JustOneMinute

Latest Obama Defense - Incompetence, Not Ignorance

The Times ponders our "bystander" President and gets this rousing defense from an Obama spinmeister:

On health care, aides said that Mr. Obama had been fixated on details of the law’s carrying out and that advisers did not withhold information but were likewise surprised by the scope of the problems.

“From the moment the health care bill was signed into law the president was very focused on making sure it was implemented correctly,” said Dan Pfeiffer, a senior White House adviser. “In just about every meeting, he pushed the team on whether the website was going to work. Unfortunately, it did not, and he’s very frustrated.”

"[He] pushed the team on whether the website was going to work". Did Obama actually review testing schedules and results? How did those conversations unfold, and who left him with the impression that the testing was anywhere near adequate? Was there really never a time when someone asked for more resources and higher-level involvement?

Or did Obama just exhort them by threatening them with a mega-tantrum if he ended up disappointed or frustrated?

Our former community organizer might have been more diligent in organizing this community of software engineers. Or not - those golf balls aren't going to hit themselves.

You're Damn Right We Ordered The Code Red

The NY Times finds an unapologetic spy:

Dennis C. Blair, Mr. Obama’s first director of national intelligence, declined to speak specifically about the Merkel case. But he noted that “in our intelligence relationship with countries like France and Germany, 90 to 95 percent of our activity is cooperative and sharing, and a small proportion is about gaining intelligence we can’t obtain in other ways.”

He said he had little patience for the complaints of foreign leaders. “If any foreign leader is talking on a cellphone or communicating on unclassified email, what the U.S. might learn is the least of their problems.”

I imagine that is a bit of a strawman, since US interception and decryption technology is presumably pre-eminent. Still, his feistiness is refreshing.

While We Wait For The Next Pretty Speech On One Debacle Or Another

Obama in inaction. More from Paul Roy and Jennifer Rubin.

Ending Tomorrow's Suspense Today

While reading the Times editors describing Team Obama's latest response to the NSA turmoil as "pathetic" I got to wondering - could anyone other than Edward Snowden be TIME Magazine's Man of the Year?

I ask, naturally, as a former honoree myself. And as the scope of my ruminations expands (and the caffeine kicks in) let me add this query - is TIME still publishing, or is last years Bold And Surprising Pick the last man standing? I noticed something about NewsWeak a while back...

Fortunately The 'A-Team' Has Arrived

The NY Times reports that upgrades to the 'glitchy' Healthcare.fail website are not uniformly helpful. This is a laugher:

Insurers reported two weeks ago that they were receiving multiple enrollments and cancellations for the same person. To address this concern, the government put a time stamp on each transaction, so insurers would know which one occurred last.

Timestamps! This is breakthrough stuff!  But wait...

But the stamp shows the time the files were sent to insurers, and the government sends all the files at the same time once a day, so multiple transactions are shown as having occurred at precisely the same moment. In these cases, insurers said, it is hard to tell whether a consumer meant to enroll or to cancel an enrollment.

Ms. Bataille, the spokeswoman for HealthCare.gov, said, “We are actively working on” the issues.

Maybe loop in a random number generator...

What Will Dick Cheney Say?

Obama really didn't know about the NSA surveillance of foreign leaders until the review he did or didn't order last summer?

George Bush has been quite curcumspect but Dick Cheney has been outspoken in his disdain for Obama. Presumably, he will eventually be asked whether he and Bush were aware of surveillance of foreign leaders.

I can't picture him pleading ignorance.

More Ignorance From The Ignorer-in-Chief

Obama needs to invent better excuses:

(Reuters) - The United States may have bugged Angela Merkel's phone for more than 10 years, according to a news report on Saturday that also said President Barack Obama told the German leader he would have stopped it happening had he known about it.

Next time Obama should go with "Bo ate my NSA report."

Sunday Morning

Tough night in and for Boston.

Noonan On ObamaCare

Peggy Noonan discusses ObamaFail and offers an important caveat to those drawing analogies to that earlier classic of technological hubris meeting nemesis, namely, the Titanic:

...in fairness, the Titanic at least had three good days...

Good point!

As to the inevitable death spiral, the bad news is that a case can be made for optimism (that's bad becasue it means that denial is an option). The death spiral argument is that only the sickest will have the motivation to crack the ObamaFail code and get themselves covered. Since the insured pool will skew old and sick, insurers will take a bath in 2014 since they based their rates on a projected pool that included more of the young, hale and hearty. Come 2015 they will charge higher rates, the less-sick among the few who bought insurance will be deterred by the higher prices, and the death spiral will be underway.

Well, maybe. But the rate setting process is meant to be forward-looking, based on the likely future experience. Past experience is one useful guide for making that estimate, but if - IF! - insurers can be convinced that 2014 was anomalous due to the failed website, they might be inclined to re-offer 2014-level pricing in 2015 even though 2014 is likely to be a money-loser. This would be different from the death spiral experienced in New York when it adopted community rating, where insurers could look to the future and not see it being notably different from the past.

And this may amount to predicting yesterday's news today, but Obama For America morphed into Organizing For America and ought to re-brand for 2014 as Enrolling For America (or, Enroll America). If Team Obama offered to make their e-mailing lists and outreach abilities available to market health insurance, that might help bring in some gullible, idealistic youth.

SMILE AND THE WORLD SMILES WITH YOU... UNTIL REALITY ARRIVES. The NY Times reprises the rosy September forecasts made by Team Obama. The word "cakewalk" does not appear, but late in the story the politics get a mention:

Some Democrats said that, given the Republican assault on the measure, the White House was right to deliver upbeat presentations promoting it.

“To downplay expectations would have fed into the Republican narrative,” said Jim Manley, a former top aide to Senator Harry Reid of Nevada, the Democratic leader, who attended a session in the Roosevelt Room of the White House with other allies of the administration.

Well, sure, but the website was due to be experienced by millions in early October; September spin was bound to be overtaken by events.

Obamafail: What Did Obama Not Know And When Did He Not Know It?

So when did the former community organizer learn that he had failed to organize the community of software developers implementing the ObamaCare website? According to HHS head Kathleen Sebelius, he found out along with the rest of us. Kinda like Benghazi, or Fast and Furious, except one might have thought that Obama would pay a bit more attention to his legacy achievement.

However, there may have been an odd benefit to keeping the President in the dark (and feeding him BS, natch) about the status of the impending website fail. By September it was clear to all (and reported in the President's preferred paper) that Republicans would be likely to target ObamaCare in the upcoming Continuing Resolutiuon and debt limit fights.

Those were fights the President wanted to have so that he could shut down everything, blame the Republicans, rally his base, and have some stronger message for 2014 than "Let's fail at gun control - again". Imagine the awkwardness if the President's team had been trying to spend September vigorously opposing a delay in ObamaCsre while simultaneously announcing that the website launch would be, well, delayed. My goodness - that whole fight might have been avoided, and what would those fund-raising appeals say now?

On the bright side, at least the Administration is keeping its sense of humor - imagine writing a HHS blog post meant to reassure the public that invokes both the Vietnam quagmire and the Iraq war.

Meanwhile, Back On The Choom Gang...

The latest Gallup poll shows 58% favor marijuana legalization, suggestring it is getting safe for Obama to evolve on that issue as well.

Oh, I say that, but the most likely path is the one we are on - states quasi-legalize marijuana and the Feds ignore it. Eventually, if we really want to tax and regulate marijuana some formal movement at the Federal level will probably be necessary, if only to provide clarity at the state level.

And The Problem With The Problem With This Analysis...

Heritage releases a study showing health insurance premiums are rising in most states due to ObamaCare.

The standard progressive pushback - Hey, what about those subsidies! - is provided by Talking Points Memo.

And I will now extrapolate from experience with the Connecticut website to point out the hidden flaw in that pushback.

For various reasons left unexplained here, in 2013 my family had an Anthem plan with a $3,000 deductible/$6,000 out of pocket maximum and monthly premiums of about $1,600 per month.

Anthem has cancelled that plan with the advent of ObamaCare (and dropped a major local hospital from their network). We will be switching to employer sponsored coverage and aren't eligible for subsidies but just for my own edification I went to the CT website. Their "Gold" offering in Connecticut will cost (unsubsidized) roughly $1,9000 for similar deductibles and co-pays. That would have been a bit of a blow.

But what about the subsidies? Ahhh! Connecticut seems to have attached a random number generator to their website to help with that calculation.

For estimated income of $50,00, the site advises that we would be eligible for Medicaid.

At $60,000 the estimated subsidy is $1,200/mo, based on "cost sharing reductions", which I infer includes state aid.

At $70,000 we would be eligible for $1,072/mo of "Federal Tax Credits".

At $80,000 that becomes $935/mo. of Federal Tax Credits.

At $90,000 that becomes $1,045/mo. Why is the subsidy rising with income? I have no idea.

At $100,000 the subsidy is estimated to be $966/mo.

At $110,000 the subsidy is estimated to be $887/mo.

