The Daily Parker

Two (probably related) items via Talking Points Memo: a reversal in a San Francisco death-penalty case, and a release of nine Bush Administration memoranda.

In the first case, former Attorney General Michael Mukasey had overruled the U.S. Attorney in San Francisco and pressed for the death penalty in a murder case. New AG Eric Holder has reversed the DOJ's position:

The Down Below prosecution has been a searing episode for the local U.S. attorney's office. The original prosecutor on the case, Richard Cutler, opposed seeking the death penalty against [defendant Emile] Fort and co-defendant Edgar Diaz. After the Justice Department took the opposite stance, the administration sent an investigator to San Francisco to question Cutler about the case. Cutler left the office soon thereafter.

... Fort's new deal will be much the same as the one Mukasey rejected....

The DOJ's document release sheds some light on the last eight years. Not much light, but it's an improvement over total darkness. Titles include:

• Memorandum Regarding Constitutionality of Amending Foreign Intelligence Surveillance Act to Change the "Purpose" Standard for Searches (09-25-2001)
• Memorandum Regarding Determination of Enemy Belligerency and Military Detention (06-08-2002)
• Memorandum Regarding Authority for Use of Military Force to Combat Terrorist Activities within the United States (10-23-2001)

That last one, by John Yoo, should scare anyone who's ever read Orwell or Huxley.

Who else is glad we have a new President?

From the New York Times the last few days, three articles worth reading. First, the story of AIG:

When you start asking around about how A.I.G. made money during the housing bubble, you hear the same two phrases again and again: “regulatory arbitrage” and “ratings arbitrage.” The word “arbitrage” usually means taking advantage of a price differential between two securities — a bond and stock of the same company, for instance — that are related in some way. When the word is used to describe A.I.G.’s actions, however, it means something entirely different. It means taking advantage of a loophole in the rules. A less polite but perhaps more accurate term would be “scam.”

Second, "In Letter, Warren Buffet Concedes a Tough Year:"

In language that was by turns blunt and witty, he decried what he called “a series of life-threatening problems within many of the world’s great financial institutions.” An inveterate optimist about the American economy, Mr. Buffett also forecast an eventual recovery, asserting that the country has faced even more severe economic travails in the past.

Finally, a Canadian journalist points out that her country's banking system is fine:

Canadian banks are known to be risk-averse, and this has served them well. While their American counterparts were loading up their books with risky mortgages, Canadian banks maintained their lending requirements, largely avoiding subprime mortgages. The buttoned-down banks in Canada also tended to keep these types of securities on their books, rather than packaging them and selling them to investors. This meant that the exposures they did have to weak mortgages were more visible to the marketplace.

Via Calculated Risk, unemployment in California crests 10% for the first time in 26 years:

The 10.1% jobless rate is the highest since June 1983 and not far below the 11% record set in November 1982 at the worst point of a severe recession, according to the governor's office. Job losses escalated in January, with the state's unemployment rate jumping by 1.4 percentage points from a revised 8.7% for December.

The L.A. Times goes on to report a total of 380,743 layoffs in California so far this year. That's about 6,500 per day. Cheery thought.

The Rocky Mountain News, one of Denver's two newspapers, will shut its doors after tomorrow's edition:

Rich Boehne, chief executive officer of Scripps, broke the news to the Rocky staff at noon today, ending nearly three months of speculation over the paper's future. He called the paper a victim of a terrible economy and an upheaval in the newspaper industry.

"Denver can't support two newspapers anymore," Boehne told staffers, some of whom cried at the news.

On Dec. 4, Boehne announced that Scripps was looking for a buyer for the Rocky and its 50 percent interest in the Denver Newspaper Agency, the company that handles business matters for the papers, because it couldn't continue to sustain its financial losses in Denver. Scripps said the Rocky lost $16 million in 2008.

Yeah, not good. This leaves yet another major metro area with only one newspaper.

