"If You Can't Say Anything Nice"

You should still try to do better than justifying your silence by stating that other people are saying all the mean things that you're above saying yourself.

It's CYA Time?

So really, who knew what, and when?

One minute we're told,

Attorneys working for the Fed had been examining the matter for months and determined that the retention payments couldn't be touched because AIG would face costly lawsuits and be subject to penalties from states and foreign governments.

The next, it's,

U.S. Treasury Secretary Timothy Geithner found out about the impending bonuses to executives at insurer AIG last Tuesday and alerted the White House on Thursday, an administration official said.

If I were to interpret the second article uncharitably toward Geithner, I would say that Geithner found out Tuesday that the bonuses were going forward (that's the literal claim), not that he first learned about them on Tuesday. If in fact he didn't learn of them at all until Tuesday, who kept him in the dark and have they been fired yet?

Let's not forget - Timothy Geithner's job before he became Secretary of the Treasury was president of the Federal Reserve Bank of New York. Was he kept in the dark by all of his employees at both jobs? Even as he engineered the takeover and bailout of AIG?

(And enough with the anonymous sources - start naming names.)
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And it keeps coming:

Geithner waited 2 days to tell Obama about AIG bonuses

A new timeline released by White House officials late Tuesday evening reveals the president first learned about the $165 million in AIG bonuses last Thursday, days before the story leaked to the media over the weekend.

Thanks for the (lack of a) link, guys. Now I gotta go find that timeline....

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Well, Tim Geithner's sticking with his "I didn't know until Tuesday" story - he put it in writing. If only the Washington Post had named its sources, we might be able to figure out how so many other people knew of it for months, including lawyers who worked for Geithner at the Fed, while he was in the dark. Even though Geithner claims Liddy sprung this on him at the last second, he has nothing but praise for the man. It's enough to make me think that Liddy could blow the lid off of Geithner's cover story. But I guess I"m just suspicious by nature.

There's also this doublespeak from Press Secretary Robert Gibbs:

Q. Robert, we understand from your answers here that you don't have knowledge of the exact timeline, but would it be accurate to say that you were blind-sided, that the President was blind-sided by this?

MR. GIBBS: No. And I will certainly seek better timeline answers to enumerate the negative answer I just gave you.

Q. Why wouldn't it be accurate to say that?

MR. GIBBS: Because the Secretary obviously took steps last week to lessen the blow of what was both contractually obligated and what had been promised but was not part of a contract that lessened the amount of money that was paid out.

Again, the Secretary of Treasury did good work in changing what was potentially out there, and I think obviously he did so in order to protect the American taxpayers. And that's why I think - that's the basis for me answering that question.

Geithner protected the American people by taking steps to lesson the blow, even though those steps proved ineffectual, and that meant that two days later when he finally got around to telling Obama, nobody was blindsided? What part of that makes sense.

Julie Hirshfeld Davis does some actual reporting, pointing out that this was on the radar screen (and by implication should have been very much within the awareness of Geither in his former position, as long ago as November:

AIG's plans to pay hundreds of millions of dollars were publicized last fall, when Congress started asking questions about expensive junkets the company had sponsored. A November SEC filing by the company details more than $469 million in "retention payments" to keep prized employees.

Back then, Rep. Elijah E. Cummings, D-Md., began pumping Liddy for information on the bonuses and pressing him to scale them back. "There was outrage brewing already," Cummings said. "I'm saying (to Liddy), 'Be a good citizen. ... Do something about this.' "

Around the same time, outside lawyers hired by the Federal Reserve started reviewing the bonuses as part of a broader look at retention and compensation plans, according to government officials who spoke on condition of anonymity. The outside attorneys examined the possibility of making changes to the company plans — scaling them back, delaying them or rescinding them. They ultimately concluded that even if AIG's bonuses were withheld, the company would probably be sued successfully by its employees and be forced to pay them, the officials said.

In January, Reps. Joseph E. Crowley of New York and Paul E. Kanjorski of Pennsylvania wrote to the Federal Reserve and the Treasury Department pressing the administration to scrutinize AIG's bonus plans and take steps against excessive payments.

"I at that point realized that we were going to have a backlash with regard to these bonuses," Kanjorski said in an AP interview. In a meeting with Liddy later that month, he said he told the AIG chief that "all hell would break loose if we didn't find a way to inform the public ... and that we should take every step to put that information out there so we wouldn't have the shock."

All of this eluded Geithner, engineer of the AIG takeover?
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In an unsigned editorial, Fred Hiatt's crew is suggesting that Tim Geither is either incompetent or a liar (the bonus plan, apparently, was public information for the past year, and everybody knew about it), and is telling everybody else to get over it:

Thus, the attorney general of New York, Andrew M. Cuomo, among other Democrats, floated the argument that the AIG employees should get stiffed because "it is only by the grace of American taxpayers that members of Financial Products even have jobs, let alone a pool of retention bonus money." True. But the bonuses were set in motion well before the U.S. takeover of AIG, which was done to avoid a Lehman Brothers-like meltdown that would have cost taxpayers a lot more than $165 million, and the compensation plan has been public information for a year.

Hiatt's crew also suggests that AIG "is hemorrhaging knowledgeable employees" and not paying bonuses, with no exception indicated for bonuses paid to people who have already quit, "would probably accelerate the exodus, with the likely effect that the country would lose much more money on AIG than it would otherwise." If the situation at AIG is so bad despite these bonuses, perhaps it's time to think of solutions that don't depend upon the work of people who can't be replaced (even as other Washington Post editorials suggest that they've already been replaced).

Where Have All The Agents Gone?

It's a good question. Seth Godin's correct that differentiation is key - if you wish to survive as a travel agent, stock broker, real estate agent... you need to find some way to either justify your commission or fee.

I recently took a trip to Chile, made much better by the advice of Ellen Craig, who unabashedly bills herself as a "luxury travel consultant". She helped us find and stay in properties we were unlikely to either identify or choose on our own, and those properties proved to be excellent to amazing.

Here, differentiation is the price point. But if you're planning a fifth anniversary trip (as we were), maybe it's time for some self-indulgence.

Rick Who? YouTube and the Music Industry

If you're not familiar with the phenomenon of "rickrolling", it's a running Internet joke where you pretend to link to something of great interest and, when the target of your joke clicks the link, you instead direct readers to a video of Rick Astley's singing "Never Gonna Give You Up". This joke has brought attention to a singer who few who had otherwise heard since the late 1980's, resulting in a 2007 comeback and Astley's winning the "Best Act Ever" award at the 2008 MTV Europe Music Awards. In other words, a huge amount of fame, attention, and no doubt money flowing directly from Astley's presence on YouTube.

As far as I know, Astley has no complaints. But in the context of an effort by British artists to get more money from Google for YouTube videos, that hasn't stopped the co-author of the song from crying "foul":

Speaking to the Sun newspaper, Pete Waterman, the man who co-wrote the 1980's hit (as well as a slew of other hits as part of the Stock Aitken and Waterman trio), said that Google only paid him £11, that's 27.5 pennies per million views.

Google, which earns £3 billion per annum, claims that PRS, the body representing songwriters and other artists in the UK, has been asking for a royalty fee per video that was way higher than what it used to be before, which meant that Google would be losing money each time a video is viewed.

If Waterman hasn't seen a huge spike in royalties as a result of Astley's resurgence, something that would not have happened but for YouTube, the problem isn't Google's royalty payments - it's that Waterman was a lousy negotiator back when he wrote the song.

