much less so on the House.

This poll looked at the races of a dozen freshman Representatives--districts the Republicans will have to take back to win the House. The good news for the Heffalumps is that they were ahead in 11 of 12. The good news for the Donkeys is that half of these races are in the margin of error. Losing the House is far from a done deal. One interesting factor is that voting for HCR appeared to be a negative. Those who voted against it were generally more competitive.

My take is that this is a potential nail biter of an election that could swing anywhere for significant losses (say, 20 - 30 House seats and 3 - 5 Senate seats) to disaster (losing the House, though the Senate seems difficult).

BB

BB

Posted by: FairlingtonBlade | October 6, 2010 10:22 AM | Report abuse

Must run but wanted to underline the lead item from Greg this morning, "something is seriously wrong".

It really is. This election cycle will be studied for its various elements but I doubt any other element will gain or deserve the focus of unfettered and invisible election funding we now see. This is enormously dangerous.

From your founders on up, prudent voices have acknowledged that you have a democracy "if we can keep it". That implies the real risk that you might not. Lincoln's opinion was that the US would not fall as a consequence of external factors or players but because of how it might come to organize itself in the future.

You have to turn this one around.

Posted by: bernielatham | October 6, 2010 10:22 AM | Report abuse

@pragmatic: "but are we then to take the social compact a step further and investigate whether a homeowner has paid his taxes before putting a fire out"

No. A) I think fee-for-service is a very poor model for fire protection and B) its also in your neighbors best interest that your house not burn down. Taxes and even pay-via-utility pays for broad coverage, not per-taxpayer.

That being said, I'm pretty sure the FD in question does cover everybody, irrespective, in their actual municipality. The fee-for-service is for rural folks who presumably cannot afford, and have not wanted to attempt to organize, their own FD. It's not much different than if the FDNY offered to do some fee-for-service coverage of Syracuse, if Syracuse did not already have their own fine FD.

I think the real problem here is that fee-for-service is probably not the way to cover county folks without fire protection. Where I live (in Tennessee) outliers without their own FDs (not many) are covered generally by the county or unincorporated "council" raising the cash to pay one bulk fee to neighboring fire and police departments. I think this is how rural coverage is usually handled, and it's obviously the better answer.

Posted by: Kevin_Willis | October 6, 2010 10:22 AM | Report abuse

@bernie: "This is enormously dangerous."

Seems fairly different, certainly. But how is it enormously dangerous? And please note, I'm not defending anonymous political contributions--I think full disclosure is the way to go.

But I'm not sure how it's "enormously dangerous", at least as evidence has been presented thus far, unless "enormously dangerous" is essentially translated as "Republicans are more likely to win in this election cycle".

Posted by: Kevin_Willis | October 6, 2010 10:28 AM | Report abuse

Greg:

I missed your post on Toomey the other day, to which you linked above and in which you said:

"Dem Senate candidate Joe Sestak and others have accused Toomey of doing controversial currency swaps during that year in Hong Kong."

Can you please clarify what "currency swaps" he did, what was "controversial" about them, and to whom they were "controversial"? I am immensely curious about what could have been controversial about currency swaps. As it happens I was in Hong Kong at roughly the same time ('92-'99), was regularly engaged in executing currency swaps, and as far as I am aware, none of them were "controversial".

As an aside, could you explain to us what a currency swap is?

Posted by: ScottC3 | October 6, 2010 10:30 AM | Report abuse

@ScottC3: "As an aside, could you explain to us what a currency swap is?"

Oooh! Ooooh! I can! It's something scary that conservatives do to purposely ruin the economy and make poor people suffer!

Am I right? Huh? Am I right? /snark

Posted by: Kevin_Willis | October 6, 2010 10:32 AM | Report abuse

Greg, that polling from "The Hill" is actually sponsored by America's National Gas Association... do you think they might have a vested interest in the results?

