Steve Eisman: “They mistook leverage for genius”


Steve Eisman: Quantitative Easing was a failure: it didn’t get corporations to borrow and invest. Rather, they borrowed and bought up their own stock.

 


Steve Eisman: Inequality was cause of Financial Crisis (10:17)

 

Steve Eisman: They made money because of their leverage (debt ratio) and they mistook their leverage for genius (12:19)

 

Steve Eisman was one of the few who predicted the 2008 financial crisis, and he made his name by foreseeing the collapse of subprime mortgage market.

Michael Lewis portrays him as one of the heroes in the bestselling book The Big Short and Steve Carrell plays an outspoken version of him in the Oscar-winning movie of the same name.

EFN:s Katrine Marçal meets Steve Eisman at Claridges hotel in London.


Transcript

00:00
they’re all getting screwed you know you
00:03
know if they care about they care about
00:04
the ballgame or they care about what
00:06
actresses went into rehab I think you
00:08
should try medication no no we agreed if
00:12
it interferes with work you hate Wall
00:14
Street maybe it’s time to quit I love my
00:15
job you hate your job I love my job
00:18
you’re miserable I love my job I love my
00:21
job honey
00:22
mark Steve Iseman welcome to the offense
00:25
I’m glad to be here so you’ve been
00:27
portrayed in a book and in a film what
00:30
did you prefer I would say they were
both fairly accurate as the way I was
back then and let’s just leave it at
00:38
that okay okay so I’ve heard that some
00:42
Brad Pitt’s almost caladium in the film
00:44
it’s not true I got a phone call from
00:47
Adam McKay who was the author director
00:50
of the movie in November of 2015 to say
00:58
that he was writing the movie and that
01:02
there was a possibility that Brad Pitt
01:04
would play me to which I responded that
01:08
the only thing Brad Pitt and I have in
01:10
common is that we both have really good
01:11
hair okay
01:13
so being one a few people who sold the
01:16
financial crash coming how did it feel
01:18
to have see this big disaster unfold and
01:20
not being able to do anything about it
01:23
the analogy I use it’s a little bit like
Noah in the ark yeah so you know Noah’s
on the ark he’s okay and that he saved
his family but he’s not exactly happy
hearing everybody screaming outside
01:38
that’s was sort of my experience all
01:41
right did you think the financial market
01:44
potential market from the financial
01:46
sector would get back get back to
01:47
business and get back to some kind of
01:49
normal as quickly as it did no I didn’t
01:51
expect it would it would happen that
01:53
quickly you know a lot of that was the
01:57
fact that the government backstop the
01:59
system and once the become a backstop
02:01
the system it was what the financial
02:04
markets did come back but the banking
02:05
system has been changed so in the book
02:08
and the film it becomes very clear that
02:09
you’re you betting against the subprime
02:11
mortgage market is not
02:13
just a trade but it’s kind of a moral
02:15
crusade are you still on this moral
02:17
crusade I’m not because a lot has
02:20
changed
02:22
you know dodd-frank I think really fixed
02:25
a lot of things leverage has come down
02:27
enormous ly the Consumer Financial
02:29
Protection Board has been put in place
02:31
to protect consumers I the world’s very
02:33
different from what it was pre-crisis
02:35
hmm but now many of these things are
02:38
threatening I mean Donald Trump has
02:39
promised to repeal vast parts of the
02:41
dodd-frank act for example it’s not
02:44
something I’m in favor of I think that
02:46
will be a big fight you know it’s
02:48
possible the industry is going to get
02:50
deregulated to a degree we’re not going
02:52
to go back to what we where it was so
02:54
for example you know Citigroup used to
02:56
be levered 35 to 1 today its levered 10
03:00
to 1 I feel if we go into some type of
03:03
deregulation maybe you get 2 to 3 turns
03:05
more leverage it’s not something that
03:07
I’m personally in favor of but I don’t
03:08
think it’s a calamity hmm so do you
03:11
think with Donald Trump be president
03:14
today if more than one banker had gone
03:17
to jail for the financial crisis it’s an
03:19
excellent question and the answer is I
03:22
don’t know you know I don’t know
03:24
I’m cold about it I’ve thought about it
03:26
a lot
03:27
I think there’s a definite very strong
03:30
sentiment that it was wrong that nobody
03:34
went to jail I’m not going to say if
03:36
that sentiment is right or not but
03:39
there’s definitely a very strong
03:40
sentiment in the country that that’s the