Really, it's a bit like my hacking navigation systems so that when people asked to be directed to their favorite restaurants they were instead taken to a performance artist - let's say, a mime doing "man in a box". Almost none of them have any interest in the performance, particularly if they've "fallen for the joke" before. Even fewer of them will notice that there's a billboard for a car dealership in the vicinity of the mime. And almost none will be inspired to check out the car dealership as a result of the misdirection. That's similar to how rickrolling works, except Google isn't the one playing the joke, has to pay for the mime (the server load and bandwidth necessary to play the video, plus a royalty to Marcel Marceau for originating the mime's act), and is trying to pay for it all with ads that only generate revenue when somebody acts on them.

You can argue, "Google benefits from the notoriety they get from having these videos online". Well, quite obviously, so did Rick Astley and, thus, so did Pete Waterman. If that's irrelevant, then the question is, if you just got £11 in your pocket that you would otherwise have never received, for doing no work and expending zero effort, why are you complaining that the company that gave you the £11 isn't also losing money on the deal?

I'm not unsympathetic to the artists, but this makes for a lousy example of the injustice of Google's royalty scheme.

It may be hardball, but I understand Google's taking down the videos in response to the artists' demands. If the deal is so bad for the artists, why are they upset that their videos aren't available on YouTube? Could it be that, yes, all that free publicity is worth something after all?

Pete Waterman's arguments in the Sun are strikingly pertinent especially when he says "Nobody buys music they can get for free on sites like YouTube." Youtube doesn't only encourage creation, it often fuels plain piracy much to the disregard (and displeasure) of the rights holders.

Then why is this even a debate? Why isn't he demanding that Google take down the video, so he and Rick Astley can get back to making money through obscurity?

Even in the context of criticizing Google, Billy Bragg observed,

Digital technology is the best thing that has happened for performers and songwriters since Thomas Edison invented the phonograph and made it possible for us to earn a living from something other than live performance. Recent developments in audio technology have made it possible for anyone with a laptop and a connection not only to make their own music, but also to distribute it around the world.

And no small part of that opportunity comes via Google and YouTube.

If you want, you can open a YouTube channel, post your own videos, and try to make money through commissions on Google's ads. Or you can do the same while embedding the video on your own website. Or you can bypass Google altogether, and create your own individual website while hosting your own video files, or hosting them through a service other than Google. And you can still put Google ads on that website to try to make money. Or ads from another service. Or ads you sell yourself. Or your concert tickets and band merchandise.

The notion here seems to be "Google has lots of money, and plays our videos on one of its web properties, so it should pay us a ton of money." If Google were making a ton of money off of those videos, I would agree with that. If the artists were telling Google, "Look, it's easy, do the following three things and you'll be making tons of money," I would say, "C'mon Google, give it a try." But the fact is, nobody knows how to turn online music videos into a profit center. It's possible that there is no secret - that online video will never generate much revenue, in which case artists can choose between the other benefits of being on YouTube (primarily free publicity) and the supposition that taking their videos off of YouTube will increase the sales of their recordings.

Andrew Ross Sorkin, Contrarian

Addressing the AIG bonuses, Andrew Ross Sorkin argues that the American taxpayer should bend over and... I'll leave out the middle part, but at least it ends with "get over it" as opposed to "pretend to like it." It's an essay apparently designed to provoke; unfortunately it doesn't do much to persuade. Quoting President Obama, Sorkin states,

“This isn’t just a matter of dollars and cents,” he said. “It’s about our fundamental values.”

On that last issue, lawyers, Wall Street types and compensation consultants agree with the president. But from their point of view, the “fundamental value” in question here is the sanctity of contracts.

The sanctity of contracts? I assume at this point that Sorkin's never had to negotiate with his insurance company over a claim or wrongful denial of benefits. It goes without saying that he's never gone to law school, let alone practiced contract law. I wonder if he takes a similar absolutist position on divorce - marriage is a contract, after all, yet here's the government letting people off the hook, all the time.

The world of AIG revolves around contracts - building contracts that are tightly binding on the other side, but loosely binding on AIG. They have platoons of lawyers that they can turn loose on their contracts to determine ways to deny claims, reinterpret provisions in their favor, revise contracts to take advantage of the latest changes in case law and statute, and otherwise to put the people on the other end of a transaction at contractual disadvantage. When there's a dispute over a contract, those lawyers don't hesitate to argue that the contract should be voided on any number of grounds, including fraud, mutual mistake, and violation of public policy. The only time they talk about the "sanctity of contracts" is when they're on the other side of the argument, and probably then only for the benefit of a jury - I can hardly imagine what a judge with any experience would make of an insurance company arguing that contracts are sacred and inviolable.

That may strike many people as a bit of convenient legalese, but maybe there is something to it. If you think this economy is a mess now, imagine what it would look like if the business community started to worry that the government would start abrogating contracts left and right.

You mean, like if the government offered things called "courts" where people could go and claim, "I'm in a contract dispute with this other person, and want you to vacate part or all of the contract," and had a person called a "judge" who had the power to in fact do that? Or a special type of court called a "bankruptcy court" where people could erase part or all of their financial obligations? Or where there was an elected "Congress" that would tell a company in financial trouble, "We'll help you - but only if you first tear up your contracts with your labor union"? The horror - thank goodness we don't live in a country like that.

Do you find yourself transported back in time to last November, when Sorkin felt quite differently about contracts?

Bankruptcy would give G.M. enormous leverage with its debt holders — and, perhaps more important, with the U.A.W., whose gold-plated benefits are one reason G.M. is no longer competitive. A bankruptcy filing would also give G.M. the cover to close plants, rid itself of unprofitable brands and shed dealerships.

Wow.... G.M. would need an industrial-strength shredder. And it gets better... Why should auto workers have their salaries slashed and lose their benefits, despite the "sanctity" of their contracts?

Part of the problem is summed up by comments like this one in The Detroit Free Press, made by Kandy O’Neill, 39, an assembler at G.M.’s plant in Lake Orion, Mich., where she builds the Chevy Malibu and Pontiac G6. “I think we’ve given enough,” she said about the cuts to her salary and pension plan.

“Everybody wants to come down hard on the workers,” she said. “Nobody knows what we do inside there but the people who work there. It’s hard. It is not an easy job.”

When you read a line like that you might sympathize with her, but then you realize that nothing can be accomplished without bankruptcy. Ms. O’Neill: your company is asking the taxpayers - many of whom don’t have health care coverage - to pay your salary and health insurance.

And Mr. Sorkin, you're asking the taxpayers, many of whom aren't getting $3 million bonuses this year, to... Oh, why am I still pretending that you intended your argument to do more than give you a lot of media attention for being contrarian. I can't believe you're so obtuse as to not see the contradiction, or have had a transformative experience that has caused you to abandon your earlier anti-contract stance. Do you believe a word you wrote in either article?

Seriously, here we have AIG that is bankrupt - it survives only through the injection of gargantuan amounts of taxpayer money and the implied (or is it express) promise that the U.S. Treasury continues to stand behind its obligations with a blank check. No, it hasn't gone through bankruptcy proceedings, but only because it's the unique and special recipient of an unprecedented bailout. It's perfectly reasonable, and perfectly consistent with contract law, to argue that the bonus contracts requiring a huge outlay of taxpayer money to reward AIG employees violates public policy.

But let's take a step back - Sorkin argued, "imagine what it would look like if the business community started to worry that the government would start abrogating contracts left and right." My response so far treated that remark seriously, whereas it's not a serious comment. It's a slippery slope argument - and he admits it ("As much as we might want to void those A.I.G. pay contracts, Pearl Meyer, a compensation consultant at Steven Hall & Partners, says it would put American business on a worse slippery slope than it already is.") I guess he hasn't studied logic.