And at $111,000 (and above) the subsidy is estimated to be 0. Yike! Earning an extra $1,000 costs a Connecticut family roughly $10,000 in tax credits? Geez, what happened to those halycon days where earning an extra $10,000 per year (rising from $80k to $90k) could result in a greater subsidy?

[ObamaCare and marginal tax rates are discussed by economist Casey Muilligan in this paper and the WSJ. The Kaiser subsidy calculator produces the same subsidies as the CT website; the subsidy cliff is at 400% of the poverty line, which varies by locale and family size.]

If I had to bet I would bet that the CT website is not producing accurate information, which is a problem. I am also open to the possibility of user error, but I have tried this multiple times and gotten the same answer; if a mistake is that easy to make and overlook repeatedly, I blame the website design.

But if the info is accurate (and it might be!), that is an absurd marginal tax rate, to say the least. As a random middle class entitlement I imagine any of these subsidy numbers would be appealing. But it might be nice if the underlying logic was discernible. [My current guess is that their are CT state subsidies that are phased out with income on a different path from the Federal subsidies. Or something - at lower income levels the Kaiser-estimated Federal subsidies are much higher than the CT website subsidies, but at higher incomes the match is exact. For comparison purposes I used a family of four, mom and dad are forty (non-smokers) and the kids are ten and twelve.]

BONUS PUZZLE: From 85k to 89k, the monthly subsidy falls from $876 to $844; it then rises to $1,045 at 90k, as noted above. So an extra $1,000 in income yields an extra $2,400 in Federal tax credits - cool. Maybe not quite as wacky as the plunge from $110k to $110k, but still not the sort of increasing progressive tax people seem to be comfortable with.

 

Tech Follies, ObamaCare Edition

It's tough to pick a winner here, but the NY Times has one of the funnier bits of reporting on the ObamaCare website debacle. The setup is the lead:

Federal contractors have identified most of the main problems crippling President Obama’s online health insurance marketplace, but the administration has been slow to issue orders for fixing those flaws, and some contractors worry that the system may be weeks away from operating smoothly, people close to the project say.

And their punchline:

Administration officials approached the contractors last week to see if they could perform the necessary repairs and reboot the system by Nov. 1.

I know nothing about the specific problems but I know enough to know that two weeks isn't happening. The Times soldiers on semi-straightfacedly:

However, that goal struck many contractors as unrealistic, at least for major components of the system.

No kidding. Back in reality the timetable remains blurry:

Some specialists working on the project said the online system required such extensive repairs that it might not operate smoothly until after the Dec. 15 deadline for people to sign up for coverage starting in January, although that view is not universally shared.

You have to bet the "over" here.

Left unreported - forget about computer systems. Anyone who has ever used a contractor to renovate a house, or a bedroom, or a bathroom has learned two universal rules - it costs more, and takes longer. In my humble and limited experience, that rule applies to computer systems as well. I marvel at (and am somewhat jealous of) the charmed and sheltered lives led by Obama and Sebilius that they have never been exposed to these rules.

The Times makes the same point made earlier by others (e.g., Ezra Klein, point 2)- the login and account creation problems are sheltering us from the reality of the real problems:

In interviews, experts said the technological problems of the site went far beyond the roadblocks to creating accounts that continue to prevent legions of users from even registering. Indeed, several said, the login problems, though vexing to consumers, may be the easiest to solve. One specialist said that as many as five million lines of software code may need to be rewritten before the Web site runs properly.

“The account creation and registration problems are masking the problems that will happen later,” said one person involved in the repair effort.

This account of the health care lottery would be funny in some other context. OK, it's funny here:

Insurance executives said in interviews that they were frustrated because they did not know the government’s plan or schedule for repairs. Insurers have found that the system provides them with incorrect information about some enrollees, repeatedly enrolls and cancels the enrollments of others, and simply loses the enrollments of still others.

Correcting those errors, specialists said, could require extensive rewriting of software code. Insurers said it could be weeks before their data and the government’s could be reconciled.

Come 2014 we will have at least two types of debacle. Insurance companies will start billing people who never actually enrolled. That is only a minio-crisis: since the companies won't deserve to collect no tears will be shed. Eventually their premiums for 2015 will depend (in part) on their actual enrollments for 2014, but that pain will be deferred.

However! We will also hear stories of people who thought they had enrolled with a plan but got bounced when they eventually ask for their insurance card or try to file a claim. Does this mean they have no insurance for 2014? Does it mean they lose their COBRA benefits?

Well, probably not - I think it will mean that Obama will enroll these people somewhere by executive fiat. But we will all have to listen to a lot of well-deserved and heartfelt howling first.

 

Rent Control Heartbreak / Inevitable Journalistic Breakdown

The NY Times front-pages a rent control saga so sad they could not bring themselves to report it fairly:

Widow’s Bankruptcy Case Poses Risk to Rent-Stabilized Tenants

By MIREYA NAVARRO

After her husband died, Mary Veronica Santiago fell behind on her bills, and the creditors began to call.

So two years ago, she took refuge in bankruptcy, hoping to have her debts wiped away. But far from providing a fresh start and peace of mind, the Chapter 7 filing thrust Mrs. Santiago, 79, who lives in the East Village, into the center of a case that bankruptcy lawyers say poses a major risk to her and the millions of other New Yorkers who live in rent-stabilized apartments.

The issue, pending before the United States Court of Appeals for the Second Circuit, is whether a rent-stabilized lease can be treated as an asset in a personal bankruptcy, just like a car or a piece of land, and used to pay off creditors.

The trustee overseeing Mrs. Santiago’s bankruptcy thinks so. If that position is upheld, bankruptcy lawyers who are closely monitoring the case say it would make it easier for landlords to evict rent-stabilized tenants if they file for bankruptcy, even when, like Mrs. Santiago, they pay their rent. At a time when housing affordability and income inequality have been driving the debate in the mayoral race, the bankruptcy case could add another element of uncertainty to New York City’s efforts to preserve housing for people with low incomes.

Oh no! Don't throw grammy onto the street!

Relax. Although deeply buried, eventually the Times admits that no one wants the elderly woman to hit the bricks. What the landlord wants is for the son to hit the bricks come the day when his mother goes to her final resting place:

Mrs. Santiago has lived for 50 years in a two-bedroom apartment near Tompkins Square Park, in a neighborhood where unregulated apartments rent for thousands more a month than Mrs. Santiago’s rent of $703. Her main income is a Social Security check and, under normal bankruptcy proceedings, her lawyers said, she would have avoided repaying the $23,000 she owes because she had no assets.

“I got scared,” she said, noting that her creditors “threatened that they were going to take me to court.”

But as her case was nearing conclusion, her landlord stepped in with an offer to buy her rent-stabilized lease and produce the funds to pay off her debt. (Mrs. Santiago’s landlord is not among her creditors, but he was notified of the bankruptcy as a matter of course.) The bankruptcy trustee in charge of marshaling her assets accepted the offer, and that decision, challenged by Mrs. Santiago’s lawyers, has been upheld by both a bankruptcy court and a Federal District Court.

A HUGE skip, and...

The trustee in Mrs. Santiago’s case has proposed an arrangement in which the landlord would pay her debt, pay the trustee and his lawyer, and allow Mrs. Santiago to live out her years in her apartment at a similar rent under a non-rent-stabilized lease “with no succession rights” that could otherwise have allowed her to pass the apartment on to her 50-year-old son, a personal trainer who lives with her and helps support her.

Her lawyers opposed the proposal.

The Times offers this on the legal issue:

Now, for the first time, a federal appeals court is being asked to weigh in. The widow’s lawyers argue that a rent-stabilized lease is a public assistance benefit, just like Social Security or disability payments, and should be exempt from the bankruptcy estate. Treating it like an asset, the lawyers said in court documents, undermines the intent of rent-stabilization laws in New York designed to protect tenants deemed in need of assistance with housing.

“This is not what bankruptcy is about,” said Kathleen G. Cully, one of Mrs. Santiago two pro bono lawyers. “What’s next? Are they going to start going after food stamps?”

One of the original rulings on this case discusses the difference between other public assistance and rent control/stabilization. (The opinion is stamped "Not For Publication", so of course I had to. Blame Google.) The gist - rent stabilzation is a random benefit with no means testing, and in any case the "public assistance" clause refers to payments, such as disability or unemployment, not subsidies such as rent control. More on the law from this law firm. We should note that NY courts have upheld this approach in the past but the Times didn't notice or care for obvious reasons:

In the way of background, this is the third decision permitting a rent-stabilized apartment to be sold by a Bankruptcy Trustee to a landlord in the Southern District of New York. The other two cases are In re Stein, 281 B.R. 845 (Bankr. S.D.N.Y. 2002) and In re Toledano, 299 B.R. 284 (Bankr. S.D.N.Y. 2003). In both of these cases, the debtors lived in luxury apartments just south of Central Park–171 West 57th Street, Apartment 3C and 230 Central Park South, Apartment 9/10B.