Via Calculated Risk, the FDIC's Supervisory Capital Assessment Program has published its stress-test scenarios. Ew: the average baseline shows a 2.0% decline in GDP this year followed by a 2.1% increase in 2010, as well as an "alternative more adverse" projection of -3.3% in 2009 and +0.5% in 2010. They forecast house prices to decline by -18% (baseline) to -29% (alternative) through 2010, with rises in unemployment to 8.8% (baseline) up to 10.3% (alternative).

Now, imagine you're a bank with $100 billion in mortgage assets at face value against $90 billion in liabilities. (Shudder.)

Meanwhile, Ben Bernanke told Congress today that nationalization is not an option.

I'll bet you 100 shares of Citicorp that it is.

Update: Krugman says the Fed's "worst case" isn't nearly as bad as it should be. (Insert nervous laughter here.)

First, the President's Fate of the Union address, very much worth watching:

we have lived through an era where too often, short-term gains were prized over long-term prosperity; where we failed to look beyond the next payment, the next quarter, or the next election. A surplus became an excuse to transfer wealth to the wealthy instead of an opportunity to invest in our future. Regulations were gutted for the sake of a quick profit at the expense of a healthy market. People bought homes they knew they couldn’t afford from banks and lenders who pushed those bad loans anyway. And all the while, critical debates and difficult decisions were put off for some other time on some other day.

Well that day of reckoning has arrived, and the time to take charge of our future is here.

Now is the time to act boldly and wisely – to not only revive this economy, but to build a new foundation for lasting prosperity. Now is the time to jumpstart job creation, re-start lending, and invest in areas like energy, health care, and education that will grow our economy, even as we make hard choices to bring our deficit down. That is what my economic agenda is designed to do, and that’s what I’d like to talk to you about tonight.

And then Louisiana governor Bobby Jindal, echoing the party line from, I think, 1930:

That is why Republicans put forward plans to create jobs by lowering income tax rates for working families … cutting taxes for small businesses … strengthening incentives for businesses to invest in new equipment and hire new workers … and stabilizing home values by creating a new tax credit for home-buyers. These plans would cost less and create more jobs.

But Democratic leaders in Congress rejected this approach. Instead of trusting us to make wise decisions with our own money, they passed the largest government spending bill in history - with a price tag of more than $1 trillion with interest. While some of the projects in the bill make sense, their legislation is larded with wasteful spending. It includes $300 million to buy new cars for the government, $8 billion for high-speed rail projects, such as a 'magnetic levitation' line from Las Vegas to Disneyland, and $140 million for something called 'volcano monitoring.' Instead of monitoring volcanoes, what Congress should be monitoring is the eruption of spending in Washington, DC.

Well I, for one, am glad that the government monitors volcanoes. There's no profit in it, I don't have the resources to do it, and the consequences of not doing it are catastrophic. That's what government is for. Transportation infrastructure (including "magnetic levitation"—Maglev—lines, which Jindal thinks belong in Disneyland), defense, and the occasional sky projector for a public museum are all things that government has to do or they won't get done. This is basic economics, a class that few Republicans seem to have taken.

Or maybe they have, they just don't care. Remember, for most elected Republicans, it's all about power and playing the game for its own sake. But for us grown-ups (a few Republicans, and most Democrats—at least right now), it's about fixing the biggest economic disaster anyone under 65 has ever seen.

I will say, though, watching Jindal I wondered whether he was going to try selling me the clear-coat finish as well. He reminded me of a cross between a used-car dealer and one of those lawyers who advertises on local cable that he will fight for you. I can't wait for the Republican primary slugfest in 2012.

A report released today says the century-old Illinois Sanitary and Ship Canal is crumbling, which could be bad news for Joliet:

"We have 39 feet of water that we are holding off Joliet," [Lockmaster Dave] Nolen said, pointing downstream to downtown Joliet as he stood Thursday on a deck overlooking the watertight gates at one end of the lock. "People in Joliet probably wouldn't be able to sleep at night if they knew how devastating the flooding would be because of a breach," he said, raising his voice to be heard above the roar of 25 million gallons of swirling water being released downstream after a barge traveling up-river passed through the lock.