Posted by: benintn | October 6, 2010 10:34 AM | Report abuse

That's a fine answer, KW, and I appreciate that your opinion is fair and equitable. But, again, I am talking about the Glenn Becks and Jonah Goldbergs, et al -- the "I got mine, eff you effing sponge" crowd. By their logic, wouldn't anyone that has fallen behind in their real estate taxes be sponging off the rest of us?

Perhaps the snow plow should also lift at every driveway of a sponge, no taxes -no emergency for your kid with a broken leg. How far will Glenn Beck take it?

Posted by: pragmaticstill | October 6, 2010 10:34 AM | Report abuse

Good thing we've got the US Chamber of Commerce, using foreign money now to protect all of us:

The government said Monday it is putting on hold new rules that make it easier for shareholders to nominate directors of public companies, after the U.S. Chamber of Commerce sued to block the changes.

http://www.washingtonpost.com/wp-dyn/content/article/2010/10/04/AR2010100405880.html

Posted by: pragmaticstill | October 6, 2010 10:42 AM | Report abuse

@ScottC3
This article has a great explanation:

http://motherjones.com/politics/2010/10/pat-toomey-derivatives-wall-street

An excerpt:

During the campaign, Toomey has referred to the products he worked with as "non-risky" "common derivatives," different from the "toxic" mortgage-backed derivatives that some believe caused the financial crisis. "That's not true," says Michael Greenberger, a professor at the University of Maryland and former CFTC official. "It just so happens that the 2008 meltdown involved credit default swaps, but interest rate swaps and currency swaps can be as risky as anything else. These swaps are very, very risky."

Posted by: DinOH | October 6, 2010 11:00 AM | Report abuse

"And: Few GOP candidates are using the Pledge to America in their campaigns."

Candidates aren't supposed to be using it! That was the intention - unlike the original Newt pledge.

Posted by: sbj3 | October 6, 2010 11:05 AM | Report abuse

Kevin:

"It's something scary that conservatives do to purposely ruin the economy and make poor people suffer!"

Correct!

Posted by: ScottC3 | October 6, 2010 11:08 AM | Report abuse

All, my read on what's in store for House Dems next year:

http://voices.washingtonpost.com/plum-line/2010/10/house_moderates_will_be_even_m.html

Posted by: Greg Sargent | October 6, 2010 11:08 AM | Report abuse

What was the intention, sbj?

Posted by: pragmaticstill | October 6, 2010 11:10 AM | Report abuse

benintn - The poll was conducted by Penn Schoen Berland, a firm founded by Mark Penn. Regardless as to who co-sponsored the poll, it's Penn's reputation on the line. Why exactly would he skew the results

More generally, does anyone think they're scoring points attacking pollsters? I have my doubts about Rasmussen, but that's mainly a matter of methodology (robopolls). Rasmussen's numbers bounce all over the place, making it difficult to give them much credence. Rand Paul is up 25 points one week and 10 the next. The margin of error seems to be 1 (as in 100%).

BB

Posted by: FairlingtonBlade | October 6, 2010 11:17 AM | Report abuse

A truly Machiavellian, greed-is-good private enterprise fire department would have almost surely realized the PR blunder of letting a house burn down, and would have put it out, then billed the man out the wazoo. Since Cranick offered to "pay anything" to have his house put out, clearly it wasn't an "evil profit motive" keeping them from putting his house out, but an obsequious observation of the bureaucratic strictures this particular social compact labored under.

Posted by: Kevin_Willis | October 6, 2010 9:28 AM
..............
Burn Baby Burn.

That Private Fire Dept. management probably were just taking a page from the Republican Party play book. They called for letting the American Auto Industry, Burn Baby Burn.

Posted by: Liam-still | October 6, 2010 11:26 AM | Report abuse

@prag: "The “Pledge” is... designed to give voters a broad outline of what proposals House Republicans will push if they regain the majority."

http://cbs2chicago.com/politics/gop.pledge.to.2.1927667.html

Posted by: sbj3 | October 6, 2010 11:28 AM | Report abuse

"The Pledge" outlines nothing.