Many people will be surprised by these decisions, however the Bankruptcy Code and Rules seem to allow the result.

Luxury apartments? Screw 'em. The Times closes with more heartbreak:

The couple moved into their ground-floor apartment in a five-story brick building on East Seventh Street in 1963. Mr. Santiago was the superintendent of their building and of several others in the neighborhood.

The landlord is a limited-liability company whose owner, James V. Guarino, referred questions to his lawyer. The lawyer, Lawrence M. Gottlieb, said in an e-mail that the company “has no intentions of selling the lease or dispossessing Ms. Santiago or renting out the unit for market rent.”

At home, in the cluttered apartment where her family has celebrated weddings, birthdays and holidays, and where her ill husband died at age 80, Mrs. Santiago said she regretted filing for bankruptcy. Her lawyers have reassured her that she has a good chance of prevailing, but first thing every morning, Mrs. Santiago said, she checks her front door for an eviction notice.

“I’m afraid to find a white paper on my door,” she said with her head down, tearing up as she tugged at the edges of her plastic-covered chair.

So her lawyers could take the landlord's offer and leave her son with an uncertain residential future, or they could leave an old woman living in fear. That is a great job by the son, and how much rent is he paying his mom, anyway?

TO BE FAIR: It does seem that the landlord is being generous, or sensible - under the law, the landlord does seem to have the right to take the apartment promptly, which means that as a precedent for future cases rent stabilization winners are at risk. Left unanswered:

1. Could the son have been formally added to the lease (The answer is a clear "yes" for spouses, and probably "no" otherwise, but still...) ? That would have muddied the waters since his rights under the lease would not be subject to the bankruptcy claims.

2. What is the fair market value of the rent stabilization rights? The landlord is, in effect, getting out of the rent stabilzation morass by paying $23,000. But no one else could have bid more and then gained the legal right to the stabilized apartment. I am not sure what "fair" has to do with it or why fairness should make an appearance at this late stage of the process, but still - would people be happier with the result if the widow sold her rights for $50,000, paid off her creditors, pocketed the difference and moved out?

Of course, if this were a legal way to monetize the privilge of rent control lots of folks would declare bankruptcy just to cash out before moving out. What a tangled web we weave when first we practice to distribute random wealth transfers.

3. If the son were willing to pay creditors $700/month that would retire the principal in less than four years. He is planning to pay the landlord one day after mom moves on, yes? Or maybe he expects to take in roommates... hmm, I am not sure I want to know, and more aggressive reporting might have found out.

Saturday Morning

Away we go.

FWIW, the Huffington Post hyperventilates about the impending collapse of the ObamaCAre website:

Obamacare Website Failure Threatens Health Coverage For Millions Of Americans

...

For Obama and the Democrats who've stood behind Obamacare during four years of relentless attacks from Republicans -- including a face-off that led to a 16-day government shutdown and a threat of U.S. default -- failure of this magnitude would discredit a core premise of this presidency, that government can do big things to improve Americans' lives.

Government can do big things, especially with other people's money. The point of the health care exercise was to write lots of checks to the middle class, and Team Obama isn't going to back away from that commitment.

 

Tomorrow's Metaphor Today

The day will come when the collapse of ObamaCare will be viewed as the left-handed image of Bush's failed effort in Iraq. OK, Bush was elected on a promise of a humble foreign policy that would eschew nation-building, but post 9-11 he embodied a confidence in American military power that, hmm, misunderestimated the challenges of nation-building abroad.

Just as Obama seems to have misunderestimated the challenges of social engineering and web site design at home. Of course, Obama ran on a health care promise, so he is delivering the Eternal Dream of the left - new middle class entitlements and heath care for all (paid for by someone else, natch).

These Big Government fails are a constant source of surprise to folks who ought to know better. Geez, a failed community organizer (I say "failed" but he did get a lot of the asbestos out of Altgeld Gardens) can't pull off a project that would have challenged Steve Jobs or Bill Gates - who could have seen that coming?

NEEDLESS TO SAY... The great Democratic Party "leaders" such as future VP nominee and Presidential candidate John Edwards, future SecState and Presidential candidate Hillary Clinton, and future SecSate and Presidential nominee John Kerry were for the use of force in Iraq before they were against it. ObamaCraze ObamaCare got zero Republican votes, and you know what they say about a foolish consistency...

DIDN'T WAIT LONG...Ross Douthat in the Sunday Times:

...it was hard to imagine the Obama White House botching the design and execution of its national health care exchange. Building Web sites, mastering the Internet — this is what Team Obama does!

Except this time Team Obama didn’t. Like the Bush administration in Iraq, the White House seems to have invaded the health insurance marketplace with woefully inadequate postinvasion planning, and let the occupation turn into a disaster of hack work and incompetence.

 

And Why Not?

A House stenographer freaks out.

I Believe It Is Funding For Our Time (Continuing...)

Apparently Boehner is throwing in his cards again. The Senate will agree to a deal; the House will then hasten the process by passing the Senate bill in the House first, then send it to the Senate. This sidesteps various Senate rules that might otherwise hold the bill up for a couple of fateful days.

The WSJ speaks for many on the right in calling for an end to this debacle. I know there is an unemployed rodeo clown who might be available as a political consultant. Unless the ObamaCare website developers have already hired him...

In Which I Foretell The Eventual Triumph Of Reality...

I have done a bit of whinging about how the Republican strategery of staging a debt-ceiling scuffle they can't fight and won't win has distracted from the ObamaCare debacle. Mickey Kaus notes that by letting the press discover the disaster on their very ownsome, the coverage is harsher. His punchline:

When your enemy is in the process of destroying himself, the worst thing to do to is stop him. But the second worst may be to have Darrell Issa hold hearings.

Good point! But my current view is that whether Mickey is right or not in terms of optimal Republican strategy won't matter (and how often could that be said of any of us...). Unlike abstract discussions of, for example, the existence and importance of rising income inequality or the quality of life in Baghdad or the changes in American life caused by untrammelled illegal immigration, the ObamaCare issues will be experienced by millions of Americans. The resolution (or revolution!) will also be lived, and soon.

In other words, time will tell! And pretty quickly. If these website problems can't be solved and the result is mess there will be no hiding it and the fun Obama has had in the last two weeks bashing irresponsible Republicans will be but a fading memory of glory past as the coverage shifts to this.

For folks not terrified by this Times coverage from last Sunday, Obama cheerleader Ezra Klein puts down the pom-poms and offers this nightmare - the front end failure has been so vast that we don't even know if the back end will work, but it doesn't seem to:

2. Are there problems behind the problems? In the weeks leading up to the launch I heard some very ugly things about how the system was performing when transferring data to insurers -- a necessary step if people are actually going to get insurance. I tried hard to pin the rumors down, but I could never quite nail the story, and there was a wall of official denials from the Obama administration. It was just testing, they said. They were fixing the bugs day by day.

According to Bob Laszlewski, those problems aren't resolved. They're just not getting much attention because the health-care law's Web sites aren't working well enough for people to get that far in the process. Laszlewski does a lot of work with the insurance industry, so I'd take this post of his very seriously:

The backroom connection between the insurance companies and the federal government is a disaster. Things are worse behind the curtain than in front of it"

Here is one example from a carrier–and I have received numerous reports from many other carriers with exactly the same problem. One carrier exec told me that yesterday they got 7 transactions for 1 person – 4 enrollments and 3 cancellations.

For some reason the system is enrolling, unenrolling, enrolling again, and so forth the same person. This has been going on for a few days for many of the enrollments being sent to the health plans. It has got on to the point that the health plans worry some of these very few enrollments really don’t exist.

The reconciliation system, that reconciles enrollment between the feds and the health plans, is not working and hasn’t even been tested yet.

So basically, we have a three step process. People try to establish an account and buy insurance; that step has failed miserably. Step 2, where the insurer gets the key information about their new customer, is under-utilized due to the failures at Step 1 but looks like it is failing in its own right. And Step 3, where the scorecards are checked and everything is reconciled, has not experienced live testing due to the failure at 1 and 2 but is untested and not working.

And anyone with a whiff of experience in developing systems knows that all three phases need to be integrated. That means the fixes and patches which eventually cobble Step 1 together need to flow through to Steps 2 and 3. Which takes a level of coordination and competence the project managers have not previously demonstrated.

I stand by my earlier vision - soon we will see Harry Reid demanding a delay to ObamaCare and Ted Cruz filibustering it so that ObamaCare can limp over a cliff.

KEEPING HOPE ALIVE: Ezra Klein links to this bit of wishful thinking by his colleague Sarah Kliff:

The last time the government expanded health care, it was also kind of a disaster

Apparently the Medicare Part D rollout in 2005 was glitchy but now all is well, so we can relax. Or at least keep our fingers crossed.

Oh, please. Most Part D participants already had some sort of drug coverage and were eager to find a cheaper alternative, or at least were keenly aware of the possible benefits of enrolling. Motivation was not a problem.