My sarcasm should not be used to feed the slippery slope - although the government gives businesses and individuals both tools and opportunity to escape contracts, for the most part the government does seek to uphold contracts, and help others uphold them. Nobody in the business community would look at the AIG bailout, and the billions poured into upholding AIG's poorly considered contractual obligations, and conclude based upon the voiding of an oversized bonus contract, "The U.S. government can't be trusted to uphold contracts." Sorkin has to know that.

(The auto industry unions are facing a similar issue - but the big difference is that there is a negotiation; no one is unilaterally tearing up contracts.)

First, no, it wasn't a negotiation - it was a condition the government imposed as a prerequisite to issuing GM and Chrysler bailout money. The contract was entered through a negotiation, and is being abrogated because the government didn't want bailout money to support a compensation structure people like Sorkin argue is unjust to taxpayers. You know, because UAW members get health benefits. Second, Sorkin himself favored unilaterally tearing up their contracts through a Chapter 11 filing.

But what about the commitment to taxpayers? Here is the second, perhaps more sobering thought: A.I.G. built this bomb, and it may be the only outfit that really knows how to defuse it.

A.I.G. employees concocted complex derivatives that then wormed their way through the global financial system. If they leave - the buzz on Wall Street is that some have, and more are ready to - they might simply turn around and trade against A.I.G.’s book. Why not? They know how bad it is. They built it.

That's speculative, and although beneficial to AIG is not something I find particularly compelling. I suspect that, had it wished to do so, by now AIG could have brought people into the Financial Products division and got them up to speed, to the point that the people who created this mess could be given their walking papers. Sorkin's argument actually lends weight to the argument that the contracts should be declared void. If in fact their was an implicit threat, "Give us millions and millions of dollars, or we'll finish ruining the company and take down the world economy," it would be unconscionable to reward that behavior. The idea that they could walk away and trade on their inside information to the detriment of AIG and the country? Probably illegal, and certainly something AIG should have covered in its employment contracts.

And how does any of that explain why AIG gave these bonuses to employees outside of the Financial Products division, under the same exceptionally generous terms?

For better or worse — in this case, worse — someone at A.I.G. decided this company needed to sign bonus agreements last year to keep people before the full extent of its problems became clear.

And again the question arises, why? Why these unusual, "bulletproof", anti-employer contracts that guarantee extraordinary bonuses over a two-year period? The only compelling reason I can think of remains that AIG suspected that it would be taken over by the government and wanted to be sure that compensation would not be affected - regardless of performance, losses, or taxpayer subsidy. Liddy's comments support that thesis:

“We cannot attract and retain the best and brightest talent to lead and staff” the company “if employees believe that their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury,” he said.

So this pay structure was created in anticipation that the U.S. Treasury would take over AIG?

Let them leave, you say. Where would they go, given the troubles in the financial industry? But the fact is, the real moneymakers in finance always have a place to go. You can bet that someone would scoop up the talent from A.I.G. and, quite possibly, put it to work - against taxpayers’ interests.

What's that supposed to mean? First, if people are able to be more productive outside of AIG, you create an economic efficiency by having them switch jobs. Second, how are the people at the heart of this disaster "real moneymakers"? You're going to gamble your company on their next scheme? Third, why are we assuming that they, and any other employer they join, would be working against taxpayer interests? Fourth, no small number of the employees getting these bonuses no longer work at AIG - how in the world does it benefit anybody to give them a retention bonus now?

“The word on the street is that A.I.G. employees are being heavily recruited,” Ms. Meyer says.

How does that justify the bonuses, even if we leave aside those paid to employees who have already quit? A retention bonus is only persuasive if it's higher than the next guy's signing bonus. If these guys could get the same or more elsewhere, the bonuses won't keep them at AIG. If they can't, but we're obligated to pay them more than their market value if we keep them on AIG's payroll, then AIG should be searching the job market for their replacements. In contract talk, that's called "increasing efficiency".

The Washington Post on AIG

Earlier, I commented that this article represents exceptionally bad journalism. I think it's fair that I highlight some of the many reasons why.

The mediocrity of the piece is foreshadowed by the suggestion, provided by an anonymous AIG executive, that if you don't like the bonuses you're part of a "mob effect" that is "putting people's lives in danger". (Mind you, he's keeping the bonus - he's just upset that you're mad about it.)

Politicians and the public spent yesterday demanding that AIG rescind payouts that they said rewarded recklessness and greed at a company being bailed out with $170 billion in taxpayer funds. But company officials contend that the uproar is scaring away the very employees who understand AIG Financial Products' complex trades and who are trying to dismantle the division before it further endangers the world's economy.

"It's going to blow up," said a senior Financial Products manager, who spoke on condition of anonymity because he was not authorized to speak for the company. "I have a horrible, horrible, horrible feeling that this is going to end badly."

How irresponsible to relate an anonymously sourced comment like that one. How lazy and apathetic would anybody who pretends to be a reporter have to be to not demand further explanation: "You're stating that after this much time and close to $180 billion in taxpayer money, you're company is still on the verge of a financial meltdown that will take out the world's economy?"

If you hadn't guessed by this point that this article was going to be stenography of the AIG viewpoint, that passage should take away any doubt.

Attorneys working for the Fed had been examining the matter for months and determined that the retention payments couldn't be touched because AIG would face costly lawsuits and be subject to penalties from states and foreign governments. Administration officials said over the weekend that they agreed with that assessment.

And the anonymous sourcing goes on. Nobody in the Obama administration will attach their names to these claims? Not one person?

If none of these people would go on the record, we deserve to know why. Is it because they fear retaliation? Because they want to hide their relationship to AIG? Because they're lying?

Also, if this analysis has been literally going on for months, it's been going on from the day Obama took office - probably longer. There would have to be a stack of memoranda and analyses explaining how the government concluded that nothing could be done, probably spanning two administrations. So why is it that, by all appearances, the only thing that's been made public is AIG's self-serving analysis? Why haven't we been able to review a copy of one of these amazingly bulletproof employment contracts.

Why, for that matter, was no question asked about how these contracts came into being in this particular form? No competent employer guarantees on year - let alone two years - of oversized bonuses to employees, with absolutely no recourse or ability to back away from those bonuses if those employees are found to have been incompetent, to have damaged company profits, to have engaged in misconduct or criminal activity, to have drowned the company in a bathtub.... What gives?

The payments represent only the most contentious of a larger group of bonuses being paid throughout AIG. The company's top seven officials, including chief executive Edward M. Liddy, agreed in November to forgo bonuses through this year.

If the excuse for not cutting off the bonuses to the division that killed the company - the Financial Products unit - is that it could constitute a default that would make trillions of dollars in obligations immediately payable, or that their transactions were so complicated that only they could undo the incredible damage they caused, what's the excuse for giving similarly "bulletproof" bonus deals to anybody outside of that division? Was this done in anticipation of a government takeover, to protect oversized bonuses against public pressure?

In addition, the company is set to pay another $600 million in retention awards to about 4,700 people throughout its global insurance units.

Just as "bulletproof", we should assume?

At the Federal Reserve Bank of New York, which has directly overseen AIG since its federal takeover in September, officials have studied the possibility of rescinding or delaying the bonuses. They even brought in outside lawyers for advice. The conclusion: If the bonuses weren't paid, the AIG staffers would be able to sue the company and probably would win, not just what they were owed but also punitive damages that would make the ultimate cost perhaps two to three times as high as the bonuses themselves.