03:41
case and I think people are very angry
03:44
that nobody did go to jail again I’m not
03:46
going to say whether that’s right or
03:48
wrong and if people had gone to jail I
03:50
think that would have soothed some of
03:52
the hangar that was seen in the election
03:55
so it’s possible that impact of the
03:57
election but it’s impossible it’s
03:58
impossible to say right so now taxes are
04:01
going to be can’t and Finance regulators
04:03
because the populace to campaign against
04:05
Wall Street 1 correct correct okay so
04:09
what do you do with investment then I
04:11
hear you you are investing quite a lot
04:13
in bank stocks well I mean there’s
04:15
there’s two issues there’s what I think
04:18
about finance the financial system and
04:20
what I think about financial stocks and
04:24
the two don’t necessarily
04:26
correlate so with respect to the
04:28
financial system I think that what’s
04:31
been done has been a good thing but it’s
04:34
been very intense bank the dodd-frank
04:36
act and the Fed forcing people to
04:39
de-lever to de-risk etc so from a
04:43
financial system I’m very happy I could
04:47
say very strongly the United States
financial system has never been held
this healthy in my lifetime but it’s
been very painful for financial stocks
because as you de-lever and do risk you
make less money and therefore it hurts
your stock price so the last six years
05:08
or so have been extremely painful for
05:10
financial stocks especially banks as
05:13
they’ve de-levered and dearest well if
05:16
we’re going to go into world where we’re
05:17
going to deregulate and leverage is
05:19
going to go up at least some just
05:22
reverse the story
05:23
so therefore financial stocks should do
05:25
well right okay
05:27
like I said financial system financial
05:30
stocks but you are not necessarily the
05:32
same an interest rates in America are
05:34
going up yes that’s very good for banks
05:37
all right
05:37
so America is kind of moving from a
05:39
monetary stimulus to a fiscal stimulus
05:41
with something but it’s like that’s
05:43
something I’m in favor of yes I think
05:45
it’s a good thing the infrastructure
05:46
investment yeah that’s right until not
05:48
believe that quantitative easing is a
05:52
successful strategy why not there are
05:55
too many negative impacts for from it to
06:00
I mean look it was a noble experiment
06:02
there was no fiscal expansion there was
06:04
no other game in town so I don’t blame
06:06
the Fed for doing it the idea was that
lowering rates would cause people to go
up or out on the risk curve and vest in
the economy and really the other thing
happened was they went out on the risk
curve by buying back their own stock
they didn’t really invest in the economy
06:22
and with lower rates that hurts consumer
06:25
because they makes us money we pay the
06:26
money in the bank so I haven’t you know
06:30
when we started the monetary policy of
06:33
quantitative easing
06:34
us growth was one-and-a-half to two
06:38
percent and after we did it it’s one and
06:41
a half to two percent so in my view
quantitative easing is a failure
06:45
alright so in November you said to the
06:48
Guardian in Europe but Europe is screwed
06:50
you guys are still screwed referring to
06:53
their non-performing loans in the
06:54
Italian depends of the country yes
06:56
are we in Europe still screwed well my
07:00
wife wish I hadn’t said that
07:01
yes so okay oh we in big trouble not big
07:07
it depends on the country you know Italy
07:10
has a very large non-performing loan
07:11
problem I don’t see the Italian
07:14
government doing anything to really
07:16
solve that problem if they like before
07:18
Christmas that was a nasty suppose that
07:20
was just monte de Paz yeah and you never
07:22
like to say monte de Partie because it’s
07:24
such a great name and the world’s oldest
07:27
bank as the world’s oldest bank correct
07:29
and I don’t you know you could try and
07:31
Simmel to deposit ten times fast it’s
07:33
very hard but it’s not really solving
07:37
the problem I mean this is something
07:39
called a Texas ratio which is a ratio
07:42
that bank analyst Achon myself compute
07:45
which is non-performing loans divided by
07:49
tangible book value plus reserves
07:52
basically the numerators all the bad
07:54
stuff divided by the money you have to
07:57
pay for the bad stuff and one of the
08:00
great lessons about bank analysis is
08:03
that one in Texas ratio gets over a
08:05
hundred percent the bank is done and in
08:08
Italy the two largest banks are in paisa
08:11
and you credit and their Texas ratios
08:15