Posted by: Liam-still | October 6, 2010 11:31 AM | Report abuse

John Boehner's Pledge:

If You Put Republicans back in charge, we promise to do things.

Posted by: Liam-still | October 6, 2010 11:33 AM | Report abuse

Currency and interest rate swaps are as plain vanilla as it gets. There is nothing inherently risky about them, and they are a valuable tool that companies use to hedge interest rate risk and f/x risk.

Of course if an investor strays from hedging and ventures into speculation (like Orange County did, or Proctor and Gamble did) then they can make or lose a lot of money.

Posted by: sold2u | October 6, 2010 11:41 AM | Report abuse

Regarding the currency swaps, I agree with Scott that one should know exactly what is being talked about. While the term currency "swaps" sounds esoteric, they can be just normal business. Of course they can be risky (derivatives often are), but it depends on how they are done.

Let us not jump onto the bandwagon until we know there's something there to jump onto.

Posted by: 12BarBlues | October 6, 2010 11:42 AM | Report abuse

The Cranick fire and the millions going into the election from anonymous domestic
AND foreign donors is only more ammunition for my argument that we are spiraling towards a third rate republic.
If the more benighted parts of this country are happy with a fee for service system then let's extend that to emergency ambulance services, emergency rooms, and police protection. You don't pay your fee - you die. Nice and simple, just the way about a solid third of this country wants it. Of course, those that say "tough crap" to the Cranick family will be the first to wave their tattered little flags on the Fourth of July, and go all gung ho in bombing another group of brown people because they looked at America cross-eyed.

Posted by: filmnoia | October 6, 2010 11:47 AM | Report abuse

@Liam-still: "That Private Fire Dept. management probably were just taking a page from the Republican Party play book. They called for letting the American Auto Industry, Burn Baby Burn."

That seems, to me, to be a comparison of apples to car fenders. And, it was the standard, public fire department of the municipality for which it was chartered. Not a private company.

And the Republican party was arguing that the government needed to stay out of the car business, and that the market would decide. Which is not, technically, advocating for standing by while the car companies burned. They might have been able to get out of the doldrums without Big Daddy Government's micromanagement secret sauce.

Recently, the last manufacturer of incandescent lightbulbs finished "burning down", which was a direct result of legislation advocated for and passed by Democrats (and some sympathetic-to-driving-manufacturing-to-China Republicans). If being of the position that the American tax payer not ought to be called upon to fund the poor management decision of the large auto companies is sitting by and "watching the fire burn", clearly the legislation getting rid of any domestic manufacture of incandescent lightbulbs was outright arson.

Posted by: Kevin_Willis | October 6, 2010 11:56 AM | Report abuse

@filmnoia: "Of course, those that say "tough crap" to the Cranick family will be the first to wave their tattered little flags on the Fourth of July, and go all gung ho in bombing another group of brown people because they looked at America cross-eyed."

I hope your self-congratulatory view of your fellow Americans as selfish, racist, war-mongering dopes consoles you, should there be a Republican landslide in November.

Which is hardly guaranteed but, after perusing the commentary of the "loyal" opposition, is often dearly hoped for by me. ;)

Posted by: Kevin_Willis | October 6, 2010 11:59 AM | Report abuse

Since our illustrious Supreme Court in their infamous Citizens United case opened up the floodgates of unlimited worldwide corporate billions for our political campaigns, and in order to even out the playing field since these monies seem currently to be going only in the Republican direction, all politicians should open up their offices to the international highest bidder, the sooner the better. This is the only way to compete in this environment. Go for it.

Posted by: dozas | October 6, 2010 11:59 AM | Report abuse

DinOH:

"These swaps are very, very risky."

Not inherently so. It depends entirely on the context in which they are used.