We're again bypassing the question of why this extraordinary bonus deal was entered, and why it was entered on terms that are so unfavorable to management. Yes, there are excuses of fearing the loss of "valuable employees", presumably offered to justify giving the most outrageous bonuses to AIG's most culpable bad actors, but even assuming that this was an exceptionally one-sided giveaway, and why it was extended to so many employees who were far less valuable or in other divisions? I recognize that state laws are protective of employees who aren't paid their wages, and how they could factor into the question of whether it's wise to default on the obligation, but are we to pretend that this was accidental?

Moreover, Fed officials also hope to keep current employees with the company. The senior executives whose decisions caused the company's collapse are long gone. Most of those left behind are trying to unwind complicated derivative contracts.

Oh, really? And we know this because you are again giving us anonymously sourced, undocumented stenography? Other than Joseph Cassano, precisely which of the senior executives from the Financial Products division left AIG? Exactly how much bonus money did their departure save AIG - and dare I ask, was the value of their severance packages greater than that savings?

Completing that process correctly is essential to preserving as much value as possible for taxpayers, officials at both the government and AIG have argued. If it is mishandled, it could expose taxpayers to billions of dollars in additional losses.

This reflects the tin ear of this entire article. There is no upside for the taxpayer here. Nobody said to the taxpayers, "Hey, you mind if we spend a few hundred billion of your money bailing out AIG?" Nobody said, "You wanna be on the hook for all of the liabilities created by greedy, incompetent AIG executives in partnership with their Financial Products division?" And obviously nobody said, "Since we did all of that without asking you, anybody mind if we also give most AIG employees gargantuan, taxpayer-funded bonuses, with the biggest and best bonuses going to people in the Financial Products division?"

If you produce an article that so eagerly accepts and repeats the statements of AIG employees and government officials, without once challenging the claims made, asking obvious questions, or wondering, "Why won't anybody let me use their names," you're pretty useless as a reporter. Four Washington Post employees worked together to create this? Amazing. Bob Woodward must be spinning in his grave.¹

Meanwhile, also offered as "front page news", comes this gem:

House Minority Leader John A. Boehner (R-Ohio) said the bonus issue added to his belief that there will be almost no Republican support for any expansion of a bank-bailout program that passed Congress last fall with broad bipartisan support.

"What is the government's exit strategy from this sweeping involvement in private business?" he asked in a statement, adding that "taxpayers are not receiving an adequate accounting from either the Treasury or the management of the companies that received taxpayer funds. Unfortunately, we have not yet seen such a plan."

At least Boehner was willing to be named, but would it have been to difficult to ask the obvious follow-up: "G.W. Bush led the team that took control of AIG and these massive financial industry bailouts - what was his exit strategy?" Why is it always somebody else who must come up with the exit strategy for Bush Administration boondoggles?

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1. I know. It was a joke.

The (Indefensible) AIG Bonuses

Although this article is exceptionally bad as journalism, it does suggest a few things to me:

• The bonus issue is even worse than people think - the contract calls for similar bonuses to be given next year, as well.

• Geithner has probably known about the bonus plan from the day the government took control of AIG. Obama has probably known since he took office.

• Recognizing how this would look to the public, Obama instructed Geithner to do something about the bonuses.

• Working closely with Liddy and AIG, Geithner apparently chose instead to find ways ot justify the bonuses, or depict them as unavoidable.

• There's no excuse - none - for this having been sprung on the public at the last second.

I'll take another look at it later, along with anything else that comes down the pike, to see if any of those impressions change.

Avoiding Consequences

You would think, from the way the latest bailed out company bonus scandal hit the press, that nobody could have seen this coming. Wrong. Quite obviously, AIG CEO Edward Liddy saw it coming. For that matter, everybody within AIG who was "entitled" to a bonus saw this coming. To the extent that Geithner and Summers didn't see this coming, it was because they were deliberately kept in the dark - and perhaps also that they chose not to ask.

Here's an interesting theory (albeit most likely incorrect) on how Liddy may have tried to scare Geithner out of any meaningful confrontation over the bonuses.

I take this to mean that if a bunch of AIGFP managers quit because they didn't receive bonuses promised in their contracts, then France could, if it wanted, to appoint its own designee. And if that happened, then it would equate to a default and those contracts would kick in, at a cost to AIG the US government of at least tens of billions.

I doubt that such an outcome was likely and, if it were, my preference would have been to talk to France about the many reasons they weren't going to do any such thing.

But really, I think the legalistic rationalizations are just meant to give Liddy cover - he wanted to pay the bonuses, and the best way to do what he wanted to do was to keep quiet about them until the secret could no longer be kept, thereby avoiding the chance that Congress will revise the strings it has imposed on bailout money, then dump a convoluted legal rationale on the credulous and compliant Timothy Geithner in order to avoid any serious action before the bonuses can be distributed. [Addendum: Certain key people, probably including Geither and Summers, knew about these bonuses for a considerable time before the news was made public; so part of this assumption was unfair to Liddy.]

Larry Summers is worried about having policy created out of anger? This is increasingly looking like the straw - a word that strangely enough fits, because in the larger scheme of things these bonuses are a tiny part of the bailout - that broke the camel's back.

Rethinking the Gas Tax.... Badly

Fred Hiatt suggests that gas taxes should be supplemented by, and probably ultimately replaced by, a tax based upon miles driven. This would entail installing a GPS device in every vehicle on the road, that would be tracked and monitored by tax authorities.

It would keep track of where you drove your car, and when, but the data would not be shared beyond the vehicle so privacy would be protected.

That's reassuring.

The current gas tax, as everybody knows, works like this: You buy gas, and a percentage of the purchase price goes to taxes. If you drive a more fuel efficient vehicle, you pay less per mile in taxes. If you do not, you pay more per mile. If the gas tax produces a revenue shortfall, it's possible to increase the tax. Now let's look at Hiatt's proposal:

Whereas 20 years ago user fees - gas taxes, tolls - covered as much as 75 percent of the wear and tear on roads and other direct costs, today the ratio is down to 60 percent, Atkinson says. People are being subsidized to drive - and that's before you even count the indirect costs of noise, traffic, wasted time and pollution.

So here, nothing that couldn't be addressed by a simple increase in the existing gas tax, rather than creating a parallel system of taxation.

It could be set to charge more per mile driven for Hummers than for Civics....

Something that happens by default under the present system, as Civics are vastly more fuel efficient than Hummers. So far, we're just adding technical and bureaucratic complexity to the current system. So what's this really about?

It could be set to charge ... more during rush hour than in the middle of the night; more for driving on congested bridges than on empty roads.

So what Hiatt is actually proposing is a congestion tax. He draws a parallel to another existing means of addressing road congestion - toll roads. He doesn't - and probably can't - explain why it's superior to add GPS tracking to every vehicle in the nation, and creating a new tax bill for every vehicle owner in the nation, rather than adding a few new toll roads in congested areas.

Here's where it gets ugly. Auto manufacturers, truck drivers and trucking companies, and similar groups lobby against higher gas taxes on inefficient vehicles; other groups, or maybe even the same auto manufacturers, will argue for tax holidays or subsidies for certain "fuel efficient vehicles". Cities lobby against suburbs, claiming a higher cost of road maintenance; suburbs lobby against cities, claiming that their taxpayers are being asked to subsidize urban roads. People who "have no choice" but to drive during rush hour or on congested roads will respond to peak pricing by protesting that they're being unfairly taxed, and perhaps also taxed beyond their means. And so it goes....

There are areas of this country that would benefit from some form of congestion pricing to discourage vehicle traffic, particularly during peak hours. There are even more areas of this country that could benefit from improved mass transportation so that people have a reasonable alternative to driving to work during rush hour. I think it would be better to address those issues directly, rather than creating the costly, cumbersome system Hiatt proposes.