That is in stark contrast to the ObamaCare situation, where enrolling a lot of young invincibles who have never been bothered to buy health coverage in order to cross-subsidize the rest of us is key to the financial strategy. Trust me - website glitches or no, people with pre-existing conditions whose current insurance plan has been cancelled due to the advent of OabamCare will figure out a way to get coverage with or without the website. It is the young, web-savvy, 'maybe I will, maybe I won't, but there's no harm in looking' type of prospective client that won't bother calling an insurance broker and finding some other way into the system.

I continue to believe that Republicans need to end this debt ceiling drama and let the ObamaCare collpase take center stage. But if we are really talking about a train wreck rivalling the Titanic or the Hindenburg, then now is just as good as two weeks ago.

ObamaCare Debacle - Soon To Be The 24/7 Story

As soon as this debt ceiling/shutdown drama is in our rear view mirror Republican strategists can figure out how to exploit screw up the 24/7 story they have kept off the front pages for two weeks.

Not even Ezra Klein or the NY Times are willing to pretend the ObamaCare website roll-out is anything other than awful. Klein:

“One of the Obama administration’s jobs, separate from all of the political stuff we talk about here, is to simply run things like this well, to run their signature legislative initiative well,” he continued. “On that, so far, this has been a big failure.”

And the NY Times front-paged a story Sunday that will terrify anyone rooting for a quick comeback. Politics, poor decisions, and excessive optimism may have created a website problem that cannot be solved in a timely fashion:

For the past 12 days, a system costing more than $400 million and billed as a one-stop click-and-go hub for citizens seeking health insurance has thwarted the efforts of millions to simply log in. The growing national outcry has deeply embarrassed the White House, which has refused to say how many people have enrolled through the federal exchange.

Even some supporters of the Affordable Care Act worry that the flaws in the system, if not quickly fixed, could threaten the fiscal health of the insurance initiative, which depends on throngs of customers to spread the risk and keep prices low.

“These are not glitches,” said an insurance executive who has participated in many conference calls on the federal exchange. Like many people interviewed for this article, the executive spoke on the condition of anonymity, saying he did not wish to alienate the federal officials with whom he works. “The extent of the problems is pretty enormous. At the end of our calls, people say, ‘It’s awful, just awful.' ”

Some problems with politics:

To avoid giving ammunition to Republicans opposed to the project, the administration put off issuing several major rules until after last November’s elections. The Republican-controlled House blocked funds. More than 30 states refused to set up their own exchanges, requiring the federal government to vastly expand its project in unexpected ways.

The stakes rose even higher when Congressional opponents forced a government shutdown in the latest fight over the health care law, which will require most Americans to have health insurance. Administration officials dug in their heels, repeatedly insisting that the project was on track despite evidence to the contrary.

Within a few weeks we may see Senate Majority Leader Harry Reid demanding a delay to ObamaCare and Sen. Cruz insisting it proceed full speed ahead, over a cliff.

One example of the magical thinking and miserable leadership guiding this:

One highly unusual decision, reached early in the project, proved critical: the Medicare and Medicaid agency assumed the role of project quarterback, responsible for making sure each separately designed database and piece of software worked with the others, instead of assigning that task to a lead contractor.

Some people intimately involved in the project seriously doubted that the agency had the in-house capability to handle such a mammoth technical task of software engineering while simultaneously supervising 55 contractors. An internal government progress report in September 2011 identified a lack of employees “to manage the multiple activities and contractors happening concurrently” as a “major risk” to the whole project.

...By early this year, people inside and outside the federal bureaucracy were raising red flags. “We foresee a train wreck,” an insurance executive working on information technology said in a February interview. “We don’t have the I.T. specifications. The level of angst in health plans is growing by leaps and bounds. The political people in the administration do not understand how far behind they are.”

Can this be salvaged? The same people who assured us that all was well now assure us that all will soon be well, but the Times hears other voices, too:

Administration officials have said there is plenty of time to resolve the problems before the mid-December deadline to sign up for coverage that begins Jan. 1 and the March 31 deadline for coverage that starts later. A round-the-clock effort is under way, with the government leaning more heavily on the major contractors, including the United States subsidiary of the Montreal-based CGI Group and Booz Allen Hamilton.

One person familiar with the system’s development said that the project was now roughly 70 percent of the way toward operating properly, but that predictions varied on when the remaining 30 percent would be done. “I’ve heard as little as two weeks or as much as a couple of months,” that person said. Others warned that the fixes themselves were creating new problems, and said that the full extent of the problems might not be known because so many consumers had been stymied at the first step in the application process.

Time will tell. Just for a sense of how nasty the coverage can get, check this - the Weekly Standard got a Drudge link for this story about a relentless CNN reporter who can't get signed up:

Two Weeks Later, Reporter Still Can't Sign Up for Obamacare

The healthcare.gov website has been online for two weeks. But folks are having trouble signing up.

One person who says she's been trying for two weeks straight to sign up is CNN senior medical correspondent Elizabeth Cohen.

Gee, her too? The NY Times story linked above included this detail:

Many users of the federal exchange were stuck at square one. A New York Times researcher, for instance, managed to register at 6 a.m. on Oct. 1. But despite more than 40 attempts over the next 11 days, she was never able to log in. Her last attempts led her to a blank screen.

I am sure we will learn that every major news outlet has a similar story to tell and will be ready to do so. Well, unless Ted Cruz kidnaps Sunny or Bo.

Tarnishing The Tom Hanks Brand

If we can believe the NY Post, the real Captain Phillips is not at all the hero depicted by Tom Hanks. And the AP reports that the $30,000 ransom money went missing after a lot more than three shots were fired by Navy SEALs to save Phillips.

Saturday Morning Open Thread

Away we go again.

Overtaken By Events (After Being Mugged By Ignorance)

Paul Krugman had the bad luck to write a column aboyut the perils of breaching the debt ceiling just as a deal to avoid that horror started to come together. But undaunted, he pressed forward with another addition to the Krugman laugh track. No, this time he was not promoting unworkable Magic Coins; this time, he was making the Social Security Trust Fund disappear and re-writing securities and financing law. In the course of his recitation of the list of horribles if the debt ceiling is not raised we find these puzzlers:

A report last year from the Treasury Department suggested that hitting the debt ceiling would lead to a “delayed payment regime”: bills, including bills for interest due on federal debt, would be paid in the order received, as cash became available. Since the bills coming in each day would exceed cash receipts, this would mean falling further and further behind. And this could create an immediate financial crisis, because U.S. debt — heretofore considered the ultimate safe asset — would be reclassified as an asset in default, possibly forcing financial institutions to sell off their U.S. bonds and seek other forms of collateral.

All US debt would be reclassified as an "asset in default"? By whom? Legally, US Treasuries stand nearly alone in not having cross default provisions. No banker would agree to such terms for a banana republic like Argentina, but the lack of a cross-default on Treasuries means that a missed interest payment on a bond paying interest in October (and April) will have no legal impact on the legal status of bonds paying interest in May/November. Hence, global repo markets and nervous lawyers will remain satisfied with most outstanding debt. (True debt nerds can opine on the possibility of deep selective prioritization - if multiple bonds have interest due at the end of October and the Treasury is short of cash, could and would the Treasury jiggle the FedWire payment system to pay all the interest on some of the bonds and minimize the number of bonds that slip to default status? That is a systems rather than legal question. Such an approach would give Treasury traders a whole new way to make money as they guess which bonds will be paid in full and which will get stiffed, but that might create more net confusion than simply having an equal haircut on all interest payments. Tricky, and we hope never to learn the answer.)

Krugman takes up the question of prioritization but loses the multi-trillion dollar Social Security Trust Fund:

That’s a scary prospect. So many people — especially, but not only, Republican-leaning economists [and do note Moodys in these ranks] — have suggested that the Treasury Department could instead “prioritize”: It could pay off bonds in full, so that the whole burden of the cash shortage fell on other things. And by “other things,” we largely mean Social Security, Medicare, and Medicaid, which account for the majority of federal spending other than defense and interest.

Back in 2005 Krugman was all about the Social Security Trust Fund but now he has forgotten it. A reminder - the debt ceiling applies to all debt issued by the Treasury, not just debt held by the public. So Treasury obligations held by the Trust Fund are already included in the debt ceiling; when payroll tax receipts are insufficient, the Trust Fund delivers bonds to Treasury for cash, thereby reducing total Treasury indebtedness; Treasury then has new debt-ceiling room to issue debt to the public. Obama likes to score political points and scare seniors by claiming that Social Security checks might not go out, but as a one-time defender of the Trust Fund Krugman ought to have the intellectual courage not to play along. (Full Disclosure - I have always said that the Trust Fund is pretty phony from a financial perspective but have always admitted it has legal clout, and noted the debt ceiling in passing here. Geez, 2005, when the debt ceiling was a cloud no larger than a mans hand...)

