The Goldman Sachs hearings missed the point - PART 2

So before I get on to subprime lending, I forgot to mention one additional structured financial product which is yet another complex combination of what I already talked about: the synthetic CDO. Recall that a CDO is a pool of pools of mortgage-backed securities. So an investor could buy slices (aka tranches) of a large pool of thousands of mortgages depending on what type of risk they wanted to take (keeping in mind that the higher the risk, the higher the return for the investor). A "synthetic" CDO is really just a combination of a CDO and a credit default swap. It's a bet that the slice of the CDO will (short) or will not (long) default.

And then yesterday, I found out that there is such a thing as a synthetic, synthetic CDO. (Yeah...you read that correctly). Again, these new products weren't built out of anything tangible...they were just bets. But it allowed more people to make more money off of a single mortgage transaction than ever before (no one had to go to the trouble of lending new money) and it gave investment banks the opportunity to collect more and more outrageously large fees.

Subprime lending: So now that this structured financial product wormhole-of-a-market had been created and CDOs, synthetic CDOs, and CDSs were flying off the shelves into the arms of salivating investors...they needed the gravy train to keep coming. But there are only so many houses in this country and so many responsible people that can afford to buy houses. Well, that pesky little fact didn't matter after the invention of the subprime loan. Traditionally, mortgages were long-term, fixed-rate loans that were labelled "prime" because the borrower met specific criteria like possessing good credit, a satisfactory income, and collateral (i.e., the property was in good enough shape so that the lender wouldn't get stuck with a lemon if the borrower defaulted). So that means "subprime" mortgages didn't have to meet these strict (and totally reasonable) standards. But since these new subprime loans were much riskier, the interest rates were set higher, which led to higher-yielding CDOs (exactly what the investors way down at the other end of the pipe were craving like crack cocaine).

I think everyone has heard stories about these loans..."no doc" and "stated income" loans were better known as "liar loans". The lenders didn't require anything to indicate that someone would be a reasonable and prudent borrower. And the "predatory" lenders would lure the unsuspecting borrower into the loan with arrangements of lower monthly payments in the first year (which then jumped up to prohibitively high levels thereafter) or the "pay option" where borrowers would pay less than the monthly interest (but the principal would go up). It was a total and complete sham! But it didn't matter to the lenders because they were making a killing off of the fees and then just sending it down the pipe to the gluttonous and completely uninformed investors. Those that did think about the quality of the loans would just convince themselves that the subprime loans were still good business because home prices would just continue to rise indefinitely. Here's another passage from 13 Bankers:

But that [risk of default] no longer mattered - at least not to the lenders or the investment banks - because the lending business model detached itself from the requirement that borrowers pay back their loans. Lenders made fees for originating loans; the higher the interest rate, the higher the fees. Then, when interest rates reset and borrowers became unable to make their monthly payments, lenders could earn more fees by refinancing them into new, even-higher-rate mortgages. As long as housing prices continued to rise, a single borrower could be good for multiple loans, each time increasing his debt.

This situation had disaster written all over it. It was a teetering house of cards. Again, 13 Bankers puts it better than I could:

The end result was a gigantic housing bubble propped up by a mountain of debt - debt that could not be repaid if housing prices started to fall, since many borrowers could not make their payments out of their ordinary income. Before the crisis hit, however, the mortgage lenders and Wall Street banks fed off a giant moneymaking machine in which mortgages were originated by mortgage brokers and passed along an assembly line through lenders, investment banks, and CDOs to investors, with each intermediate entity taking out fees along the way and no one thinking he bore any of the risk.

Finally, the bubble burst. Housing prices started falling. Huge mega-firms like Bear Stearns and Lehman Brothers (plus the government-backed Fannie Mae and Freddie Mac) collapsed into bankruptcy. Panic spread like wildfire into every nook and cranny of the banking system...even into places where no one would have ever suspected anything bad to happen. The government stepped in with a colossal bailout package for the firms still standing in order to keep the world's largest economy away from the edge of a deepening abyss. And now today...we are still trying to stay afloat after all of this with an unemployment rate still hovering above 10% and very few signs of a sustainable recovery anytime soon.
------------------------------------------------------------------
Okay...so that's the ugly background. In Part 3, I'll get back to the recent Goldman Sachs hearings, which came about because of some fraud charges filed by the Securities and Exchange Commission (SEC) related to some synthetic CDOs that Goldman Sachs arranged.