Also, what are the chances that privacy protection would survive any sort of major public incident. What are the odds that concerns about driver privacy would have trumped the analysis of driving records to find the freeway snipers? To find out if suspects in the Unabomber case or anthrax mailings were in the vicinity of a post office where a mailing occurred? Does Hiatt believe that the agency holding the tracking information would reply, "Sorry, that's private"? (Even assuming that they would make that response, backed up by legislation, when confronted with a subpoena from somebody who was tracking suspected infidelity of a spouse in a divorce case.) Is this where we get the usual response - a shrug, and the declaration, "Well, I have nothing to hide"?

Gerrymandering - No Big Deal?

The silence in response to George Will's column on gerrymandering is deafening. That could be because he comes across as an angry old "get off my lawn" guy, angrily shaking his cane at pretty much everybody he can identify. It could be because he spends too much time dissecting a Supreme Court decision, something that seems to make pretty much everybody's eyes glaze over, rather than putting the issues into clear terms. It could be because he focuses unduly, and perhaps obsessively, upon the racial elements of gerrymandering while ignoring its larger effect on the electoral process - compare his relatively even keel when discussing the Supreme Court's review of redistricting in Texas.

But I suspect that the actual reason is that most people don't care about gerrymandering.

Larry Summers: Liar?

Larry Summers dissembles as follows:

"If we simply throw up our hands, refuse to deal with any of this, we'll have the kind of financial catastrophe that we saw after what happened at Lehman Brothers," Summers said. "[Treasury] Secretary Geithner has negotiated very forcefully with AIG. He has done everything that is legally permissible for the government to do to limit the payment of bonuses. But where there are contracts, binding contracts that were entered into long before the government put any money in to AIG - we're not a country where contracts just get abrogated willy-nilly."

The government can do a lot of things - put AIG in receivership, sell off its profitable pieces, and liquidate the rest. They could avoid fear-mongering about what happens if it fails, and either create a "Chapter 10" bankruptcy for companies that are "too big to fail" or simply say, "If you don't renegotiate those bonuses, bankruptcy court awaits."

Again, quite obviously, the "sanctity of contracts" isn't an issue in relation to the auto industry bailout. Abrogation and renegotiation of contracts has been made a condition of any bailout. This is different only because Summers and Geithner are continuing the Bush Administration's incompetent, poorly conceived bail-out that somehow deems it wrong for the people who ran our economy into the ground to suffer a financial consequence. Not when they can be fully paid, courtesy of the taxpayer.

Flashback to November:

Someone in the Obama administration, with both business savvy and a suitably tough-minded approach, could bring together the parties, including the dealers, the union and the company. He (or she) could force the union and the company to renegotiate their contracts. With his input, Congress could perhaps pass a law that dealt with the state laws governing dealerships. (Or the government could pay off the dealers itself, instead of having G.M. do it.) He could sign off on plant closings. He could force the companies to come up with real plans that would return them to profitability. And in return, the government would make federal loans that would give them the breathing room they need.

Come to think of it, this would be a perfect first job for Lawrence Summers, who is expected to become an economic adviser to the president-elect. If he can’t knock these heads together, nobody can.

When did I miss the retort from Larry Summers that we don't renegotiate contracts in this country, no matter how unprofitable a business, and no matter how much taxpayer money is on the line? It would be a nice thing to clear up, now that he's actually been given that job.

When he makes the same type of "A contract is a contract", "the government cannot just abrogate contracts" statement about the auto industry, we'll know he's not a liar. Otherwise....

Note to Obama: I know these guys haven't been on the job very long, and neither have you, but this combination of spinelessness and rudderlessnes on the financial crisis has to stop. If you believe that this type of continuous bailout of AIG, despite its complete lack of willingness to take responsibility for its past actions or financial condition, or additional TARP-type bailouts of banks are necessary, you had best be thinking of alternatives - this may have just destroyed the chances that you'll get the funding.

Update: Josh Marshall's observation,

I don't believe the bonuses themselves are the heart of the matter, nor the fact that they're going to the very executives who caused AIG's implosion or even the galling reality that, since all money is fungible, they're being paid with taxpayer dollars. What's really driving this forward - and what makes it such a dangerous moment for the White House - is the jarring image of the administration's impotence....

Few exchanges have so captured the disconnect that makes this situation so politically explosive. We're collectively taking our country's future in our hands, spending vast sums of money to keep these companies from suffering the consequences of their own folly and (in many cases) criminality. And in return we're receiving cavalier dictates about pay-outs and bonuses from executives who by any reasonable measure work for us - dictates we promptly accede to. There's a beggars can't be choosers problem there. And the disconnect is so mighty that it fuels the impression that the whole enterprise is not what it seems, not what we've been told, that in addition to picking up the tab we're being played for fools.

Update 2: Glenn Greenwald addresses Summers on the "sanctity" of contracts:

Legal strategies aside, just as a business matter, one of the first things which every compnay in severe distress does is go to its creditors, explain that it cannot make the required payments, and force re-negotiations of the terms. That’s as basic as it gets. To see how that works, just look at what GM and other automakers did with their union contracts – what they were forced by the Government to do as a condition for their bailout....

There may be other reasons why the Treasury Department decided it wanted AIG to pay these bonuses (Marcy Wheeler considers some of those reasons here), but this claim from Larry Summers that the sanctity of contracts precludes any alternatives is not just false, but insultingly so.

Update 3: Summers suggests that withholding the bonuses could have caused AIG to fail.

"Secretary Geithner has used all the legal authorities that are open to him to contain and limit the payment of bonuses," said Summers, chairman of the National Economic Council. "What he did not do, and what would have been irresponsible to do, as outrageous as these payments are, would have been to put at risk the stability of the financial system.

"To have courted the kind of disaster that followed the decision to let Lehman Brothers simply collapse might have felt good briefly, but it would have touched the lives of a huge number of Americans who would have unnecessarily become unemployed or seen destruction of their lifetime savings."

Are we really supposed to believe that? Other than the AIG lawyers who were paid to tell Liddy exactly what he wanted to hear, who actually believes that a refusal to pay the bonuses could constitute a default and cause AIG to fail?

"Okay, Then. Pay Back Our Money, and Do What You Want."

Why isn't that a perfectly legitimate response to the failed CEO of a failed company as he describes a plan to use perhaps half a billion dollars of taxpayer money to pay bonuses to the people who ran the company into the ground... so they won't quit. Seriously, had I presented this scenario to you last year as fiction, wouldn't you have protested, "Nobody is going to believe that"?

AIG has burned through $173,000,000,000.00 in taxpayer money because these yahoos screwed up. When the auto industry asked for a fraction of that, Congress was sputtering endlessly about overpaid workers and the need to renegotiate labor contracts as part of any bailout. Why are the idiots who played a central role in the collapse of the world economy immune from a similar demand?

If in fact AIG can't get out of paying these absurd bonuses because of "contractual obligations", well, guess what. Those obligations change the second AIG enters bankruptcy. So how about sending them into Chapter 11. Seriously.¹

You can blame the failure of AIG on... well, the division that's supposed to get the lion's share of these bonuses, and say, "The rest of the company was doing good work," but the incompetents in that division bankrupted the entire company. As for this nonsense,

But [AIG Chairman Edward Liddy] also told Geithner that he felt it could be harmful to the company if the government continued to press for reductions in executive compensation.

“We cannot attract and retain the best and brightest talent to lead and staff the AIG businesses, which are now being operated principally on behalf of the American taxpayers - if employees believe their compensation is subject to continued and arbitrary adjustment by the U.S. Treasury,” Liddy said.