More fabulism from Krugman:

Some advocates of prioritization seem to believe that everything will be O.K. as long as we keep making our interest payments. Let me give four reasons they’re wrong.

First, the U.S. government would still be going into default, failing to meet its legal obligations to pay. You may say that things like Social Security checks aren’t the same as interest due on bonds because Congress can’t repudiate debt, but it can, if it chooses, pass a law reducing benefits. But Congress hasn’t passed such a law, and until or unless it does, Social Security benefits have the same inviolable legal status as payments to investors.

We are delighted to see him not obfuscating the "legislate lower benefits" point. But really - "the same inviolable legal status"? Has anyone pledged their Social Security check as part of a repo transaction? Are amounts owed to vendors really in the same legal boat with securities issued by the Treasury? If the Treasury decides to hold up a payment to General Electric for a few days, does GE have the basis for a suit? And when did we overturn the Federal Assignment of Claims Act (1, 2)? Given Krugman's obvious lack of legal curiousity I am reluctant to assume he is right about this. Since he is not.

Second, prioritizing interest payments would reinforce the terrible precedent we set after the 2008 crisis, when Wall Street was bailed out but distressed workers and homeowners got little or nothing. We would, once again, be signaling that the financial industry gets special treatment because it can threaten to shut down the economy if it doesn’t.

The Princeton Populist rides again. Wall Street isn't threatening to shut down anything; it is noting the reality of its operations.

Third, the spending cuts would create great hardship if they go on for any length of time. Think Medicare recipients turned away from hospitals because the government isn’t paying claims.

Geez, I think that when I think of Obamacare. But if Krugman agrees with me that the Treasury Secretary will do that poor a job of prioritizing payments while engaging in Debt Ceiling Theater (especially now that Social Security is solved!) then let's throw the bums out.

Finally, while prioritizing might avoid an immediate financial crisis, it would still have devastating economic effects. We’d be looking at an immediate spending cut roughly comparable to the plunge in housing investment after the bubble burst, a plunge that was the most important cause of the Great Recession of 2007-9. That by itself would surely be enough to push us into recession.

You knew he couldn't go 0 for 4. The fiscal crunch caused by selective prioritization and the resulting Mad Hatter Sequester will crush the economy. Moodys Chief Economist Mark Zandi agrees:

If the impasse over the debt limit lasted through November, the Treasury would have no choice but to eliminate a cash deficit of approximately $130 billion by slashing government spending. This is about 9% of annual GDP, enough to trigger a severe recession.

 

Scooter Libby Post-Post Mortem

The Times runs a book promo for their very own Peter Baker, whose topic is the Bush-Cheney relationship. We are teased with a section on the Libby pardon:

The Final Insult in the Bush-Cheney Marriage

By Peter Baker

In the final days of his presidency, George W. Bush sat behind his desk in the Oval Office, chewing gum and staring into the distance as two White House lawyers briefed him on the possible last-minute pardon of I. Lewis Libby.

“Do you think he did it?” Bush asked.

“Yeah,” one of the lawyers said. “I think he did it.”

Hmm, if you have lost the in-house lawyers...

In March 2007, Libby, who had served as Dick Cheney’s chief of staff, was convicted of lying to federal officials who were investigating the leak of the identity of a C.I.A. officer. For the past two months Cheney had been pushing the president to grant Libby a full pardon before they left office. He would not let it go. ...

Troubled by the decision hanging over him, Bush had asked the White House lawyers to re-examine the case to see if a pardon was justified. Fred Fielding, the White House counsel, and his deputy, William Burck, pored over trial transcripts and studied evidence that Libby’s lawyers had raised in his defense. Their conclusion was that the jury had ample reason to find Libby guilty.

“If I were on that jury,” Burck told Bush, “I would probably have agreed with them. You have to follow the law, and the law says if you say something that is untrue, knowingly, to a federal official in the context of a grand jury investigation and it is material to their investigation, that’s a crime.”

I thought he would be convicted as well, and I even thought the odds were good that he deliberately lied to investigators. But other points were raised by the Cheney side to which I am very sympathetic.

... Cheney’s lobbying campaign on behalf of Scooter Libby had become deeply disconcerting to the president. To Cheney, it was a simple matter of justice. As he saw it, Libby had been pursued by an unprincipled prosecutor bent on damaging the White House. Neither Libby nor anyone else had been charged with the actual leak that precipitated the investigation, only with not testifying truthfully about how he learned about Wilson’s identity. Years later, it would be revealed that the special prosecutor, Patrick Fitzgerald, knew from nearly the start that Richard Armitage, Colin Powell’s deputy, was the original source of the leak, not Libby. Cheney believed that Fitzgerald’s relentless investigation in spite of this fact was proof that Cheney was the real target, and that Libby was caught in the cross-fire. Libby had loyally served his country, Cheney argued, only to be made into a criminal. And Powell and Armitage stayed quiet as it happened. “The Powell-Armitage thing was such a sense of betrayal,” Cheney’s daughter Liz told me. “They sat there and watched their colleagues in the White House — Scooter and everyone else — go through the ordeal of the investigation, and all that time they both knew Armitage was the leaker.” Armitage and Powell said they were simply following investigators’ instructions to keep silent.

Well, yes. Fitzgerald was brought in as Special Counsel in the same time frame with the overturning of the Yoo torture memo and the uprising about the surveillance program, so it is fair to consider that Fitzgerald was just one more weapon in the Justice Department war with Dick Cheney [Leak promoter David Corn eventually discovered this as well]. (Fitzgerald's effort to investigate the extent of the Plame leaks from the State Department could not have been more desultory - his gumshoes completely missed the Armitage leak to Bob Woodward. Later the AP put the puzzle pieces together by the Sherlock Holmesian technique of checking Armitage's calendar. But since I think Fitzgerald was investigating Cheney, not the Plame leak, move on).

We get speculation on Libby's motive:

“All right,” the president said when the lawyers concluded their assessment. “So why do you think he did it? Do you think he was protecting the vice president?”

“I don’t think he was protecting the vice president,” Burck said.

Burck figured that Libby assumed his account would never be contradicted, because prosecutors could not force reporters to violate vows of confidentiality to their sources. “I think also that Libby was concerned,” Burck said. “Because he took to heart what you said back then: that you would fire anybody that you knew was involved in this. I just think he didn’t think it was worth falling on the sword.”

Bush did not seem convinced. “I think he still thinks he was protecting Cheney,” the president said. If that was the case, then Cheney was seeking forgiveness for the man who had sacrificed himself on his behalf.

Interesting. I was with Bush on this one.

Let's close with two stories on the light side:

A few weeks before Barack Obama’s inauguration, [Bush chief of staff] Joshua Bolten invited all of his predecessors to his office in the West Wing to meet with his successor, Rahm Emanuel. Thirteen of the living 16 men to have served as chief of staff attended, including Cheney, who was Gerald Ford’s top assistant. They went around the table one by one, offering advice. When Cheney’s turn came up, a devilish look crossed his face. “Whatever you do,” he said, “make sure you’ve got the vice president under control.”

And more from Cheney:

...Inauguration Day, Cheney showed up in a wheelchair, explaining that he had thrown his back out packing boxes at the vice-presidential mansion over the weekend. “Joe, this is how you’re liable to look when your term is up,” Cheney joked to his successor, Joseph Biden.

So it was wasn't all waterboarding and invading - Cheney had time for some jokes, too.

MAYBE IF HE'D REMEMBERED MORE: Cheney had Hillary-esque memory of his role in the Plame debacle. I sure don't remember him demanding to be called for the defense at the trial.

I Believe It Is Funding In Our Time

Boehner seems to be ready to semi-capitulate, or deal - the gist is a short term increase in the debt ceiling but no CR to reopen government. Obama has signaled he would sign a clean debt ceiling increase, and the Dow is up 292 points at this writing late on Thursday afternoon.

So, is this a stupid capitulation or a switch in battlefields to more favorable terrain?

Some savant opined that if not for the shutdown then the ObamaCrash roll out would have been the 24/7 story this month. So one might imagine that come late November, Senate Majority Leader Reid is demanding a one year delay in ObamaCare and Sen. Cruz is pounding the table in favor of forcing it to stay live. In a Walking Dead sort of way.

Debt Ceiling Theater: Treasury Lies We Don't Believe

Here is an absurd yet incomplete story about our nation's $300 billion in gold reserves:

Why Uncle Sam is hoarding gold

The Treasury says it won’t tap its gold stockpile, even to avoid a default

...

This week I asked [the people running the United States Treasury] if they would consider selling some of the country’s gold reserves to pay the bills if the budget crisis escalates later this month.

Their response? Not a chance.

The Treasury has considered that option, among the many others, and rejected it. “Selling gold would undercut confidence in the U.S. both here and abroad,” a spokeswoman said, “and would be destabilizing to the world financial system.” She was quoting an official position laid out last year in a letter to Senator Orrin Hatch, but so far apparently little noticed on Wall Street.