[By the way, if you want another refresher on the crazy financial terms, try this glossary.]

My Sources on Making Sense of The Financial Crisis

Before I continue the financial crisis/reform discussion, I wanted to divulge the majority of my sources. While, I like to think that my opinions are unique and defensible in their own right, I cannot help but admit that I have been influenced by the following:

• Baseline Scenario: This is a blog headed by MIT economist, Simon Johnson, who is the former chief economist of the International Monetary Fund. It is their goal to make the financial crisis understandable to all who make the effort to understand it. The guys are brilliant and their arguments are very well-crafted and well-reasoned.
• 13 Bankers: I have been reading this book for the last few weeks. It is by the same two people who run Baseline Scenario.
• Planet Money: This is the NPR podcast that was created following the financial crisis in order to better explain the complexities to the public (a challenging and honorable endeavor). They do an excellent job of explaining the crisis (and many other economic issues) in an interesting and, often, very entertaining way.
• This American Life: This great NPR show teamed up with the Planet Money team to do 5 shows specifically on the banking crisis that are outstanding: The Giant Pool of Money, Another Frightening Show About The Economy, Bad Bank, The Watchmen, Return To The Giant Pool of Money, and Inside Job. If you have the time, I highly recommend downloading and listening to all of these for your next long car ride.
• Felix Salmon at Reuters: a great financial journalist who can grind through a lot of the technical details.
• A couple of PBS specials also helped: Simon Johnson and Michael Perino on the historical lesson of the Pecora hearings, Simon Johnson and James Kwak on the current crisis and reform, PBS Frontline episode on "The Warning" and the blunders of financial deregulation

An Externality

ex·ter·nal·i·ty    (ěk'stər-nāl'ĭ-tē)
n.   pl. ex·ter·nal·i·ties


1 : the quality or state of being external or externalized
2 : something that is external
3 : a secondary or unintended consequence


---------------------------------------------
I'm really not trying to be melodramatic here or lay out a big guilt trip but I think these types of accidents are critical for making ourselves realize the consequences of being an oil-addicted civilization. We won't see an extra 5 cents tacked on to our next total at the pump to pay for this disaster clean-up, but we are all truly paying for this accident in complex and long-lasting ways. We cannot afford to shy away and plug our ears.

The Goldman Sachs hearings missed the point - PART 1

Although the hearing yesterday was pretty entertaining (the word shitty was said more than a dozen times), I'm afraid that the committee completely missed the opportunity of the moment; the opportunity that would propel us into a new mindset for how the financial world should work in a sustainable economy.

I guess it should be to nobody's surprise that these hearings were a lot of theatrics and not that much substance. The committee members were definitely successful at painting the Goldman executives as greedy, disingenuous, arrogant, and unethical. The truth is, they really didn't even need to try that hard...especially after several e-mails were released from Goldman Sachs employees including from bond trader Fabrice Tourre (aka Fabulous Fab), who is the only Goldman Sachs employee named in the present fraud charge by the SEC. Here he is explaining to one of his girlfriends how he perceives one of the complex financial products that he created:

...a product of pure intellectual masturbation, the type of thing which you invent telling yourself: ‘Well, what if we created a “thing,” which has no purpose, which is absolutely conceptual and highly theoretical and which nobody knows how to price?’

He goes on to explain that he has sold some of these products "to widows and orphans that I ran into at the airport". That's lovely. What a swell guy.

So I am happy that these people have been clearly exposed as the greedy bastards that they are but the whole reason that this hearing was called in the first place was because Goldman Sachs was just charged with fraud. Not because they are greedy bastards. We are a country that is chock full of greedy bastards. That doesn't mean that we should drag them all into the chambers of Congress for a good grilling. Far from it.

No...what needed to happen was some tough questioning about how Goldman Sachs crossed the line from greedy bastards to lawbreakers. This really didn't happen because the Senators kept muddying the water by misunderstanding the issue.