If he can't attract sufficient talent to lose hundreds of billions of dollars and run his company into the ground, my heart bleeds for him. But he thinks they're going to quit? Who's going to hire the losers who crashed and burned AIG? Liddy - if you finally get around to doing your job and firing the clowns who ruined your company, will you still owe them these bonuses?

Update: It just gets better:

"Any credibility that could have been given to Mr. Liddy’s argument that these payments are necessary to retain top talent was completely destroyed in last month’s 10-K filing when AIG itself disclosed that nearly $60 million of those retention payments are going to employees who will be terminated."

How incompetent do you have to be to negotiate a contract unavoidably requiring payment of "retention bonuses" to employees you're not retaining? This doesn't exactly back up AIG's other line, that they can't fire these people because they're the only ones who understand the toxic witch's brew they created well enough to produce an antidote.
__________

1. There would be a question of whether these bonuses constitute wages, and thus get priority for payment in bankruptcy; but I suspect that in a bankruptcy AIG would be shedding employees long before bonuses were due, while renegotiating compensation packages for any who remained on the job - provided the company didn't just liquidate.

The AIG Bailout

In relation to the collapse of AIG, and the beneficiaries of close to $200 billion in U.S. taxpayer money, I suspect Jim Hoagland is right about all of this:

The best guess I hear is that the banks were not buying insurance at all - they seem never to have diligently asked if AIG could pay off, which it manifestly could not. They were in effect buying a piece of the firm's AAA rating, which enabled the Europeans to inflate artificially their required credit reserves and lend out ever more of their capital for bigger profits - until the crash came. Or as financial blogger John Carney has put it, the customers were in on the scam.

Hoagland continues,

If that is not the case, the administration needs to make public the facts that refute it. If these reports and suspicions are founded, the administration needs to explain what happened and get in front of what could become destabilizing public anger.

I suspect that the Obama Administration, in continuation of Bush Administration policy, is trying to undo as much of AIG's damage as possible before "destabilizing public anger" prevents further action - and I suspect that would be the very moment the President confirmed Hoagland's suspicions. Sad though it may be, the concern appears to be that telling AIG's customers, "Sorry, you knew what you were doing, AIG's bankrupt, and you're not getting more money," could put the world financial system back into a tailspin.

Post-Partisanship Prattle

This would be funny if it weren't so pathetic. Michael Gerson is weeping, once again, because Obama won the election, is delivering on his campaign promises, and doesn't see bending to Republican obstructionism as the same thing as bipartisanship. This is the same Gerson who was a happy cheerleader for everything Bush shoved down the throat of a hesitant nation and, as we continue to choke on those bad policy choices, attempts to blame Obama for having not yet fully administered the Heimlich. Seriously.

The pledge of "bipartisan" cooperation has become an attempt to shove Republicans until their backs reach some wall of outrage and humiliation.

None of this is new or exceptional - which is the point. It is exactly the way things have always been done.

Or, more accurately, it's what Bush did. It's what Gerson supported and applauded under Bush.

Gerson, as usual, is obsessed with a few trees, even as he gives lip service to the importance of the forest:

Obama's stem cell decision was worse, because it is a thing that has never been done before. "Obama," explains Yuval Levin of the Ethics and Public Policy Center, "is willfully ignoring the moral complexity of the subject.

When criticisms of changes in stem cell policies come from the likes of Gerson and Levin, a fair response would be to invoke Godwin's law. Were either man honest, they would admit that their analogies to Nazism and eugenics have poisoned the atmosphere for debate. They would admit that they would be making the same criticisms of any change in policy more favorable to embryonic stem cell research, no matter how well explained. Gerson carries on,

Obama's approach is ethically simplistic - the kind of argument that gets nods at a fashionable cocktail party instead of engaging and respecting serious disagreement.

Picture Obama scoring "debate points" at a cocktail party. Tee hee. But what's missing here? Oh yes... any substantive response, clinical, ethical or otherwise, from Gerson. It's like he's on the other side of Obama's remarks, having pounded back a few too many cocktails, slurring out, "I'm only letting you win this debate 'cuz I'm drunk."

Beyond that, Gerson's complaints begin and end with Obama's budget. Once again he chooses invective over substance,

Obama's proposed budget shows all the vision, restraint and grace of a grasping committee chairman, using the cover of a still-unresolved banking crisis to push through a broad liberal wish list before anyone notices its costs and complications.

As usual, he has difficulty maintaining internal consistency... returning to the forest to which I previously alluded, the programs he deems threatened by this "partisan" approach include:

expand[ing] child nutrition programs, ensuring that low-income children get breakfast and lunch during a time of economic stress. Also, to expand rental assistance to low-income families. To fully fund the Second Chance Act, which helps ex-prisoners reintegrate into society. To increase funding for domestic AIDS treatment, especially in African American and Latino communities. To make the child tax credit at least partially refundable. To limit farm subsidies that distort global food markets and hurt the poor. To provide additional support to strained food banks. To make the saver's credit refundable, encouraging low-income Americans to build assets. To maintain lifesaving commitments promoting global health and development.

Because those initiatives are so likely to win broad support among Republican legislators. Gerson suggests that those "should be common-ground issues in our politics - havens on the ideological battlefield and sources of genuine consensus". They weren't under Bush - but that's okay. It's the Republican Party that obstructs the progress Gerson desires - but that's okay. What's wrong is that Obama won't break his campaign promises, do things he regards as bad for the country, and compromise his principles on issues he deems to make "perfect moral and economic sense", rather that jettisoning those issues he regards as important to his agenda and to the country in favor the agenda preferred by Gerson and the Republican Party.

Gerson's role in this, you'll note, hasn't changed. When Bush was running roughshod over any notion of consensus, enacting bad social, scientific, and economic policies, Gerson was right there as his cheerleader. Gerson may now be squealing about how it's not appropriately "bipartisan" to reverse Bush's "accomplishments", but he does so in continuation of his role as cheerleader for those policies. I suspect it's unfair of me to ask that he offer anything substantive in his columns, as he has no discernible history of doing so and he does not appear to have to capacity to think or write at a higher level.

Put Steve Jobs In Charge of Everything!

A few months ago, that was a favorite solution for certain pundits - e.g., "We need a Steve Jobs for the auto industry". Today, after raising some valid points about the financial crisis:

We're still in the Neville Chamberlain phase when it comes to the economic crisis. The government is talking about sacrifice and solutions, but it hasn't yet made the tough decisions that will put the economy back together. Economist David Smick had it right in The Post this week when he said the administration had a three-pronged strategy: delay, delay and delay. The administration announces a rescue package but doesn't deliver details; it promises budget discipline but saves the hard decisions for later.

Ignatius suggests that the problem is that we don't have enough "business leaders with experience managing large organizations in crisis" in government. I'm sure it's as easy as stopping by the House cafeteria....

I'd like a Steve Jobs for the Commerce Department, and a Steve Jobs for Treasury, and a Steve Jobs for State, please. And a side of freedom fries!

Order up!

I'm kidding, of course. You can't buy freedom fries there any more.

Seriously, though, if we had wonderful examples of "business leaders with experience managing large organizations in crisis", do you know where I would put them right now? In business. To run faltering financial firms and banks, the faltering auto industry, one of many faltering retailers, faltering real estate and construction businesses.... There's lots of opportunity for these magic men. But oddly, there don't appear to be many of them.

I'm willing to hear Ignatius identify some of the people he proposes as becoming the magic men of government. But you know, he doesn't even name Steve Jobs. He instead suggests we need the equivalent of "Winston Churchill arrived as the avenging angel" - but last I checked, Churchill was a politician.