are at ninety percent and every other
08:17
Bank in Italy is over 100 percent so I
08:21
don’t envy Italy the problem ok famous
08:24
ahma is the country there’s the bigger
08:26
than I think it won’t come and I think
08:28
the problem with the banks generally in
08:30
Europe is that they are still under
08:33
capitalized and they they are they do
08:37
not make enough money per dollar
08:39
employed basically European banks don’t
charge enough for this
services they never have and they’ve
tried to make up the difference with
leverage and in a world where you have
to use less leverage that model doesn’t
work
what about Deutsche Bank quite the same
well don’t you make sort of the poster
child for that let’s think about this
09:01
this way so today if a bank has a 1%
09:08
return on asset and is loved or ten to
09:12
one the return on equity is 10% that’s
09:15
the simple formula so you know Citigroup
09:19
for example doesn’t even have a 1% ROA
09:23
but they’re not that far off but
09:27
Deutsche Bank today has a 30 basis point
09:29
ROA they need to improve their
09:31
profitability by more than three times
09:34
there’s no way Georgia Bank on its own
09:37
can improve its profitability three
09:39
times the entire European banking system
09:41
has to be price you know how that’s
09:44
going to ever happen I don’t know but
09:46
until it does your paint banks it could
09:48
be a problem
09:49
they’re going to be a problem so you’ve
09:50
been in here in London for a few hours
09:52
now and you must have realized already
09:54
that the only thing people talk about
09:55
here with breakfast yes
09:57
so what financial risks do you see
09:59
coming from brexit big question is a big
10:04
question
10:04
okay what will happen in March I have no
10:07
idea you have no I really have no idea
10:08
honestly I don’t think and more
10:11
importantly anybody else has any idea
10:12
that it’s going to be an adventure a not
10:15
so it’s going to be a fun adventure but
10:17
it’s going to be an adventure so you
10:18
said that we’re very bad at dealing with
10:20
crises that develop very slowly and you
put the blame on the big financial
crisis of 2007-2008 on income
distribution really do you see that
10:32
changing at all I mean let me explain
10:35
that yes because it’s not intuitively
10:39
obvious how the two are connected so you
10:42
know my thesis is that one of the
underlying causes of the financial
crisis it was bad income distribution so
you know when I say that people’s eyes
generally clays are like you know what
are you talking about
but I think that there’s a
cause-and-effect relationship in that
you know starting in the 90s when income
distribution started to get really poor
in the United States rather than focus
on that and what the solutions worth of
that problem let credit get democratized
that was the euphemism for will will
make loans to people that we didn’t make
loans to before so rather than get
people’s incomes up they let them lever
themselves [take out more debt] and one of the ways people
lever themselves was by taking out loans
on their homes and loving themselves
that way and so I think one of the
causes of the subprime mortgage crisis
is that you know post dodd-frank hard to
get a mortgage loan yeah you know
incomes have only started to start
growing again we’ll have to see what it
does the new administration can do
anything hmm
so it don’t Frank it’s harder to get a
loan but well it’s hard to get a
mortgage why although I don’t think that
I caused a defect of dodd-frank I think
it’s more of an effect of all the fines
that were imposed on the banks for the
mortgage crisis and so the banks I think
not unjustifiably are kind of worried
12:11
about making mortgage loans that they
12:14
might they might not should or should
12:16
not make so the financial crisis what he
12:19
said the main problem was the products
12:22
the tools available or the culture ah I
would say is one of the unsung aspects
of the financial crisis that people have
definitely not written that up about
which is psychology yes and what I mean
by psychology is you have an entire
generation of Wall Street executives who
grew up in the 90s in the early aughts
who really only had one experience which
is they made more money every single
year now what they didn’t really notice
was that as they were making more money
every single year the leverage of their
various institutions was increasing
every single year
now they thought they were making more
money because it was them but really
what was happening as they were making
more money because their institution was
becoming more levered and really what