So before I go further...a few explanations are needed:

I think most people perfectly understand that the underlying cause of the recession has to do with people taking out mortgages on homes that they really could not afford. That doesn't mean that they were the only ones at fault (far from it). The culture of the 80s, 90s, and 00s really solidified the idea of homeownership as quintessentially American. The government encouraged it at every opportunity that it could by creating incentives and keeping interest rates at very low levels. And in a lot of cases, homeownership is a great thing. But it's the combination of 1) the cultural appeal of homeownership, 2) the view that the value of homes would perpetually increase as an investment, and 3) the creation of new highly complex financial "innovations" in the 90s that dramatically increased the amount of money that could be made on mortgages that got us into HUGE trouble (This is why the discussion of these complex financial products has become so important...it has now become not just of interest to the Wall Street big-whig but to anyone who depends on a healthy economy)

So let's talk a bit about these new financial "innovations". In the book that I'm currently reading (13 Bankers by Simon Johnson and James Kwak...excellent so far) they break these up into three categories: structured finance, credit default swaps, and subprime lending. But before we get too deep into this, it's important to know that this whole twisted system is made up of two different sides: on one side you have ordinary people taking out mortgages and on the other side you have this long and enormously complex chain of different parties, companies, and investors. A few months after a mortgage contract was signed, it could have theoretically changed hands dozens of times and the affected parties could have been from all around the world (for more on this idea, listen to the This American Life podcast, The Giant Pool of Money...it's terrific)

Structured Finance and Credit Default Swaps: So when we think of investing, we usually think of buying something tangible, whether it is a stock, bond, gold, etc. But there are also other types of investments that are known as structured products that don't necessarily include these tangible assets in the product itself. For instance, you give $100 to a bank and sign a contract that says that the change in that $100 over a certain time period will be directly tied to the change in value of some foreign currency. Essentially...it's a bet. Investors call them pure derivatives. You can opt to be on the short (you get money if the currency value goes down) or long (you get money if the currency value goes up) side of the bet. An investor could do the same thing with interest rates in place of foreign currencies.

Another structured product is created by pooling actual financial assets (mortgages, student loans, credit card loans, etc.) together and then slicing them up in various ways. These are known as asset-backed securities [the major players in the housing crisis were mortgage-backed securities (MBS)]. They are different than the above example in that they aren't just a pure bet because the investor actually owns part of the asset. But commonly, these asset-backed securities are combined with derivatives or a derivative could be created based on the value of an asset-backed security. Another popular product was the collateralized debt obligation (CDO) which were pools of mortgage-backed securities (MBS). So yeah...pools of pools.

Is your head spinning, yet? Wait...there's more: the mighty credit default swap (CDS). I'm just going to quote directly from 13 Bankers (don't sue me, Pantheon Books):

A credit default swap is a form of insurance on debt; the "buyer" of the swap pays a fixed premium to the "seller", who agrees to pay off the debt if the debtor fails to do so. Typically the debt is a bond or a similar fixed income security, and the debtor is the issuer of the bond. Historically, monoline insurance companies [i.e., insurance companies that just sold insurance] provided insurance for municipal bonds, and Fannie Mae and Freddie Mac insured the principal payments on their mortgage-backed securities. With credit default swaps, however, now anyone could sell insurance on any fixed income security.

The line between "bet" and "insurance" is now largely obscured. The invention of the credit default swap has enabled the "sophisticated" investor to bet for or against any type of debt.

So why the hell would someone want to buy one of these complex transactions? Why were they even created in the first place? Well, the first purpose is to increase the amount of things that the market can invest in. The theory goes that now there are more products with a wide variety of risk associated with them and each has a unique set of characteristics to attract a specific investor. Second, these products should make it easier for businesses to raise money in that they can now hedge their bets (cover their asses) more efficiently. The consensus of the finance world was that these products made it much easier to manage financial risk (as long as you had the correct mathematical model to tell you what to buy). Everyone was drinking the Kool-Aid including all of the major government regulators over the last several decades (e.g. Alan Greenspan). Finally, another huge reason that these products were created in such abundance was that each new transaction led to fees for the banks that set them up for their "sophisticated" investor clients. Enormous fees! (A former trader said that Morgan Stanley earned $75 million on a single trade)

Okay...enough for now. The second part will deal with subprime loans and my main beef with yesterday's hearings.

Why I am closer to the left than the right...