Imagine a big American bank operating overseas. It funds itself in dollars, both through deposit taking and borrowing in the US. However, it decides to lend money to a project taking place in Italy. Obviously the project needs Euros, not dollars. So the bank converts its dollars into Euros in order to lend to the project. But now it has a risk problem. It must pay out interest to its depositors in dollars, but is receiving its interest payments in Euros. And when the project finishes and the loan gets repaid, it will get repaid in Euros, but the bank owes its depositors dollars. This is a lot of currency risk, since when the loan gets repaid, it will have to be converted back to dollars, and the exchange rate will have moved. What if the Euros are no longer worth as many dollars as when the loan was made?

To mitigate this risk, the bank executes a currency swap, in which it agrees to "swap" its dollars today for a fixed amount of Euro, and "swap" them back in 5 years (or 10 years, or however long the loan is) for the same rate, regardless of what the then current FX rate is. And in the interim, the US bank agrees to pay an interest rate in Euros to its swap counterparty, in exchange for receiving an interest payment in dollars from the same counterparty.

In this situation, the swap actually reduces, not increases, the bank's risk profile.

Of course, if the bank enters into the swap not to hedge existing risk, but rather to introduce new risk, then of course it can be "risky", but no more so than doing the original transaction, ie borrowing in one currency in order to lend in another.

Posted by: ScottC3 | October 6, 2010 12:01 PM | Report abuse

"I hope your self-congratulatory view of your fellow Americans as selfish, racist, war-mongering dopes consoles you, should there be a Republican landslide in November."

I would say about a third of the country is brain damaged and/or religiously insane. The rest of us are OK.
The 2% have the other 30% or so wrapped around their fingers. In a perverse way, I wouldn't mind seeing a GOP landslide in a month. It will be a wake up call to throw the GOP bums out in 2012.

Posted by: filmnoia | October 6, 2010 12:06 PM | Report abuse

@filmnoia: "I would say about a third of the country is brain damaged and/or religiously insane."

What about the irreligiously insane?

"It will be a wake up call to throw the GOP bums out in 2012"

Maybe. Don't be so sure. There will be more Democrats defending seats in the senate than the Republican in the next two election cycles (after November), if I'm not mistaken, which makes big gains by Democrats unlikely, and sets them up for even more potential losses. The house, of course, can switch pretty easily. But, even then, Democrats made gains in 2006 and 2008. It's been four years. It make take four or six years for them to get the majority back, once they lose it to the Republicans. Which (counter all conventional wisdom) might not be this year.

But it will happen, and continue to trade back and forth, until such time as the Whigs finally resurge as a national political force.

Posted by: Kevin_Willis | October 6, 2010 12:15 PM | Report abuse

DinOH (or anyone else interested in the real deal behind derivatives):

The reason for, and the beauty behind, most derivatives markets is that they make it very cheap and efficient to hedge against risks that are otherwise very cumbersome and inefficient (if possible at all) to hedge. However, as a necessary consequence of this, they also make it very easy to introduce risks (those very same risks) that otherwise are much more expensive and cumbersome to introduce. It is this fact, not the inherent risks themselves, that make derivatives potentially dangerous.

Posted by: ScottC3 | October 6, 2010 12:18 PM | Report abuse

BTW....

I asked Greg (to no effect, obviously) to explain to us what a currency swap is not because I don't know, but because I am pretty sure that he hasn't the slightest idea. I suspect that when Greg wrote that Toomey has been accused of doing "controversial currency swaps", for all Greg knows he might as well have been accused of doing "controversial [insert made-up word here]". I am quite sure Greg was a whole lot more interested in pushing the fact that something, anything, was "controversial" than in edifying his audience as to what actually was controversial and why.

Posted by: ScottC3 | October 6, 2010 12:35 PM | Report abuse

I will back up Scott's description of derivatives. I never traded them, but was on the customer side. Derivatives CAN be used to reduce risk for businesses. We used derivatives in this way only--we did not enter into derivatives in order to make money on the trades, only to hedge our exposure. There is nothing controversial about this.

