Modern Bank Robbery

I agree with Simon Johnson that this line of thinking is atrocious and unacceptable:

One main stumbling block to the purchasing of troubled assets has been pricing, specifically how does the government price a diverse set of assets in a way that does not put the taxpayer on the hook. However, this should not be the standard by which we judge the efficacy of the plan, because a more prolonged deterioration in the economy will result in a higher terminal unemployment rate and a greater deterioration of the tax base. As such, the decline in tax revenues will crimp many of the essential services provided by the government. Ultimately, the taxpayer will pay one way or another, either through greatly diminished job prospects and/or significantly higher taxes down the line to pay for the massive debt issuance required to fund current and prospective fiscal spending initiatives. We think the government should do the following: estimate the highest price it can pay for the various toxic assets residing on financial institution balance sheets which would still return the principal to taxpayers.

If the goal is to wrap up the crisis as quickly as possible, then let's stop talking about buying junk assets from banks and start talking nationalization. If the key to recovery is to avoid "prolonged deterioration", we can end the role of those junk assets in this mess just as quickly by estimating the lowest price we can pay for "the various toxic assets residing on financial institution balance sheets".

Making Teachers Less Like... Windows Vista?

I'll give Bill Gates credit for directing a huge amount of money, through his foundation, at education reform. And I very much appreciate his effort to try to determine what works instead of resorting to fads or politics. But when he writes,

The private high school I attended, Lakeside in Seattle, made a huge difference in my life. The teachers fueled my interests and encouraged me to read and learn as much as I could. Without those teachers I never would have gotten on the path of getting deeply engaged in math and software. . . .

How many kids don't get the same chance to achieve their full potential?

I know he's not proposing that public schools be brought up to the standard of his private high school, currently costing well over $25,000 per year in tuition and fees. But his findings in relation to the most successful public schools, supported by Gates Foundation grants, are interesting.

But a few of the schools that we funded achieved something amazing. They replaced schools with low expectations and low results with ones that have high expectations and high results. These schools are not selective in whom they admit, and they are overwhelmingly serving kids in poor areas, most of whose parents did not go to college. Almost all of these schools are charter schools that have significantly longer school days than other schools.

Gates observes, "We had less success trying to change an existing school than helping to create a new school" - I suspect that plays a role in why charter schools were more likely to be successful. They have the opportunity to start fresh with administrators who were better positioned to try something new, and perhaps also much more interested in doing so.

Honestly, I've seen school administrators in public school systems enact policies that seem designed to stifle innovation, and make the extraordinary more ordinary, either because they don't understand alternative models to education or (in my cynical view) because it's more work. Also, while charter schools don't discriminate in who they admit, there's going to be some self-selection both in terms of the parents and kids who are willing to tolerate extra rules or requirements, or even to overcome the lethargy that keeps them in the default neighborhood school. They also get to recruit teachers whose philosophies align with their own.

Consistent with the Washington Posts editorial stance, Gates argues that this means we need more charter schools.

Many states have limits on charter schools, including giving them less funding than other schools. Educational innovation and overall improvement will go a lot faster if the charter school limits and funding rules are changed.

Yet let's be honest here. School funding levels are only part of the picture. I suspect it's a "donut hole" phenomenon, and schools like Lakeside or Sidwell Friends establish that extremely high funding can bring additional benefits to their students, but there's a basic level of funding beyond which additional dollars don't seem to have much impact on student performance. The fact that charter schools on the whole aren't outperforming, or are underperforming, public schools has less to do with funding and more to do with the fact that the people who set them up don't always share Gates' zeal for quality and performance, or don't have the requisite skill set to turn that interest into reality.

When the idea of charter schools was first raised, I found it very intriguing. I saw real potential for experimentation and improvement. But the reality is, building and running a school is hard work. The amount of institutional lethargy behind institutions of higher learning (particularly schools with large teaching colleges) was perhaps not surprising, but was disappointing - I haven't seen any real leadership from that direction. Some charter school entrepreneurs seemed (and seem) more interested in providing an alternative culture (e.g., charter schools that follow a particular religious model) than a better educational model. Some appear to be driven almost entirely by profit. There are true believers out there, but there don't seem to be as many as Bill Gates appears to believe.