There has been some interesting commentary recently about the problems those on the right have had with "epistemic closure" (i.e., closed-mindedness or groupthink). The argument goes that each political group suffers from this idea to a certain extent but the GOP and the right have been exceedingly stifled in this way. Patricia Cohen at the NY Times added to the discussion today. But I (as usual) really enjoyed reading Daniel Larison's take:

Where movement conservatives enable their political leaders to do more or less as they please, progressives seem far more willing to challenge and question “their side.” The siege and persecution mentalities that movement conservatives have long cultivated as coping mechanisms for their long history of domestic policy defeats and losses in the culture wars tend to make them far less willing to break with “their side,” which is why there is such importance placed on conformity and “team” loyalty. That means that movement conservatives typically have had to stifle, mute or otherwise water down any objections they do have to Republican policies under Bush. Then, once Bush is gone, for the sake of “the team” they feel they have to exaggerate their objections to Democratic policies and politicians to the point of absurdity to create sharper contrasts with the dismal record of Republican governance they just spent the last decade making possible.

And on conservative media outlets:

These media are popular because they tell the audience what they want to hear, they reaffirm the audience’s prejudices and assumptions, and they serve as a crutch for a movement that seems mostly incapable of producing superior arguments. Their relative popularity on cable television and radio could just as easily indicate conservative weakness inasmuch as these outlets have become hideaways where a conservative audience can avoid unsettling realities that contradict their ideological commitments. Part of the problem is that these media allow movement conservatives to become “untethered” from reality by actively protecting their audience from unpalatable and unwelcome truths, so it is much harder to learn from past errors when those errors cannot even be acknowledged as having been made. In recent months, movement conservatives have been working hard to try to rehabilitate the Iraq war before it is even over. Even when faced with one of their most grave, terrible errors, most conservatives have responded by becoming what Millman called “minimizers, avoiders, and abandoners.”

More dangerously, being “untethered” means that producing actual evidence for an increasingly bizarre view of the world matters less and less. Assertion becomes more important than proof. We see this in the frequent, virtually unanimous insistence that Obama went on an “apology tour,” or the near-universal conservative assessment that he “betrayed” Poland and the Czech Republic over missile defense, or the common view on the right that Obama undermines allies and treats rivals gently. None of these things is true, but they have become true for a great many movement conservatives through constant repetition. The hysterical over-reaction to the Nuclear Posture Review that basically changed nothing is one of the most recent episodes when the desperate need to reclaim the national security mantle has forced movement conservatives to make the most laughable, unserious arguments. At best, relevant policy experts on the right will pay little attention to these arguments from activists and pundits, but they will hardly ever directly criticize or attack the latter. This permits the activists and pundits to continue on as if their arguments remained valid and had not already been dismissed as nonsense. 

Goldman Sachs charged with fraud

If this doesn't wake people up to the need for financial reform, I have no idea what else possibly could.

Goldman Sachs is the most powerful investment bank in the United States and it is very likely that they will be convicted of fraud (something that people have been saying for a while now). Think about that. Our main investment bank is a fraud.

And this news comes after a week of many other well-reported stories on financial fraud. Last weekend, NPR's Planet Money and This American Life (along with ProPublica) exposed the dark inner-workings of a Chicago hedge fund. Then the NY Times on Tuesday reported that Lehman Brothers (whose bankruptcy - which was the largest ever - ignited the banking crisis and the current economic mess we are in) used a secret company to channel their enormous risks associated with their mortgage-backed securities.

Our financial system in this country is broken. Reform is desperately needed in order to keep our economy going in the long-term and to avoid another Great Depression or Big Bank Bailout. I have no idea why the "Tea-Partiers" do not grasp this idea.

I hope to write more on this issue in the coming week as it will be (finally) front-and-center in the media world.

In the meantime, I highly recommend watching this and reading this.

Andrew Sullivan on Sarah Palin

Well, this pretty much sums it up:

She creates her own reality, and that is an incredibly important talent for a party base that desperately wants to live in another reality (a kind of souped-up version of 1950s culture and late nineteenth century economy). Her book - a fictional account of an imagined life - sold well with the GOP base because they too want a fictional account of America's current standing in the world and an imagined set of viable policy positions. She so lives and breathes this magical-realist culture she doesn't need to channel it. She knows we can keep social security and Medicare and global power for ever and balance the budget without any taxes - because that is what she wants to know. And she has never let reality get in her way. Reality is one of those doors she keeps crashing through.