So skipping interest and principal payments would be less destabilizing then selling some gold? That is nonsense, as the writer notes.

What the writer does not explore is that a sale is not necessary; in principal, the Treasury can engage in a simple repo, or gold loan, in which they lend gold to another entity (our friends at the Bank of England, or is that special realtionship over?) in exchange for cash with an obligation to repay the loan and reclaim the gold at a later date.

Now, I am not a gold bug so I have not yet pinned down the details of whether the gold reportedly owned by the Treasury is in fact currently unencumbered and available for repo. But there is simply no way the Treasury is refusing to sell that gold for the faux-stability reasons cited in this article. And let me add, if they have already lent out their gold for cash (at market prices) then selling it won't raise notably more cash; that would be like selling a house that was 99% financed in order to raise money.

I do glean this from a recent NY Times Q&A:

Q. Does the Treasury Department have any options to keep paying some or all of its bills at that point?

A. The inspector general of the Treasury Department said in a 2012 report that when the department approached the debt ceiling in the past it considered multiple contingency plans, including selling the government’s gold or its portfolio of student loans and reducing payments across the board by a set amount. Both alternatives were deemed to be impossible.

Naturally the link provided by the Times to the Treasury report is not working for me but my relentless sleuthing continues apace as I go for the gold; here is the Orrin Hatch letter cited by MarketWatch and which guided the Times coverage.

And now that I see the letter, it is more of the same nonsense. Treasury claims that sales of gold, housing loans or student loans at fire sale prices would disrupt markets and harm the long term interests of the taxpayer. Left unexplored is the alternative of repoing out gold, housing loans or student loans. With cash management skills like this I wonder whether these guys even remember to cash their own paychecks. Ahh, it's probably direct deposit... Totally automatic and beyond their control!

MORE NON-ANALYSIS HERE: The WSJ blithely explains why we can't sell our gold but overlooks the repo question.

STILL NOT A GOLD BUG, BUT... Here is the Treasury's account of our International Reserve Position as of Sept 20 2013. They report 261.499 million fine ounces of gold, unchanged from Dec 30, 2011. At $1300 an ounce that is roughly $340 billion. The descriptive line is "gold (including gold deposits and, if appropriate, gold swapped)", so I presume this would reflect gold encumbered by swaps, if any. I should add that every other line item (e.g., SDRs or yen) have changed a bit.

Well. Either Bernie Madoff's spirit lingers at Treasury and this gold reserve is secretly obscurely encumbered elsewhere (possible!), or the Treasury could lend out a quick $300 billion somewhat painlessly.

Of course, that presumes that the rodeo clowns who oversaw the implemention of Obamacare and told war widows to whistle Dixie have the skill and the will to avoid a financial market debacle.

ARE ALL THE ENRON PEOPLE STILL IN JAIL? One might object that a gold repo is simply a secured Treasury borrowing and is therefore limited by the debt ceiling. When I was young there was some question as to whether forward sales and purchases were loans or something else, so I would hope the Treasury legal team could generate enough fog to cover this. And if a House Committee tries to impeach someone for extending their authority and saving the US debt market, well, bring it on.

But if the lawyers can't get behind a straight gold swap, two alternatives spring to mind, either of which could be fleshed out by any of the Enron alumni.

First, have treasury sell the damn gold to an entity or agency they control; FNMA springs to mind. Then have FNMA arrange the gold swap. This works if FNMA debt is not counted in the debt ceiling, and I am quite sure it is not.

Or, use puts and calls. For example, sell 200 milliion tonnes of gold to the Bank of England ('BoE') at $1,300 an ounce, raising $260 billion. BUY from the BoE a deep in-the-money call, e.g, at $1,000, giving the Treasury the right to buy the gold back in January. And since the price of gold might crash, SELL to the BoE an out-of-the-money put giving them the right to sell the gold back to the Treasury at $1,000 in January.

That put is pretty clearly a new security arguably caught up in the debt ceiling limit but... it only has a market value of roughly 4 percent, or $8 billion. So Treasury can raise $260 billion on the gold sale, apply roughly $60 billion towards the call purchase and apply another $8 billion towards retiring (rather than rolling) a maturing T-bill. That frees up debt ceiling space to issue the put and nets the Treasury about $190 billion. next January either the gold will be called by the Treasury (if the price is above $1,000) or put by the BoE; either way, it ends up back with Treasury, and they will need to be able to pay for it. Or reprise the transaction.

Yes, it does not look exactly like a smooth-sailing ship, but that is a lot of money.

A BUG, OR A FEATURE? I am advised that Islamic banks avoid the prohibition on loans with interest by using repo. But given Obama's puzzling past, this idea might not have a prayer...

Calling 'BS' On The Death Benefit Shutdown Theatre

Pentagon hacks shamed themselves and enraged a nation with their petty attempt to score politcal 'Shutdown!' points by denying death benefits to the familes of fallen shoulders. Even the Times feels obliged to call "BS" on their charade:

WASHINGTON — Pentagon officials said Wednesday that they would contract with a charity group, the Fisher House Foundation, to restore death benefits to families of service members killed in action, including a $100,000 payment, that have been stopped by the government shutdown. The officials said the Pentagon would reimburse the group after the shutdown ended.

...

Although Pentagon officials insisted on Tuesday that they could not do anything about restoring death benefits without Congressional approval, their agreement with Fisher House on Wednesday suggested that the officials had changed their minds.

Yes, they changed their minds after relieving their cranial-anal impaction.

What is (or ought to be) shocking about this story is that some bright light in the Pentagon advised that the legal authority to continue these death benefits was ambiguous, so the safer course would be to discontinue them and blame the Republican shutdown. And rather than throw the fool out and demand better lawyers, Defense Secretary Hagel, who normally pretends to care about the troops he notionally leads, played along. What, they were worried that an aggressive Inspector General or House Committee would be outraged by this possible overstep of authority and demand impeachment? I guess the legal haze has cleared and statutory intent (don't screw the troops, even dead ones) has come clear to them.

That said, I do see their subtle plan. Now that Moodys has joined the debt default deniers, the notion that the Treasury can prioritize payments to avoid a default on US Government securities has gotten new life. I think Team Obama is trying to convince us that they really do have the sort of mix of incompetence (cf the Obamacare website) and evil that would lead the Treasury to screw up its cash management and default on an interest or principal payment just for the political theatre.

Common Sense Has Left The Building

The NY Times front-pages a story on the consequences of a government "default" so poorly researched and misleading that both sides will be unhappy. Bipartisan appeal!

Their lazy, hazy, crazy lead:

Many in G.O.P. Offer Theory: Default Wouldn’t Be That Bad

By JONATHAN WEISMAN

WASHINGTON — Senator Richard Burr, Republican of North Carolina, a reliable friend of business on Capitol Hill and no one’s idea of a bomb thrower, isn’t buying the apocalyptic warnings that a default on United States government debt would lead to a global economic cataclysm.

“We always have enough money to pay our debt service,” said Mr. Burr, who pointed to a stream of tax revenue flowing into the Treasury as he shrugged off fears of a cascading financial crisis. “You’ve had the federal government out of work for close to two weeks; that’s about $24 billion a month. Every month, you have enough saved in salaries alone that you’re covering three-fifths, four-fifths of the total debt service, about $35 billion a month. That’s manageable for some time.”

Now, it is crystal clear to anyone who has followed this that Sen. Burr is talking about the ability of the Treasury to *avoid* a default on US Government debt securities (i.e., the sort of debt covered by the debt ceiling) by using available cash to make interest payments. Is he saying, as per the headline, that "Default Wouldn't Be That Bad"? No. He is saying that a default on our publicly issued debt would not be necessary. That is a big difference, but it totally eludes the Times reporter. Let's help the Times out by quoting Reuters, a normally sympathetic left-wing source; they are using a Q&A format:

- The United States defaults when the money runs out, right?

It depends how you define default. Historically, default is when a country misses a payment to a creditor. The Obama administration says default would include any missed payment, such as payments for public health insurance. The first really big bill due after hitting the debt ceiling is a $12 billion Social Security payment on October 23.

- When would financial markets melt down?

Markets would be alarmed if it looked like bondholders would go unpaid for an extended period, and might even panic if any government checks were delayed. Many analysts think the administration would at least try to prioritize payments on the national debt, but Treasury officials say picking and choosing which bills to pay would be impossible.

That didn't look so hard, but it was too much for the Times editors. One might argue, as Obama supporters currently do, that any missed payment, whether it be to a state for Medicaid, a defense contractor for a satellite, or a bondholder for interest due, represents a '"default". But the breathless reporting describing the resulting financial apocalypse is based on the possible consequences of a default on a debt security, not a late payment to General Electric. That confusion benefits the fearmongerers, but I don't know why the Times is playing along on a front page story. Yes I do.

Of course, the Fearmongerer-in-Chief already told us the sky would fall with the sequester; the Times does manage to capture that point:

But the voices of denial are loud and persistent, with some Republicans saying that the fallout from the continuing shutdown and the automatic, across-the-board budget cuts known as sequestration has been less severe than predicted.