... "Modernizing the nation's waterways provides an incredible return on the dollar," said Jim Farrell, executive director of the chamber's infrastructure council. "It's a relatively minor cost compared to fixing O'Hare [International Airport] or modernizing the rapid transit system in Chicago." A single barge has the cargo capacity equivalent to 15 jumbo hopper freight cars or 58 large semitrailer trucks, according to transportation experts.

Of course, the Godforsaken Old Party would call fixing the locks an "earmark," so it's unclear where the money will come from.

California, apparently, has passed its budget, prompting The Economist's observation, "It turns out that the only way to negotiate a budget for the world’s eighth biggest economy is to issue politicians with toothbrushes and lock them in a building."

Illinois, meanwhile, is trying to pass a Senator.

(For both passings, imagine kidney stones.)

British and French newspapers reported early this week that two of their submarines collided two weeks ago:

The Ministry of Defence was under intense pressure last night to explain how the [HMS] Vanguard, which can carry 48 nuclear warheads on 16 missiles, had managed to crash into Le Triomphant - payload 16 missiles - in an incident which some experts say could have caused a nuclear catastrophe.

The underwater collision happened earlier this month and was at low speed, and no injuries were reported among the total of 240 sailors on the two boats. However some damage was done to both, though officials stressed that none of their nuclear equipment had been damaged.

Three things occurred to me reading about this incident, which the news organizations I consulted don't appear to have grasped:

1. Ballistic missile submarines patrol at speeds under 4 knots. They're exponentially more detectable at higher speeds. So it follows that the damage they did to each other was very light, because if they'd been moving fast enough to cause more damage, they'd have heard each other.

2. You can't detonate a nuclear weapon by hitting it, so any environmental risk comes from the reactors powering the boats. However, I think it's important to weigh those risks against (a) the (very small) risk of a nuclear attack on France and the UK that these boats deter, and (b) the routine punishing damage that the merchant fleets of the world do to the oceans every minute. Remember the Exxon Valdez disater, the Amoco Cadiz disaster, and the ongoing disaster of 1.1 million liters of wastewater a typical cruise ship discharges every day.

3. Notice how neither France nor the UK will say where or exactly when the collision occurred? If they won't even tell each other where their subs patrol, of course they won't tell anyone else. My question: what are they targeting? Typically you put submarines just a few hundred kilometers from their targets. Right now, for example, I would bet money that there are U.S. subs inside the Sea of Japan and Russian subs closer to Los Angeles than L.A. is to Fresno. Everyone knows who the U.S. and Russia are pointing missiles at. Who's France pointing at? Britain? (Read that either "At Britain?" or "And Britain?", your choice.)

Curious. Very curious.

No matter how bad it seems in Illinois right now, at least we have a functioning state government. California, on the other hand...

A state budget deal to close a $41 billion shortfall has been put further into question early this morning after Senate Republicans ousted their leader who had helped negotiate the long-awaited plan with other top lawmakers in California.

...[T]he ousted Minority Leader Dave Cogdill, R-Modesto, ...was one of the four legislative leaders who negotiated the emergency budget deal with the governor. Their compromise budget package, reached after three months of negotiations, contained nearly $16 billion in program cuts, $11 billion in borrowing and $14.4 billion in tax increases. The most contentious debate has been over the proposed tax hikes.

Republicans selected Sen. Dennis Hollingsworth, R-Murrieta (Riverside County) as their new Minority leader. Hollingsworth is part of the conservative wing of the Senate Republican caucus and he has been adamantly against raising any taxes.

The New York Times has more:

The state, nearly out of cash, has laid off scores of workers and put hundreds more on unpaid furloughs. It has stopped paying counties and issuing income tax refunds and halted thousands of infrastructure projects.

Twenty-thousand layoff notices [went] out on Tuesday morning, Matt David, the communications director for Gov. Arnold Schwarzenegger, said Monday night. "In the absence of a budget we need to realize this savings and the process takes six months," Mr. David said.

When you're talking about the 7th largest economy in the world, this is somewhat disturbing.