An incredibly dangerous precedent set by Obama

For those that have not heard, it has been confirmed that President Obama has ordered the targeted killing of a U.S. citizen suspected of being a terrorist or supporting terrorists in Yemen. Here is what I wrote to Sen. Feingold after I heard about this:

Dear Sen. Feingold,

I am writing to you today to express my absolute disgust over hearing yesterday the confirmation that President Obama has ordered the assassination of a U.S. citizen, Anwar al-Awlaki. He is suspected of being an al-Qaeda member. The key word there is SUSPECTED. He is a U.S. citizen suspected of being a terrorist (he hasn't even been charged with a crime like treason). Instead of handling this case according to the traditions of law and justice like every U.S. citizen should and must expect, President Obama has usurped these bedrock principles and has essentially become the Judge, Jury, and Executioner.

I can understand that national security issues are always challenging to deal with but this action sets an extremely dangerous precedent. What is to stop the President (or future Presidents) from ordering the assassination of other U.S. citizens who are away from a battlefield? This is absolute insanity.

Please continue to harshly criticize the administration in its horrific effort to destroy the foundational principles of our country and society.

Sincerely,

Eric Booth

But wait...you might be thinking, "Hey, I thought Obama was soft on terrorists..." That has got to be one of the most ridiculous myths currently plastered across the media (specifically at places like Fox News). Although his rhetoric might sound nicer and more reasonable than Bush/Cheney, his actual policies for the "War on Terror" have followed in lock-step with what they did.

Just ask yourself, how is this any different than the Good vs Evil mentality initiated by Bush/Cheney? Somehow they just think that the American public will just blindly believe them when they declare someone as a Terrorist who they feel is dangerous. Where is the skepticism of our government? Just because the President or the military says that someone is a terrorist, doesn't magically make that person a terrorist. That should go without saying. We have the justice system set up for this exact reason. The government can't just declare that someone broke the law and hand out their punishment without the use of the judicial branch.

And even if they were a terrorist, we still can't just assassinate them...especially if they are an American citizen. That is insane and contrary to the very foundation of our country. Some could reasonably argue that our wars in Iraq and Afghanistan (no matter what you think about them) give the U.S. military the right to kill
terrorists in a battle situation. But targeted killing far away from a battlefield is an entirely different thing. Obama, Bush, and Cheney may think that the "battlefield" is the entire surface of the Earth, but if that is true, then there is no limit to their authoritarian power (and no end to this perpetual War). All they would have to do is declare someone as a terrorist (i.e., our enemy in the War on Terror) and then assassinate them no matter where they are. Judge, Jury, and Executioner are all conveniently wrapped up into one Executive decision.

The Executive branch was never intended to have this much power. With this much limitless power, abuse is just inevitable. It is insanity, plain and simple...and the President who was supposed to be the Constitutional scholar is continuing the destruction of our American principles of justice and the rule of law.

With all that said...the most frustrating thing about this whole mess is that I would vote for Obama a second time if it kept a Republican like Romney or Palin out of the White House. As vile and despicable as Obama's positions are on the War on Terror, the GOP front-runners are even more extreme (I mean, they laugh about how soft Obama is on Terror...sometimes I feel like I'm taking crazy pills).

Lessons from the horrific WikiLeaks video - UPDATED

So if you missed it, a group called WikiLeaks released a video showing an attack by U.S. troops on 12 people in Iraq in July of 2007. The soldiers in the Apache helicopter thought that the 12 men were insurgents. It turns out that they were not and two employees of Reuters news were killed in the attack. Their cameras were mistaken for AK-47s and rocket-propelled grenades (RPGs). After the initial attack, a van pulls up and several unarmed men get out to carry the wounded away. They are then attacked by the same Apache helicopter. Two children in the van were seriously wounded.

I should warn you that the video is very disturbing. Here are a few lessons that I am taking away from watching it and the ensuing reaction that I've seen thus far.