happened was they mistook leverage for
genius
I wrote that sentence by the way I read
that I do it’s a good son it’s a good
sentence I don’t write a lot of good
sentences but that’s definitely one of
them tweetable yes it’s very good right
if I tweeted I would tweet listen I am
so let’s imagine you went to a Wall
Street executive in circa 2006 and you
said to the CEO of you know pick the
name of your institution and you’d say
dude listen the entire paradigm of your
career is wrong you have to de-lever so
did you ever have a conversation like
that I did I’ve never told this story
before there’s like AI now it can be
told story okay um so the day is
February 2008 and I have a meeting with
the head of Risk Management and one of
the big Wall Street firms we won’t name
them anyone else today but it wouldn’t
matter because I would have had the same
it would have been the same conversation
with any of them
given what was discussion one so I sit
down with a head of risk management of
one of the big farms it’s one month
before Bear Stearns almost to the day
and I say to him you have got to de-lever
and you’ve got to de-lever now because
Armageddon is coming the point of it is
the direct that’s almost a direct quote
I used the word Armageddon and he looks
at me and he says you know I hear what
you’re saying but you know we at X we
can be much more levered to the bank now
back then there was a bank based in
Detroit called net city it was a
medium-sized regional bank and it had a
lot of subprime mortgages so it was a
bit of the topic of the day and so I
said to him you know do you know what
happens if knacks City goes down and he
says no what happens I said nothing the
regulator’s come in they seize the bank
they pay off the depositors they fix the
bank they sell the bank the government
takes something of a loss end of story
do you know what happens if your firm
goes down planet earth burns who should
be more levered and he looked at me like
I was speaking ancient Greek like he
just it was so outside his paradigm it’s
like he didn’t know I was talking about
and I realized it was over that there
was no way these guys were going to do
what needed to be done before the world
blew up but I think we’re going to see
someone to go to jail right
I mean you can have to break up the bank
partido I don’t know I don’t know I have
a feeling in a few years people are
going to be doing what they always do in
the economy tanks they would be blaming
immigrants and poor people it’s not X
equate from you is that Hollywood’s a
great quote it’s a great mark it’s not
yellow it was written by Adam McKay with
the author and director and but did you
16:26
think in those terms back then oh I
16:28
always think in those times always
16:30
thinks in terms of disaster yes why is
16:33
that just I have a very strange DNA do
16:39
you see this paradigm changing at all
16:40
this culture I was told check it steady
16:42
change they’ve been beaten to a pulp
16:44
yeah
16:45
you know the dodd-frank gave much more
16:49
power to the Fed to regulate the banks
16:53
that power was put in the hand of
16:56
Governor Daniel Tarullo and I think he’s
17:00
done a tremendous job of de-levering the
17:03
banks in the United States you know I
17:05
would say the CEOs of the bank’s fought
17:09
him kicking and screaming but I’d say in
17:12
the last year or two they gave up and I
17:15
know you said before that Europe’s done
17:18
not as good of a job with that that’s
17:21
correct why well it’s what your starting
17:25
point so you know just pre-crisis
17:29
Citigroup is levered thirty five to one
17:31
deutsche bank is lowered over 50 to one
17:35
so today’s Citigroup is levered ten to
17:37
one and deutsche bank depending on how
17:40
you calculate is probably levered twenty
17:41
five to one so everybody’s leverage is
17:44
lower European banks have always been
17:48
much more levered than US banks so
17:51
they’re still more levered they just
17:53
left levered than they were right not
17:57
they’re not de-levered enough to my taste
17:59
yes
18:00
but that again we gets back to the Paula
18:03
Mills they’re not profitable enough per
18:05
dollar employed so the regulator’s in
18:08
Europe let them be more levered I think
18:10
it’s a mistake but that’s the way the
18:12
systems it works okay and everyone’s
18:16
asking you what the next one of the
18:17
crisis is going to be so I don’t have a
18:19
dick I know I’m not going to ask you
18:20
money I will ask you that question I say
18:25
you know everybody’s trying to pick the
18:28
next big short and I’ve done that
18:30
already I’m in no rush
18:31
okay thanks a lot Steve Eisman thank you