But, derivatives can also introduce risk where none exists, as Scott explains. Some people would like to reduce or eliminate these types of trades, but speculators also serve the market. The question here seems to be the degree of speculation in the specified market. When almost all of the trades in a specified market are speculation, some question that this is a well functioning derivative market, as I understand the issue.

Posted by: 12BarBlues | October 6, 2010 12:36 PM | Report abuse

I'll lay out what Sestak was probably doing at Chemical Bank with currency swaps.

Customer A: Large US retailer (like Target) orders HK$100MM of goods for delivery in 3 months, payable on receipt. If the Hong Kong Dollar rises during that period, the retailer has to pay more for the goods (in US dollars) than it wants to. It enters into a currency swap that pays it the return on HK$ and it pays out the return on US$. So if the Hong Kong Dollar rises, the money it makes on the swap offsets the amount extra they have to pay for the shipment. It allows them to lock in their exposure, so that the amount they pay in 3 months for the goods is the same in US dollar that it was when they negotiated the deal.

Customer B: TIAA / CREF retirement fund that just bought HK$ 100MM of bonds issued by Hutchison Whampoa. They want to make sure that when the bonds mature, they get back the same amount in US dollars they did when they initially invested. If the Hong Kong Dollar depreciates against the US dollar, their bonds are worth less at maturity. So they enter a currency swap that pays them US dollar returns and they pay HK$ returns.

Chemical Bank takes the other side of both trades, takes the financing spread for itself and that is how a derivatives desk makes money. Very boring, plain vanilla stuff.

Posted by: sold2u | October 6, 2010 12:40 PM | Report abuse

What I've learned is that it was Scott I was studying in the finance courses I took in law school! Although it was a couple of years earlier.

I think half the class at this fancy law school were law students trying to soak up some finance -- mainly interest and currency swaps as relevant to this discussion -- and the other half were foreign finance wizzes sitting in a law class. Guess who was better at finance.

Posted by: quarterback1 | October 6, 2010 12:44 PM | Report abuse

And btw, Scott's explanation is of course dead on with my more limited grasp of his world.

Posted by: quarterback1 | October 6, 2010 12:46 PM | Report abuse

@scott and sold2u,

There is the other side of the coin, though, and we should describe that also. That is the speculation that goes on, not to hedge a business exposure, but for big profits (and losses). There are plenty of speculation trades that have brought down institutions. Derivatives can be used in this way, and are used in this way also. Credit default swaps are just one of the latest examples of that.

Posted by: 12BarBlues | October 6, 2010 12:52 PM | Report abuse

Kevin-

Er, uh. Nixon as liberal as LBJ? What have you been smoking?

Battleground-

Yes, thankfully for the Great Society and such lovely things as Voting and Civil Rights, if that's the "dust heap" of history, put me there.

Posted by: ChuckinDenton | October 6, 2010 1:01 PM | Report abuse

@12bb

I'll lay out the other side where it can go wrong.

Proctor and Gamble believed their business was interest rate sensitive. They concluded that when rates rose, their business suffered. That may have been a dubious conclusion in of itself, but that is what their treasury department concluded. They entered into interest rate swaps that paid them floating rates while they paid fixed rates. If rates rose, the amount they paid every quarter stayed the same, and the amount they received increased. This would supposedly offset declines in business. It worked so well in a rising interest rate environment that P&G decided to turn it into a profit center. They turned a hedge into a speculative instrument and lost massively when interest rates fell.

Orange County California used mortgage backed securities as a way to invest surplus cash. Mortgage backed securities pay a higher interest rate than Treasuries because they have something called convexity risk. Suffice it to say, they pay an extra percent or two as long as rates stay the same. If rates fall, they lose money. And, they are less liquid than treasuries. When the Fed tightened unexpectedly in 1994, it blew up Askin Capital Management (the biggest mortgage fund on the street) which made the mortgage market illiquid. The bids dried up for mortgage backed securities in general, and the mark to market losses forced Orange County to declare bankruptcy. Now, did Citron and Orange County really think those extra points of interest were "free"? They shouldn't have - if a financial instrument seems too good to be true, you don't understand the risks. Of course the "I didn't understand what these Wall Street Sharpies were selling me" is a good litigation tactic. But, the amount they settled for vs the amount they lost tells me Merrill did disclose the risks and Orange County knew what it was doing.