However, the gist of the Times story is that Republicans simply don't believe the many experts predicting global warming, oops, financial meltdown. No attempt is made to explain why the prioritization of payments (the Mad Hatter Sequester) may or may not be practical or legal. A snippet:

Both men were counting on the prospect of a global economic meltdown to help pull restive Republicans into line. On Wall Street, among business leaders and in a vast majority of university economics departments, the threat of significant instability resulting from a debt default is not in question. But a lot of Republicans simply do not believe it.

A surprisingly broad section of the Republican Party is convinced that a threat once taken as economic fact may not exist — or at least may not be so serious. Some question the Treasury’s drop-dead deadline of Oct. 17. Some government services might have to be curtailed, they concede. “But I think the real date, candidly, the date that’s highly problematic for our nation, is Nov. 1,” said Senator Bob Corker, Republican of Tennessee.

Others say there is no deadline at all — that daily tax receipts would be more than enough to pay off Treasury bonds as they come due.

I should unchain my Inner Pedant and note that no one claims that incoming tax receipts are enough to "pay off" bonds as they come due. Tax receipts will be enough to pay off the interest on the bonds; the principal amount can be re-issued under the current debt ceiling. Gee, its almost like the reporter doesn't understand this.

But to be fair and balanced, the Times also recycles nonsense from Rand Paul without criticism or comment:

“It really is irresponsible of the president to try to scare the markets,” said Senator Rand Paul, Republican of Kentucky. “If you don’t raise your debt ceiling, all you’re saying is, ‘We’re going to be balancing our budget.’ So if you put it in those terms, all these scary terms of, ‘Oh my goodness, the world’s going to end’ — if we balance the budget, the world’s going to end? Why don’t we spend what comes in?”

“If you propose it that way,” he said of not raising the debt limit, “the American public will say that sounds like a pretty reasonable idea.”

Well, yes and no. The budget will be in balance going forward, and the resulting fiscal drag will probably crush the economy. But set that nightmare aside - how, under the Paul cash-basis plan, do vendors get paid for their past work? My guess is that we have quite a few bills outstanding; unless Paul proposes to run a cash-basis surplus, there will never be funds to pay, e.g., GE for their hypothetical satellite.

Interestingly, and dare I say encouragingly, Obama seems to be aware of the difference himself, even if he is trying to confuse the rest of us:

“When I hear people trying to downplay the consequences of that, I think that’s really irresponsible, and I’m happy to talk to any of them individually and walk them through exactly why it’s irresponsible,” he said. “And it’s particularly funny coming from Republicans who claim to be champions of business. There’s no business person out here who thinks this wouldn’t be a big deal, not one. You go to anywhere from Wall Street to Main Street, and you ask a C.E.O. of a company or ask a small-business person whether it’d be a big deal if the United States government isn’t paying its bills on time. They’ll tell you it’s a big deal. It would hurt.”

"Paying its bills" is much broader than paying its publicly held debt. I have no doubt that if Obama asked Jeff Immelt whether it was important that GE got paid on time Mr. Immelt would say yes. But that doesn't mean GE lacks the cash management resources to handle a late payment from a customer. Now, if the payment is going to be late forever, as implied by the Paul approach, yes, that is a different matter.

I am strangely confident that the Times has reporters and editors who understand these nuances. They should have moved this effort from the front page to the op-ed section. Or they should offer their readers a subscription to the Washington Post and the fine work done by Brad Plumer, which includes a link to this CRS piece on Treasury cash management.

EXCELLENT SUCCINCTTITUDE: Kyle Hauptman of the AEI:

Today’s NY Times article on debt “default” is point-blank incorrect in headline and substance

Yup.

PLAYING ALONG: Imagine my non-surprise to see this 'analysis' at FireDoglake, which quotes the Times story and adds:

It’s all a hoax, you know, like global warming.

And in an interesting blend which misses the point while keeping hope alive we get this:

One point that seems to be getting left out of the mainstream/corporate media coverage is that an economic crisis that results from defaulting on US debt obligations will first and foremost wreck the 1%. The US treasury bond is the lynchpin to the global financial system, a default would first cause a panic attack in financial markets and the top 1% own almost 50% of all financial assets. And given that the Federal Reserve has already run out of tricks and is down to money printing it is unlikely they would be at all effective in stopping a financial crisis caused by default. In other words, default would be the end of the upper class as we know it.

I think we all agree - the Republicans cited in the Times do - that defaulting on Treasury bonds, notes and bills would be a dreadful experiment.

 

 

More Suggestive Evidence That The Republicans Are Winning

A straw in the wind suggesting that Republicans are winning, or at least not losing, the debt limit scuffle is provided by Noam Scheiber ot TNR, who offers this analysis diatribe about the wisdom of Obama's "Just Say 'No' To Negotiation" strategy:

The reason the White House has been so firm in its no-debt-limit negotiation position is that it understands what’s at stake. If Republicans believe they can extract concessions from the president by threatening a debt default (the consequence of not raising the limit), then there’s no end to what they will be able to demand. Elections and the legislative process will become utterly meaningless. A minority party will be able to enact an agenda for which it lacks popular support and sufficient votes in Congress. The only way to prevent this is to make crystal clear that there will be no concessions period, rendering the whole extortion exercise utterly pointless.

The only way to prevent this in the future is to stand firm now? Hmm, the Democratic strategy has been to create a crisis, blame the Republicans, and hope a wave of popular anger enables them to reclaim the House and hold the Senate in 2014. Which, in addition to giving a boost to whatever Obama is passsing off as an agenda, would be a great way to stop this legislative tactic. (Whether that strategy actually made sense at the level of the relevant Congressional districts is debatable.)

Of course, the Treasury could attempt to engage in some ad hoc prioritizing so that interest and principal payments on our public debt are not missed. Since there is no clear legislative authority allowing the Treasury to pick and choose amongst our national obligations it would be a bit of a Mad Hatter's Sequester. But hey, a Democratic Adinistration could simply suspend payments to defense contractors working on weapons systems and $600 toilet seats, right?

This notion of public debt versus all debt, including payments due on government contracts or promised under entitlement programs, is vigorously elided by Obama's backers. Over to Mr. Scheiber, my emphasis:

If Republicans believe they can extract concessions from the president by threatening a debt default (the consequence of not raising the limit), then there’s no end to what they will be able to demand.

That is true only if "debt" is broadly defined to encompass all payments owed by the US Government. But over at the Bureau of Public Debt, they realize that the much-ballyhooed debt limit refers to public indebtedness issued by the Treasury and does not include payments due to Halliburton and General Electric for their fine and public-spirited efforts on government contracts.

If Obama's supporters are losing their arguments and their minds, that suggests the Republicans are hanging in there. My two cents: Obama's "I won't negotiate because they are being unreasonable and intransigent" pose won't hold as the public begins to see Obama as unreasonable and intransigent. I just don't see "I'm crazier than they are" as a winning play.

I See Through Obama's Scheme Now...

One can argue, with John Hinderaker and others, that the US Treasury won't default on its debt because there will be plenty of cash coming in to cover interest payments (principal rollovers are included in the current debt ceiling). The notion is that when faced with payment obligations such as, for example, a Medicaid grant to a state, a defense related payment to General Electric, an interest payment on government debt and a payment to Social Security seniors, the Treasury can do the right thing and avoid default on the debt by "defaulting" on some other obligation of lesser legal weight. Of course there is no statutory scheme describing how that is to be done, so the Treasury Secretary would be operaing in a bit of a legal haze.

However! That assumes that the Treasury can actually separate its bills into 'Pay Now' and 'Pay Later' categories. Every household and small businesss in America has refined this skill over the past four years but apparently the Treasury has solved the legal question of its lack of prioritization authority by simply paying everything as it comes due. This was kicked around a few years ago when Obama was threatening to hold up Social Security checks during the 2011 debt ceiling scuffle. The legal mechanisms, including the Trust Fund, are intended to assure that Social Security obigations are already counted agasint the debt ceiling. However, despite a clear Congressional intent no one was sure that the mechanics of implementing those payments would actually work. Here is a former deputy Social Security administrator:

 “I'm now 99.9 percent positive that Treasury has legal authority to pay Social Security benefits in both cases of a government shutdown and hitting the debt limit, since the payment of benefits shouldn’t affect the debt limit because it reduces the trust funds to the exact extent that it increase publicly-held debt,” Fichtner said. “What I don't know is whether Treasury has to pay benefits if it chooses not to.”

And now I see the genius behind the Obamacare enrollment debacle. The Treasury ought to be able to prioritize their payments, but as a practical matter, can the bright lights who brought us the ObamaCare website actually re-engineer the Treasury payment programs in a matter of days or weeks?

The world waits and wonders.