I would also like to hear Ignatius explain why he believes that "business experience" is better for people who run government agencies than, say, government experience. Why he would deem the CEO of AIG more competent to run government than the administrators who have bailed out his company? Where does he stand on somebody like Robert Rubin - why not mention Obama's receiving advice from a guy who was "good enough" to get compensation reaching into the hundreds of millions from Citigroup - isn't he a glorious example of somebody with the business creds to lead a financial industry turnaround? What of the dynamic duo of "businessmen", G.W. Bush and Dick Cheney, who led the country into this hole - Ignatius still perceives a glorious return from their "business experience"?

Let's say we put, say, Jamie Dimon in charge of the financial industry bailout - among the industry giants, he's arguably the financial industry CEO who did the best job in the years leading up to this crisis. What solution does Ignatius imagine that Dimon would serve up?

Really - if I'm to accept that there's a line-up of skilled business leaders, ready to take charge and quickly fix everything that's wrong with government, can we have at least one name? Can we hear about at least one strategy change that they would implement?

Obama administration officials are understandably nervous about taking a leap in the dark - imposing emergency financial measures that could mean bankruptcy and nationalization for big automakers and giant banks. I hope they will find more creative, market-oriented approaches that break up the giants rather than patch them together under government ownership.

No, I guess we're left hoping for a miracle man with a miracle cure.

Ignatius highlights a big part of the problem - nobody knows what will or will not work, and there's serious concern that proposed cures at best throw good money after bad or may make things worse. But there are no business leaders sitting quietly on the sidelines, ready and able to bring about a miracle cure but for the politicians who are leading the government.

He Has To Know Better

Perhaps it's a new thing on the Washington Post's editorial page - Hiatt won't approve a column unless the author says something truly stupid. Here's George Will, arguing that correlation is causation:

One afternoon last week, cable news viewers saw, at the top of their screens, the president launching yet another magnificent intention - the disassembly and rearrangement of the 17 percent of the economy that is health care. The bottom of their screens showed the Dow plunging 281 points. Surely the top of the screen partially explained the bottom.

The stock market's up, two days in a row - that means all of Obama's policies are now good?

Will's far from the first to make that particular argument - here's another example. All you can do is ask, is his grasp of logic really that poor?

Kathleen Parker's Stupid Stem Cell Argument

Note I'm not stating that Kathleen Parker's stupid, nor am I saying she believes what she's saying - her editorial appears to be stenography of a memo from one of possibly many pro-life groups. But her argument is stupid.

Let's start with a similar argument - avoiding arguing the morality of the death penalty by instead arguing that it's not cost-effective as compared to life imprisonment. The idea here is that you could convince death penalty proponents that it's a bad idea, not because you risk killing an innocent person, for such issues as racial disparity, or because of skepticism that the state should have that type of power over a citizen's life, but because alternatives (such as life without parole) are cheaper. What if they then demonstrate a mechanism to make it more cost-effective? You're sent reeling back to the arguments you actually believe, but you've given up a lot of credibility by making them the backups to a failed argument that you, yourself, never found convincing.

Parker opens with a distortion of the status quo - that somehow, in ending the absurd Bush policy on funding for embryonic stem cell research, Obama is "ignoring... amazing strides in alternative stem cell research." Her argument reflects her willingness to come across as a scientific ignoramus, and maybe that's also the reality. But the fact is, researchers aren't lining up to get funding for their grants, or to launch new projects based upon embryonic stem cells, because they're unethical or aren't aware of other sources of stem cells. They're doing so for valid, scientific reasons, and with full awareness of the ethical issues. Parker can yammer all she wants about how "Science and ethics finally fell in love" while "Obama seems to have fallen asleep during the kiss", but she only demonstrates her ignorance, dishonesty, or quite probably both.

This type of argument reflects the worst of "conservatives" like Parker - it demonstrats abject contempt for her audience, whom she apparently regards as scientifically ignorant rubes, while smearing the ethics and social responsibility of thousands of scientists who want nothing more than to cure presently untreatable diseases and to save lives. Parker truly believes they are intentionally pursuing research that has no scientific merit, because they get their jollies destroying embryos?

But this is where her argument gets truly stupid:

If people "know" anything, it is that embryonic stem cells can cure diseases and that all stem cells come from fertility clinic embryos that will be discarded anyway. Neither belief is entirely true.

In fact, every single one of the successes in treating patients with stem cells thus far - for spinal cord injuries and multiple sclerosis, for example - have involved adult or umbilical cord blood stem cells, not embryonic stem cells.

Parker first pretends that embryonic stem cell research isn't in its infancy, and that miracle cures should somehow develop overnight or embryonic stem cells have no medical or scientific value. She second conveniently forgets that Bush's policies have held back research into the medical application of embryonic stem cells while allowing other forms of stem cell research and treatment to proceed. And she exaggerates the successes of research based upon other stem cell lines, to suggest that they're living up to the potential that many scientists perceive in treatments based upon embryonic stem cells. It's great that other types of stem cell are available, and that certain diseases can be treated based upon those other forms of stem cell. But, all of Parker's prevarication and exaggeration aside, they're not presently a substitute for embryonic stem cells.

Parker cites as authority a blog post by Bernadine Healy, one-time head of the NIH under George H.W. Bush, without mention of the fact that Healy engages in fear-mongering tactics that betray her ignorance of the subject matter. Healy suggested that embryonic stem cell treatments will cause cancer, citing a single case that involved repeated injection of fetal stem cells at a Moscow clinic in a manner that is both medically and scientificaly dubious.

Parker carries on for several paragraphs about how "induced pluripotent stem cells" (iPSs) may ultimately prove as useful and flexible as embryonic stem cells, both in research and medical treatment. How quickly Parker forgets her prior argument, that embryonic stem cells have no medical value and the "real" progress is being made with other types of stem cell - if that were the case, after all, there would be no need to develop something potentially as useful as embryonic stem cells, and doing so would be vastly more foolish than working with stem cells from non-embryonic sources. As anybody with modest knowledge of science is aware, its absurd to suggest that something that carries scientific potential will always pan out - a lot of science that shows potential never lives up to its potential, or it takes years or decades for the potential to become reality.

Truth be told (and you're unlikely to get it from Parker), organizations performing stem cell research are proceeding on both fronts - IPSs and embryonic stem cells. If it turns out that embryonic stem cells are no better than IPSs, the research will continue based upon IPSs. The big question is, "What if they're not." And that's where Parker's construct fails. She's set up a house of cards that falls apart the moment a significant medical breakthrough emerges based upon embryonic stem cells. Even to her most ardent followers, all of her equivocation about how the only "real" progress arises from other sources is revealed for the anti-scientific, counter-factual nonsense that it is.

Meanwhile, Michael Gerson writes an editorial of his usual quality, suggesting that it's tokenism for Obama to have a pro-Choice Catholic as his Secretary of Health and Human Services. That she serves as "religious cover" for the pro-choice policies that she has... supported throughout her career.

It also smacks of religious humiliation - like asking a rabbi to serve the pork roast or an atheist to bless the meal.

Standing up for your beliefs is "humiliating"? Okay... So what, then, of appointing Catholics to the Supreme Court, knowing that they would vote to uphold the death penalty despite the teachings of their faith? Catholics who won't even promise to reverse Roe v Wade? Samuel Alito and John Roberts, for example. Religious cover for G.W.? A form of constant public humiliation for those poor men? I guess the contest continues.

I guess writing this sort of column is a lot easier than answering difficult questions - such as, why is Obama's policy any less ethical than Bush's? Or why it's more ethical to treat the nation's hundreds of thousands of frozen embryos as medical waste or to let them perish of freezer burn than to allow their parents to donate them for use in medical research? Which gives their life more meaning?

Note to Fred Hiatt: There are people who are smart, informed, honest and articulate who write about these issues from the pro-life standpoint. Ever thing about hiring one of them?