Lessons from Italy’s Response to Coronavirus

As policymakers around the world struggle to combat the rapidly escalating Covid-19 pandemic, they find themselves in uncharted territory. Much has been written about the practices and policies used in countries such as China, South Korea, Singapore, and Taiwan to stifle the pandemic. Unfortunately, throughout much of Europe and the United States, it is already too late to contain Covid-19 in its infancy, and policymakers are struggling to keep up with the spreading pandemic. In doing so, however, they are repeating many of the errors made early on in Italy, where the pandemic has turned into a disaster. The purpose of this article is to help U.S. and European policymakers at all levels learn from Italy’s mistakes so they can  recognize and address the unprecedented challenges presented by the rapidly expanding crisis.

In a matter of weeks (from February 21 to March 22), Italy went from the discovery of the first official Covid-19 case to a government decree that essentially prohibited all movements of people within the whole territory, and the closure of all non-essential business activities. Within this very short time period, the country has been hit by nothing short of a tsunami of unprecedented force, punctuated by an incessant stream of deaths. It is unquestionably Italy’s biggest crisis since World War II.

Some aspects of this crisis — starting with its timing — can undoubtedly be attributed to plain and simple sfortuna (“bad luck” in Italian) that were clearly not under the full control of policymakers. Other aspects, however, are emblematic of the profound obstacles that leaders in Italy faced in recognizing the magnitude of the threat posed by Covid-19, organizing a systematic response to it, and learning from early implementation successes — and, most importantly, failures.

It is worth emphasizing that these obstacles emerged even after Covid-19 had already fully impacted in China and some alternative models for the containment of the virus (in China and elsewhere) had already been successfully implemented. What this suggests is a systematic failure to absorb and act upon existing information rapidly and effectively rather than a complete lack of knowledge of what ought to be done.

Here are explanations for that failure — which relate to the difficulties of making decisions in real time, when a crisis is unfolding — and ways to overcome them.

Recognize your cognitive biases. In its early stages, the Covid-19 crisis in Italy looked nothing like a crisis. The initial state-of-emergency declarations were met by skepticism by both the public and many in policy circles — even though several scientists had been warning of the potential for a catastrophe for weeks. Indeed, in late February some notable Italian politicians engaged in public handshaking in Milan to make the point that the economy should not panic and stop because of the virus. (A week later, one of these politicians was diagnosed with Covid-19.)

Similar reactions were repeated across many other countries besides Italy and exemplify what behavioral scientists call confirmation bias — a tendency to seize upon information that confirms our preferred position or initial hypothesis. Threats such as pandemics that evolve in a nonlinear fashion (i.e., they start small but exponentially intensify) are especially tricky to confront because of the challenges of rapidly interpreting what is happening in real time. The most effective time to take strong action is extremely early, when the threat appears to be small — or even before there are any cases. But if the intervention actually works, it will appear in retrospect as if the strong actions were an overreaction. This is a game many politicians don’t want to play.