Auto-Collapse

This techie discussion of the problem with the ObamaCare website is pretty funny:

OVERLOADED

One possible cause of the problems is that hitting "apply" on HealthCare.gov causes 92 separate files, plug-ins and other mammoth swarms of data to stream between the user's computer and the servers powering the government website, said Matthew Hancock, an independent expert in website design. He was able to track the files being requested through a feature in the Firefox browser.

...

"They set up the website in such a way that too many requests to the server arrived at the same time," Hancock said.

He said because so much traffic was going back and forth between the users' computers and the server hosting the government website, it was as if the system was attacking itself.

Hancock described the situation as similar to what happens when hackers conduct a distributed denial of service, or DDOS, attack on a website: they get large numbers of computers to simultaneously request information from the server that runs a website, overwhelming it and causing it to crash or otherwise stumble. "The site basically DDOS'd itself," he said.

Left unexplored - what happened to all the whiz-bang talent that implemented the Obama 2012 campaign software?

Sidestepping The Impending Debt Ceiling Debacle

The NY Times reprises three possibile ploys for Obama to sidestep a debt ceiling crisis. Mercifully, they do not include the Magic Platinum Coin; weirdly, they also do not include the IOU plan pioneered by California and endorsed, at the Federal level, by a Times guest contributer last January.

The three notions are that the President can simply order the Treasury to issue more debt under (1) his emergency powers; (2) the 14th Amendment, which says that "The validity of the public debt... shall not be questioned"; or (3) the Conflicting Legislation, Waddya Gonna Do approach:

The third alternative, the subject of a 2012 article in The Columbia Law Review, focuses on what the article’s authors call the irreconcilable instructions Congress will have provided to Mr. Obama if it fails to act. Having been told to spend, but not to raise taxes or issue debt, “the president has to decide which of Congress’s orders to follow,” said Neil H. Buchanan, a law professor at George Washington University, who wrote the article with Michael C. Dorf, a law professor at Cornell. The president must, in the article’s words, “choose the least unconstitutional option.”

That option, the authors concluded, is issuing more debt.

“Anything you do that’s remotely realistic is going to be unconstitutional,” Professor Dorf said. “But the president should still try to minimize the constitutional violation.”

Hmm. The Times offers some legal pushback before finally tackling the bigger problem - what knucklehead would buy this debt of such dubious legality?

However one interprets the Constitution, there remains the practical question of whether the nation’s creditors would continue to lend to the United States if the president did take unilateral action.

“I don’t think anyone in their right minds would buy those bonds,” Michael W. McConnell, a law professor at Stanford, said of debt issued without Congressional authorization.

No kidding. The notion that these would trade as equal substitutes for conventional (i.e., duly authorized, legal) Treasury debt is absurd.

However, doling out IOUs to government suppliers in lieu of cash might very well be legal, and the IOUs could well be marketable. The fellow pushing it last January was

Edward D. Kleinbard, a former chief of staff at the Congressional Joint Committee on Taxation, is a law professor at the University of Southern California.

So he knows Washinngton and has seen California.

Bracing For A Long Shutdown

Politico runs an inadvertently terrifying story about the politics behind the shutdown:

Government shutdown: Why many Republicans have no reason to deal

The prevailing wisdom ahead of the government shutdown was that tea party lawmakers who agitated for it would fold within a few days, once they got an earful from angry constituents and felt the sting of bad headlines. House GOP leaders called it a “touch the stove” moment for the band of Republican rebels, when ideology would finally meet reality.

Uh huh - a few harsh NY Times editorials and perhaps a sneer from rachel Maddow and this would all be over.

But there’s another reality that explains why that thinking may well be wrong, and the country could be in for a protracted standoff: Most of the Republicans digging in have no reason to fear voters will ever punish them for it.

The vast majority of GOP lawmakers are safely ensconced in districts that, based on the voter rolls, would never think of electing a Democrat. Their bigger worry is that someone even more conservative than they are — bankrolled by a cadre of uncompromising conservative groups — might challenge them in a primary.

So from the standpoint of pure political survival, there’s every incentive to keep the government closed in what looks like a futile protest over Obamacare. The latest theory gaining currency in Congress is that it will take a potential default on the nation’s debt in a few weeks to bring the crisis to a head.

Well, no kidding. Its has been obvious for years and reported for months that these "extreme" Republicans are in fact acting quite rationally vis a vis their districts. Yet we still have the Senate Majority Leader saying they're 'cockamamie' and the President waiting to "break that fever".

This unfamiliarlty with reality would be even more troubling if I thought Reid and Obama were actually interested in a prompt resolution to this stand-off. But they want this fight and are lapping up the NY Times editorials and Maddowian denunciations (SOOO much more fun than hearing about Syria, or Snowden, or Obama's lapsed domestic agenda), so this may keep up for a while.

Ezra Klein actually earns his paycheck with two interviews - here is Robert Costa of the National Review on What Went Wrong:

RC: What we're seeing is the collapse of institutional Republican power. It’s not so much about Boehner. It’s things like the end of earmarks. They move away from Tom DeLay and they think they're improving the House, but now they have nothing to offer their members. The outside groups don't always move votes directly but they create an atmosphere of fear among the members. And so many of these members now live in the conservative world of talk radio and tea party conventions and Fox News invitations. And so the conservative strategy of the moment, no matter how unrealistic it might be, catches fire. The members begin to believe they can achieve things in divided government that most objective observers would believe is impossible. Leaders are dealing with these expectations that wouldn't exist in a normal environment.

I am not sure what he means by a "normal environment" but his point about the loss of earmark power is interesting. Campaign finance ought to tie in to that.

Grover Norquist ruminates about the sort of deal that could have avoided this and might yet resolve it:

Ezra Klein: So, do you think a shutdown is good for the issues and ideas you’re trying to push?

Grover Norquist: Not necessarily. I think the original plan for the Republicans was to move the continuing resolution past the debt ceiling and then to sit down with Obama and decide whether he would be willing to trade some relaxation of the sequester for significant reforms of entitlements. That was something Obama might well do. Democrats in the House and the Senate are very concerned about caps and limits in sequestration. Republicans could get significant long-term entitlement reform -- all on the spending side, I’m assured by leadership -- for some relaxation of sequester.

Something like that might’ve worked out. There was also the possibility, and I was an advocate, of pushing for delay. I thought Obama might do that. And even if he didn’t, I liked the idea of a two-month conversation over how Obama has delayed Obamacare for big business and big contributors and organized labor but not for you. So how about all Americans get treated equally and we have rule of law and delay everything?

...

EK: That sounds like the strategy that got us the shutdown, though.

GN: No, the leverage isn’t the debt ceiling. It’s not the CR. It’s the sequester. Democrats think this is desperate privation. It’s like the Kennedy kids with only one six-pack. They feel they’ve never been so mistreated. So there’s something they want. And there’s something Republicans want. So you could see a deal there. And the leverage was the sequester. That’s what struck me as what leadership was thinking about, and it made a great deal of sense.

And the final escape path still goes down Sequester Road:

Republicans have their principles. Let’s have health-care be more consumer-oriented, let’s not raise taxes, let’s reform government. I could imagine many things that would work inside those principles, but I’m not in Obama’s head. I don’t know how he values those things. If I were him I’d trade some money off the sequester today for reforms in entitlements that take place a long time from now. Those reforms will be done by somebody. You might as well get something for them. Someday Republicans will hold the White House and the Senate and they’ll pass the Ryan plan. You might as well get something for it.

That doesn't seem to be how Obama is thinking, nor does it seem to be what Boehner has been asking for. Yet, anyway - per Robert Costa, Boehner is moving back to a Grand Bargain II. Byron York notes that Grand Bargain II (or III, or umpty-bumpth) is a bit of a Hail Mary reflecting the absence of any better plan.

The Great And Powerful Obama

For a guy who is supposed to be winning the shutdown scuffle, this withdrawal of his FERC nominee comes at an embarrassing time. Politico spends time in the loser's lockerroom while the WSJ Editors page take a victoy lap. And do note that the failure of this nominee in the Senate can't be blamed on intransigent House Republicans (although I imagine it will be!):

A majority of the Energy Committee—likely including Democrats Joe Manchin (West Virginia) and Mary Landrieu (Louisiana)—was poised to reject Mr. Binz to lead the Federal Energy Regulatory Commission, or FERC. Mr. Binz's hostility to all fossil fuels and radical conception of regulators as legislators was too much for energy-state Democrats.

Since you ask, the Energy Committee has twelve Democrats (including Democratic Socilaist Bernie Sanders) and eight Republicans, so Mr. Binz was on track to a ten-ten tie.

Obama continues to have no traction on anything resembling a domestic agenda, so he needs this shutdown to rally his base.

Of course, plenty of safe-seat Congressmen of both parties are also enjoying their rally. But that has become par for the course. A lack of national leadership from our erstwhile national leaders has led to a new wrinkle.

The Pride Of New York

Former Yankee Russell Martin and former Met Marlon Byrd lead Pittsburgh past the Little Red Machine.