Lesson 1: Although some of the actions taken by the troops in the helicopter were terribly wrong and appeared to violate the Rules of Engagement (firing at unarmed civilians trying to remove the wounded), these troops should not be blamed or vilified for what happened. Those of us who have not served in the military will never know what it's like to be in those situations where it is kill or be killed. This occurred right at the peak of the Awakening and this part of Baghdad was one of the most dangerous in the country. American troops were being killed, RPGs were shooting down helicopters. While it is absolutely sickening what is on that video, we have to be careful not to disparage those who fight in the military under excruciating circumstances that we cannot even begin to comprehend.

Lesson 2: This is what happens when the U.S. invades countries and battles insurgencies. This is what happens when people support a war of this kind. Horrible, horrible things happen to innocent people. It's not that we are bloodthirsty savages...it's just the unassailable fact that we will inevitably kill innocent civilians when we are fighting an insurgency in a country where a large percentage of the population perceives us as an occupying force that should get the F%&K out of their country. We should not blame the troops for this event. We should blame the government who went to war and ourselves for allowing it to happen.

Lesson 3: This is not an isolated or even a terribly rare incident as an active duty soldier in Iraq puts it. Glenn Greenwald adds:

This incident is commonplace, not unusual, because it's what war is and it's what has been happening in our wars throughout the decade.  We just don't usually see it, and this time we did.  That -- and the fact that Reuters journalists were killed and it thus generated more pressure than normal -- are the only things that make it unusual.

Another example came in a NY Times article yesterday that described a cover up of another horrific incident in Afghanistan back in February of this year involving the all-too-common mistake of confusing militant insurgents with innocent and unarmed civilians.

Lesson 4: The people who hate the U.S. and are inspired to take up arms against us do not hate us because they hate freedom or Lady GaGa. They hate us because of events like what happened in July 2007 in New Baghdad. The most important lesson that all of us should know by now is that the people we are fighting in the "War on Terror" are not all crazed and irrational people (even though it's a lot easier to justify a war against people like that). They respond the same way that we would if our innocent family members and friends were killed by a foreign military...with outrageous anger. The simple act of realizing that our military actions in Iraq and Afghanistan are sometimes counterintuitive (not to mention horribly oppressive) to our own goals of national security is so easily missed today. We ignore it at our peril.

UPDATE: I should have also mentioned this under-reported story under Lesson 3: The NY Times reported a few weeks ago that Gen. Stanley McChrystal (senior American and NATO commander in Afghanistan) said the following while taking questions from troops:

We really ask a lot of our young service people out on the checkpoints because there's danger, they're asked to make very rapid decisions in often very unclear situations. However, to my knowledge, in the nine-plus months I've been here, not a single case where we have engaged in an escalation of force incident and hurt someone has it turned out that the vehicle had a suicide bomb or weapons in it and, in many cases, had families in it...That doesn't mean I'm criticizing the people who are executing. I'm just giving you perspective. We've shot an amazing number of people and killed a number and, to my knowledge, none has proven to have been a real threat to the force.

Quite a frank admission coming from a lead commander in Afghanistan. 

Is Health Care Reform a "Big F*#king Deal"? PART 5

I'm a little burned-out on the health care issue at this point (as I'm sure you are as well), so this will be the last in what has become a 5-part series.

I wanted to end with a little politics. No one can deny the incredible passion that this issue stirs in most Americans. Politicians on both sides of the aisle are professionals when it comes to playing on these passions.

So let's finally get to the question posed in the title of the series...Is this Health Care Reform a "Big F*#king Deal? Well, sure it is. There are some new and sweeping regulations on the health insurance industry. That's pretty damn big! Creating tax disincentives to essentially require companies to offer health insurance to their employees and require all Americans to be covered is a big change.

But is it really the embodiment of Stalin and Hitler...communism and fascism. Of course not. It is all about the degree to which our health care system is socialistic. Arguments could be made that any government subsidization of health insurance (e.g., Medicare) is socialistic. But we've had Medicare since the 60s and you didn't see the Tea Partiers up-in-arms during the Bush or Reagan administrations to repeal Medicare? No, you didn't...especially since a lot of Tea Partiers are currently getting Medicare and are quite satisfied with it (they are not exactly the bastions of intellectual consistency...remember this?)