The systematic inability to listen to experts highlights the trouble that leaders — and people in general — have figuring out how to act in dire, highly complex situations where there’s no easy solution. The desire to act causes leaders to rely on their gut feeling or the opinions of their inner circle. But in a time of uncertainty, it is essential to resist that temptation, and instead take the time to discover, organize, and absorb the partial knowledge that is dispersed across different pockets of expertise.

Avoid partial solutions. A second lesson that can be drawn from the Italian experience is the importance of systematic approaches and the perils of partial solutions. The Italian government dealt with the Covid-19 pandemic by issuing a series of decrees that gradually increased restrictions within lockdown areas (“red zones”), which were then expanded until they ultimately applied to the entire country.

In normal times, this approach would probably be considered prudent and perhaps even wise. In this situation, it backfired for two reasons. First, it was inconsistent with the rapid exponential spread of the virus. The “facts on the ground” at any point in time were simply not predictive of what the situation would be just a few days later. As a result, Italy followed the spread of the virus rather than prevented it. Second, the selective approach might have inadvertently facilitated the spread of the virus. Consider the decision to initially lock down some regions but not others. When the degree announcing the closing of northern Italy became public, it touched off a massive exodus to southern Italy, undoubtedly spreading the virus to regions where it had not been present.

This illustrates is what is now clear to many observers: An effective response to the virus needs to be orchestrated as a coherent system of actions taken simultaneously. The results of the approaches taken in China and South Korea underscore this point. While the public discussion of the policies followed in these countries often focuses on single elements of their models (such as extensive testing), what truly characterizes their effective responses is the multitude of actions that were taken at once. Testing is effective when it’s combined with rigorously contact tracing, and tracing is effective as long as it is combined with an effective communication system that collects and disseminates information on the movements of potentially infected people, and so forth.

These rules also apply to the organization of the health care system itself. Wholesale reorganizations are needed within hospitals (for example, the creation of Covid-19 and non Covid-19 streams of care). In addition, a shift is urgently needed from patient-centered models of care to a community-system approach that offers pandemic solutions for the entire population (with a specific emphasis on home care). The need for coordinated actions is especially acute right now in the United States.

Learning is critical. Finding the right implementation approach requires the ability to quickly learn from both successes and failures and the willingness to change actions accordingly. Certainly, there are valuable lessons to be learned from the approaches of China, South Korea, Taiwan, and Singapore, which were able to contain the contagion fairly early. But sometimes the best practices can be found just next door. Because the Italian health care system is highly decentralized, different regions tried different policy responses. The most notable example is the contrast between the approaches taken by Lombardy and Veneto, two neighboring regions with similar socioeconomic profiles.

Lombardy, one Europe’s wealthiest and most productive areas, has been disproportionately hit by Covid-19. As of March 26, it held the grim record of nearly 35,000 novel coronavirus cases and 5,000 deaths in a population of 10 million. Veneto, by contrast, fared significantly better, with 7,000 cases and 287 deaths in a population of 5 million, despite experiencing sustained community spread early on.

The trajectories of these two regions have been shaped by a multitude of factors outside the control of policymakers, including Lombardy’s greater population density and higher number of cases when the crisis erupted. But it’s becoming increasingly apparent that different public health choices made early in the cycle of the pandemic also had an impact.