Posted by: sold2u | October 6, 2010 1:09 PM | Report abuse

All, new post from Adam Serwer on Sharron Angle's flirtation with Willie Horton tactics:

http://voices.washingtonpost.com/plum-line/2010/10/sharron_angle_race-baits_harry.html

Posted by: Greg Sargent | October 6, 2010 1:11 PM | Report abuse

Voters in most states have already made up their minds on who to vote for, so political ads of all flavors at this point are probably only good for the bottom line of the TV stations running them. Up to this point, most candidates have debated, newsprint and TV have discussed candidates and their positions, and political ads and the internet have run their course on the candidates. Anyone who is undecided at this point has been living under a rock.

Posted by: dozas | October 6, 2010 1:25 PM | Report abuse

12Bar:

"That is the speculation that goes on, not to hedge a business exposure, but for big profits (and losses)."

Yes. And, as I mentioned, the ease and efficiency which makes derivatives such a useful hedging tool also makes them a very "useful" speculative tool. And to the extent that any speculation is dangerous, derivatives when used as speculation will be equally so.

Posted by: ScottC3 | October 6, 2010 2:18 PM | Report abuse

sold2u:

re Orange County and P&G

I suspect both of them were well aware of the risks they had. They made money for a time, and loved it. Then when things went bad, they pled ignorance and claimed that the exposures hadn't been explained properly to them. I am very doubtful, although both of those events led to a whole series of compliance changes on Wall Street, with "suitability" becoming a buzzword for dealing with clients.

Posted by: ScottC3 | October 6, 2010 2:27 PM | Report abuse

@Scott, 12Bar, and sold2u

Thanks guys for the excellent class in how our financial markets work. You've all done a terrific job with your explanations and real life examples. I especially enjoyed the P&G and Orange Co. examples because that pretty well makes it possible for even we "lay" people to understand.

Posted by: rukidding7 | October 6, 2010 2:54 PM | Report abuse

@ Scott

I agree. These guys knew what they were doing, pushed their bets, and got slugged when the market went the wrong way.

"Suitability" has always been a concept for dealing with retail investors - i.e. making sure a broker didn't decimate Granny's retirement account by churning options.

P&G and Orange County were institutional accounts - big boys - who can do their own analysis (or hire a consultant to explain it to them). Caveat Emptor. Investment banks should only have to make sure the risks are disclosed in the prospectus and let professional investors determine for themselves whether an investment is suitable.

IMO, the institutional investors - so-called professionals - who lost money because they didn't do their own analysis and merely relied on credit rating agencies or wall street research were lazy in the extreme and breached their fiduciary duties to their clients. Spare me the "babe in the woods" act.

Posted by: sold2u | October 6, 2010 2:55 PM | Report abuse

sold2u:

"Spare me the "babe in the woods" act."

I think pretty much everyone in the businesses feels the same way. Unfortunately, as a public relations ploy, it is pretty effective with the general public, much of which seems eager for any excuse to view "Big Banking" as the bad guy.

Posted by: ScottC3 | October 6, 2010 3:30 PM | Report abuse

"Thanks guys for the excellent class in how our financial markets work. "

And it all started with my wagering no one here actually knew this stuff! ; )

Posted by: quarterback1 | October 6, 2010 5:08 PM | Report abuse

"Not your daddy's GOP..."

I claim prior art. But I'll have to admit, that is a little snappier than, "Not your father's Republican party." I like it.

Posted by: CalD | October 6, 2010 5:59 PM | Report abuse

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