Stem Cell Research

The Washington Post embarrasses itself with this editorial by Yuval Levin, attacking Obama for abandoning Bush's cowardly stance on stem cell research. Embarrassment starts with the headline, "Science Over All?". Was that picked by the author? Given the tendency of stem cell research opponents including and perhaps especially Levin to compare it with eugenics and Nazism, the allusion to "Deutschland Über Alles" is hard to overlook. If the title was picked by one of Fred Hiatt's employees, all the worse.

Does it need to be said? It gets worse from there. The second paragraph is mind-numbing drivel:

What you think of his policy depends on what you think of the moral status of embryos. If (as modern biology informs us) conception initiates a human life, and if (as the Declaration of Independence asserts) every human life is equally deserving of some minimal protections, government support for the destruction of human embryos for research raises profound moral problems. But if you think an embryo is not quite a person, or that its immaturity or inability to suffer pain or its other qualities mean that destroying an embryo does not amount to taking a life, the promise of stem cell science might well outweigh any doubts.

Where to begin....

• If in fact the debate turns on "the moral status of embryos", Levin should be embarrassed that he elided from his discussion Obama's discussion of the moral issues and description, albeit brief, of how he reached his conclusion; or Bush's vacuous half-measures on the same subject.

• "If (as modern biology informs us) conception initiates a human life..." - as if no distinction can be made between "human life" and a "human being". Leaving aside my skepticism that Levin supports the extension of human life in all circumstances (e.g., that he opposes the death penalty), and even granting that he might have dogmatically defended the notion that Terry Schiavo should have been kept alive in a persistent vegetative state, even he must be able to recognize both qualitative and quantitative differences between a fertilized ovum and a human being.

• "...and if (as the Declaration of Independence asserts) every human life is equally deserving of some minimal protections..." - What a way to build a syllogism. The Declaration of Independence says, "all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness". Their use of the term "men" did not even extend to slaves, and didn't apply equally to women or Indians, let alone to embryos.

• "... government support for the destruction of human embryos for research raises profound moral problems." - The conclusion is reasonable; it just isn't drawn from Levin's false premises. Also, as previously indicated, that's not a point of distinction from Bush's policies - if use of embryonic stem cells is a per se moral wrong, Bush's blessing it based upon a limited set of stem cell lines is also a per se moral wrong. If Levin finds Bush's policies defensible, he's already abandoned the moral framework that he's using to attack Obama.

• "But if you think an embryo is not quite a person..." - An embryo isn't a person. Again, if it were a person Bush's stem cell policy would have been morally repugnant.

• "... or that its immaturity or inability to suffer pain or its other qualities mean that destroying an embryo does not amount to taking a life..." - Have you ever heard that suggested by a proponent of stem cell research? Even once? It's a canard pulled out by the likes of Levin to impugn the morality of those with differing views on stem cell research, as a smokescreen over his conflation of "human life" with "personhood". I don't believe for a second that Levin believes this representation to be either fair or accurate in relation to anybody, let alone Obama.

• "...the promise of stem cell science might well outweigh any doubts." - Again, Bush was sufficiently impressed with the promise of stem cell research that he permitted it, and even permitted limited federal funding of embryonic stem cell research. Does this mean that Bush didn't respect the "personhood" of embryos, or does it mean that he (and people who served him... like Levin) never met a moral principle that couldn't be bent?

Further, where's the morality in Levin's alternative position. The rare exception of "snowflake children" aside (just over 300 kids born as the result of an eight-year campaign), if not used for research there are hundreds of thousands of frozen embryos stored in fertility clinics that will either be discarded as medical waste or die in a freezer. That's a morally superior outcome? That's a moral acknowledgment of their personhood?

In a barely concealed swipe at his predecessor, he pledged that his administration would "make scientific decisions based on facts, not ideology."

Given Bush's scientific legacy, shame on Obama for being indirect.

In pledging to advance science, Obama acknowledges the importance of ethics - of morality - and the importance in making sure that stem cell research is conducted in an ethical manner. This is a vastly superior approach to both science and ethics than that of Bush. You can't address issues like this while avoiding any intrusion of morality or religion; but you can recognize the nature and importance of science, and any responsible President should openly and unambiguously reject the anti-scientific propagandizing, distortion, and policy-making of the Bush Administration.

Perhaps Obama could have added another paragraph or two to his speech about the moral issues. But let's be honest. That wouldn't have affected more than a sentence or two of Levin's editorial, and his conclusion would have remained the same. Note that there is no policy suggestion in the editorial - it's an attack on Obama for parting ways with Bush's cowardly compromise. His implied conclusion, one can reasonably infer, is the one he has more explicitly stated elsewhere but here chooses to imply with his headline: that embryonic stem cell research is a form of eugenics that verges on Nazism.

Bureaucratic Red Tape

Odd statement of the day:

An online classified ad offering a "free" teenager appeared on a Salt Lake City television station's Web site Saturday afternoon.... The ad listed a "hardworking young man" who was being given away because "we're low on money, no room in the house," said Mary Workman, 52, of Amarillo, Texas, a former Salt Lake City resident who saw the ad as she browsed online....

Workman said the ad showed two pictures of a young man who appeared to be 15 to 17 years old.

She said she called the Spanish Fork number listed on the ad and a woman with an accent answered, apparently an adult affirming that the child was available. A man then got on the phone, also confirming the child was to be given away.

"That just totally blew me away," she said. "You can't give your child away, not without paperwork."

Apparently it's a multi-part form, you keep the canary copy, the blue and pink copies are for...

The "Least Bad" Solution to Illegal Drugs

According to the Economist, it's legalization.

“Least bad” does not mean good. Legalisation, though clearly better for producer countries, would bring (different) risks to consumer countries. As we outline below, many vulnerable drug-takers would suffer. But in our view, more would gain.

There's nothing close to a perfect solution, or even a good solution, to the scourge of drugs. But I suspect that if we made the principal illegal drugs (marijuana, cocaine, opiates, amphetamines) available through a variety of regulated mechanisms, we would see an improvement over the status quo.

A similar perspective from The Independent:

So, why did we lose the drugs war? The answer is simple economics. Demand will find a supply. That the political parties on both sides of the Atlantic who preached prohibition were the same ones that advocated market liberalism is no small irony. While Nixon, Thatcher and Reagan pointed to the Reds in the East and said you can never be free without free-markets, the freest market of all was the one they created with the war on drugs. There is no regulation of actual consumption, no regulation of production, no enforced quality standards, no labour rights and no money-back guarantee.

Instead we have an international drug mafia more powerful and wealthy than any organised criminals in the history of human society. They are the beneficiaries of the alchemy of prohibition which turns virtually worthless crops into a commodity worth its weight in gold. And, unsurprisingly when the product is so valuable, they will stop at nothing, literally nothing, to get it to market and realise the profit. If you were not stung by the banking crisis and are still looking for a justification for market regulation, this is it. The results are all around us.

We lose around 2,600 people to drug poisoning every year. More than half of all property crime is drug-related. And while one in eight members of the prison population arrives there on drug-related charges, tens of thousands more are users – able to service their habits in our prisons. A sick joke and a criminal waste of life this may be, but – relatively speaking – we are the lucky ones.

To see the real horror show, look at the drug gangs who closed Sao Paolo, in Brazil in 2006, the Taliban's resurgence in Afghanistan after the poppy crop was threatened by coalition troops; or even the West African narco-state of Guinea Bissau which lost both a President and the head of the army to assassins last week.

This is a devastating toll, given that drugs policy is, basically, a matter of public health not national defence. Our politicians do not see it that way.