Also, unless charter schools have equal responsibility - no indirect subsidy by letting their students use sports facilities or play on sports teams at nearby public schools, equal responsibility for special education students, etc. - they shouldn't get equal funding. I'm not arguing that some states or school districts don't underfund charter schools, as that appears to happen with some regularity, but mere inequality of funding does not of itself mean that charter schools aren't equitably funded.

Gates speaks of improving teachers:

One of the key things these schools have done is help their teachers be more effective in the classroom.

It's no surprise that the best schools, public and private, support their teachers and help them achieve, maintain and build on their classroom effectiveness.

Research shows that there is only half as much variation in student achievement between schools as there is among classrooms in the same school.

I hate "research shows" lines tossed out like that, with no indication of what the research actually means. If you compare an AP math class to a remedial math class, you're going to see a huge difference in performance between the two classrooms. But for all we know, they may be taught by the same teacher. And if they're not, it's not an indictment of the teacher who's working to bring the unprepared kids up to speed, but results from the fact that they're in a classroom full of kids whose math skills were far below grade level from day one.

The teacher in the remedial classroom may in fact be the better teacher. The worst math teacher I ever had taught honors math at my high school - I was stuck in her class for 11th and 12th grades. Our class performed despite her, not because of her, yet we still significantly outperformed the school's other math classes on standardized tests.

Whenever I talk to teachers, it is clear that they want to be great, but they need better tools so they can measure their progress and keep improving.

So teachers are like Windows Vista, but want to be more like Windows 7? I joke, but I agree with this:

So our new strategy focuses on learning why some teachers are so much more effective than others and how best practices can be spread throughout the education system so that the average quality goes up.

I just hope they also spend some time looking at administrators.

I applaud the notion of having 90-100% of high school students graduate ready to enter college. However, I think it's more important to our nation that we help a young potential Bill Gates graduate from a public high school, as ready as Bill himself was to... drop out of college and co-found a cutting edge tech company. These goals don't have to be mutually exclusive, but I don't see any way to pretend otherwise: with enough time, energy and resources you may be able to get 90% of the kids in any given high school ready for college, but unless you're assuming that the smartest and most capable will "take care of themselves", you can't afford to lose them in the shuffle as you focus on raising the common denominator.*
_____________
* Thomas Friedman argues in favor of an open door policy, bringing in more entrepreneurial immigrants. I'm all for trying to attract students and innovators from around the world, to study and set up shop in the United States. No doubt, even if we forget the role of education, particularly sciences, maths, and other difficult disciplines not directly associated with Wall Street riches, and the importance of nurturing the next generation of leaders in scientific disciplines, other nations will not.

I Haven't Been To One In Years, But....

I still found this faux Trader Joe's ad amusing.

via lies.com.

This Is Acceptable?

Robert Reich comments,

In other words, Geithner and Fed Chair Ben Bernanke continue to do pretty much what Hank Paulson and Bernanke did: They hide much of the true costs and risks to taxpayers of repairing the banking system. Those risks and costs should be put on the people who made risky bets on the banks in the first place - namely bank shareholders and creditors. Shareholders of the most troubled banks should be wiped out entirely. Bank creditors- except depositors - should take major hits. And top executives who were responsible should be canned. But Geithner and Bernanke don't want to take these steps for fear of spooking the Street. They think it's safer to put the costs and risks on taxpayers -- especially in ways they can't see.

Remind me again why "nationalization" is such an awful word? Not in the context of healthy organizations, or even those that are struggling to recover, but in the context of bankrupt financial institutions that seem to lack the will, desire, and ability to get themselves out of the mess they created? "It spooks the street" just isn't convincing enough for me.

The New Bailout - I Don't Get It...

Okay, I'm not an economist. Not even close. My calculus is so rusty, I probably couldn't struggle through the first exam in a Calculus 101 class. (Or is it 201? See, I can't even remember that much calculus.) So no, I'm no expert - don't pretend to be. So maybe this shouldn't be a surprise, but...

I just don't get it.