Another great example of why the hysteria is so unwarranted is because a lot of what is in the bill is very consistent with ideas that Republicans have put forward many times before in the past. Take, for instance, what Mitt Romney (former GOP Presidential candidate) actively fought for and implemented in Massachusetts. David Frum did a great job of pointing out the similarities between "Romneycare" and "Obamacare". As Frum puts it:

Romney sharply distinguishes his healthcare preferences from Barack Obama’s. For him, the red line is the public option. He adamantly opposes it. Yet in many other respects, there is common ground. Like Obama, Romney worries about the malign incentives of fee-for-service medicine. Like Obama, Romney regards the status quo as unsustainable. Like Obama, Romney is a big fan of the healthcare journalism of Atul Gawande.

And of course, the public option has now vanished from the Obama plan. Which means that the federal plan bears a closer family resemblance than ever to Romney’s idea: regulated health insurance exchanges, mandates to buy insurance for those who can afford it, subsidies for those who cannot. Romney’s preference would be to omit the mandate for those who “can demonstrate their ability to pay their own health-care bills.” (176) That would be precious few of us. And he wants to allow states ample leeway to innovate without hindrance by the federal government.

Romney frames the distinction between his preferences and President Obama’s as “free enterprise and consumer-driven markets or government management and regulation.” (193)

It’s hard to avoid the suspicion that these two technocrats have more in common with each other on this issue than either does with his party’s more fervent supporters. With this one difference: shout outs to CEOs in Ch 7 – 3, including one to the CEO of drugmaker Novartis.

It's true that this legislation has a lot of flaws in it (as I've tried to point out). But those flaws are not because it is too "liberal" or too "socialistic" (there is no public option for God's sake!). In the grand scheme of American politics, it is actually very centrist and parts are even somewhat conservative.

So why is the right acting so unhinged and rabid about this whole plan? Well, I've tried to be kind and sympathetic in my mind as I've tried to figure out where all of this hatred comes from...but in the end, I am actually pretty cynical about this (maybe not quite as cynical as this, though). It really just seems that, in the eyes of the Republicans, the debate versus the Democrats has turned into a completely irrational game between two competing professional sports teams (or, better yet, two WWF wrestlers). If the other side likes something...well, then our side doesn't like that (even if we might have liked it before). It really is obstructionism at its finest.

The GOP could have acted like grown-ups during this whole health care reform debate and realized that the Democrats, after a major political victory in 2008, were seriously going to pass something. They could have put forth rational arguments about why the Obama way of tackling the health care crisis was the wrong way to do things. But they didn't...all they did was provide raw meat to the massive angry populace (and rightly so, this economic depression is devastating for a lot of people) with their cries of Fascism and "Baby killers". This is the main critique that David Frum wrote a week ago (before subsequently getting fired by the right-wing think tank who couldn't handle the criticism):

A huge part of the blame for today’s disaster attaches to conservatives and Republicans ourselves.

At the beginning of this process we made a strategic decision: unlike, say, Democrats in 2001 when President Bush proposed his first tax cut, we would make no deal with the administration. No negotiations, no compromise, nothing. We were going for all the marbles. This would be Obama’s Waterloo – just as healthcare was Clinton’s in 1994.

Only, the hardliners overlooked a few key facts: Obama was elected with 53% of the vote, not Clinton’s 42%. The liberal block within the Democratic congressional caucus is bigger and stronger than it was in 1993-94. And of course the Democrats also remember their history, and also remember the consequences of their 1994 failure.

This time, when we went for all the marbles, we ended with none.

Could a deal have been reached? Who knows? But we do know that the gap between this plan and traditional Republican ideas is not very big. The Obama plan has a broad family resemblance to Mitt Romney’s Massachusetts plan. It builds on ideas developed at the Heritage Foundation in the early 1990s that formed the basis for Republican counter-proposals to Clintoncare in 1993-1994.

Barack Obama badly wanted Republican votes for his plan. Could we have leveraged his desire to align the plan more closely with conservative views? To finance it without redistributive taxes on productive enterprise – without weighing so heavily on small business – without expanding Medicaid? Too late now. They are all the law.

I completely agree and think that some conservative ideas could have really helped this bill. But we didn't get that.

All in all, it's bad enough in this country that we only have two parties running the show. But when one completely excuses itself as it throws spitballs from the corner of the room, then we're all worse off.