I appreciate that we've moved away from the "bad bank" model, something that seems primarily to be "bad for taxpayers". But I just don't see how providing capital for private investors to buy toxic assets is going to help clear up this mess. Let's say I'm an investor, and I'm not inclined to borrow money to invest in those assets at a present, near zero interest rate. That could be because I see them as too risky, as offering an inadequate rate of return, or because the seller doesn't want to admit their fair market price. Unless somebody gets subsidized how does federal money change that equation?

If I'm a bank that does not want to admit actual value for its assets because I'm bankrupt, having more potential buyers won't change that. Maybe that where Geithner's idea of auditing banks before giving them additional bailout funds comes in, assuming that plan has teeth. Their "97 cents on the dollar" entry is reduced to 38 cents, they qualify for federal aid (or a takeover), and the investor uses a federal loan to pick up the securities at their market value. But how is that superior to simply bailing out the bank and having it hold its own asset at its actual value?

Is the idea here that the money is only available to buy toxic securities, so that the private partners may decide, "Well, I wouldn't put my money on the line for a possible 0.1% rate of return, but I'll happily put free federal money on the line." What guarantees are we offering to the private partners? That we'll cover any losses if the securities drop in value - subsidizing the investors instead of the banks? How is that better than directly overpaying for junk securities through something like TARP - such a guarantee would seem to be yet another layer of lemon socialism, as with TARP the taxpayer would at least get the benefit of any increase in value. If we're not offering any guarantees, why should we expect investors to pick up the worst of the worst securities, the ones that are the biggest drags on the financial industry?

Granted, I'm working off of a public statement, pretty much devoid of details. I guess I'll wait to see what the experts have to say.... (Although the operative word so far seems to be BARF.)
__________

Update: What are Nobel Prize-winning economists for, if not to explain these things to us, and Paul Krugman has stepped in to help me understand the Geithner plan!

So what is the plan? I really don’t know, at least based on what we’ve seen today.

Wow.... I feel... so much better....

State Secrets Litigation

Glenn Greenwald is up in arms about the Obama Administration's advancing the same, extreme interpretation of State Secrets Privilege as the Bush Administration:

It's really remarkable what happened. One of the judges on the three-judge panel explicitly asked the DOJ lawyer, Doug Letter, whether the change in administrations had any bearing on the Government's position in this case. Letter emphatically said it did not. Instead, he told the court, the new administration -- the new DOJ -- had actively reviewed this case and vetted the Bush positions and decisively opted to embrace the same positions.

It's a double-edged sword, though, isn't it? By pushing the Bush Administration's interpretation, the Obama Administration ensures that there will be an appellate court ruling on that interpretation, likely followed by a Supreme Court ruling on that interpretation. Either the courts will reject the Bush/Obama Administration arguments, or they will find them constitutional.

Perhaps that's the worst case scenario for opponents of State Secrets Privilege - that the Supreme Court will give the Bush Administration's extreme views its seal of approval. But if the issue isn't litigated, the issue remains open. Even if Obama backs down, a future administration will reassert the extreme interpretation presently before the courts. Is it truly better "not to know"?

Justifications

With all of the reasons tossed out for why a stimulus bill needs to be conservative, at least in comparison to the amounts many said would be necessary for an effective stimulus, what's the future of the bank bailout? I may not be thrilled about taking a huge money gamble to fix an economic mess largely created by the idiots who run our nation's banks, but I'm even less thrilled by spending hundreds of billions more to help save their jobs and prop up their bankrupt companies.

And in terms of that bailout....

Summers suggested the bank rescue plan may offer incentives for private investors to buy mortgage-related assets that have lost value because of the collapsed U.S. housing market.

"It can't all be private capital," Summers said on "Fox News Sunday."

It only takes enough private capital for securities not already guaranteed by the government to establish their market price; then the government can buy the rest at market value? Yeah, right.

"But with the right kinds of government guarantees, with the right kinds of financing ... with the right strategic approaches, Secretary Geithner believes that we can bring in substantial private capital," Summers said.

Why do I suspect that with Summers' version of "the right kinds of government guarantees", whether it's public money or private that "buys" the security, the taxpayer bears all the risk.