Specifically, while Lombardy and Veneto applied similar approaches to social distancing and retail closures, Veneto took a much more proactive tack towards the containment of the virus. Veneto’s strategy was multi-pronged:

  • Extensive testing of symptomatic and asymptomatic cases early on.
  • Proactive tracing of potential positives. If someone tested positive, everyone in that patient’s home as well as their neighbors were tested. If testing kits were unavailable, they were self-quarantined.
  • A strong emphasis on home diagnosis and care. Whenever possible, samples were collected directly from a patient’s home and then processed in regional and local university labs.
  • Specific efforts to monitor and protect health care and other essential workers. They included medical professionals, those in contact with at-risk populations (e.g., caregivers in nursing homes), and workers exposed to the public (e.g., supermarket cashiers, pharmacists, and protective services staff).

Following the guidance from public health authorities in the central government, Lombardy opted instead for a more conservative approach to testing. On a per capita basis, it has so far conducted half of the tests conducted in Veneto and had a much stronger focus only on symptomatic cases — and has so far made limited investments in proactive tracing, home care and monitoring, and protection of health care workers.

The set of policies enacted in Veneto are thought to have considerably reduced the burden on hospitals and minimized the risk of Covid-19 spreading in medical facilities, a problem that has greatly impacted hospitals in Lombardy. The fact that different policies resulted in different outcomes across otherwise similar regions should have been recognized as a powerful learning opportunity from the start. The findings emerging from Veneto could have been used to revisit regional and central policies early on. Yet, it is only in recent days, a full month after the outbreak in Italy, that Lombardy and other regions are taking steps to emulate some of the aspects of the “Veneto approach,” which include pressuring the central government to help them boost their diagnostic capacity.

The difficulty in diffusing newly acquired knowledge is a well-known phenomenon in both private- and the public-sector organizations. But, in our view, accelerating the diffusion of knowledge that is emerging from different policy choices (in Italy and elsewhere) should be considered a top priority at a time when “every country is reinventing the wheel,” as several scientists told us. For that to happen, especially at this time of heightened uncertainty, it is essential to consider different policies as if they were “experiments,” rather than personal or political battles, and to adopt a mindset (as well as systems and processes) that facilitates learning from past and current experiences in dealing with Covid-19 as effectively and rapidly as possible.

It is especially important to understand what does not work. While successes easily surface thanks to leaders eager to publicize progress, problems often are hidden due to fear of retribution, or, when they do emerge, they are interpreted as individual — rather than systemic — failures. For example, it emerged that at the very early onset of the pandemic in Italy (February 25), the contagion in a specific area in Lombardy could have been accelerated through a local hospital, where a Covid-19 patient was not been properly diagnosed and isolated. In talking to the media, the Italian prime minister referred to this incident as evidence of managerial inadequacy at the specific hospital. However, a month later it became clearer that the episode might have been emblematic of a much deeper issue: that hospitals traditionally organized to deliver patient-centric care are ill-equipped to deliver the type of community-focused care needed during a pandemic.

Collecting and disseminating data is important. Italy seems to have suffered from two data-related problems. In the early onset of the pandemic, the problem was data paucity. More specifically, it has been suggested that the widespread and unnoticed diffusion of the virus in the early months of 2020 may have been facilitated by the lack of epidemiological capabilities and the inability to systematically record anomalous infection peaks in some hospitals.

More recently, the problem appears to be one of data precision. In particular, in spite of the remarkable effort that the Italian government has shown in regularly updating statistics relative to the pandemic on a publicly available website, some commentators have advanced the hypothesis that the striking discrepancy in mortality rates between Italy and other countries and within Italian regions may (at least in part) be driven by different testing approaches. These discrepancies complicate the management of the pandemic in significant ways, because in absence of truly comparable data (within and across countries) it is harder to allocate resources and understand what’s working where (for example, what’s inhibiting the effective tracing of the population).

In an ideal scenario, data documenting the spread and effects of the virus should be as standardized as possible across regions and countries and follow the progression of the virus and its containment at both a macro (state) and micro (hospital) level. The need for micro-level data cannot be underestimated. While the discussion of health care quality is often made in terms of macro entities (countries or states), it is well known that health care facilities vary dramatically in terms of the quality and quantity of the services they provide and their managerial capabilities, even within the same states and regions. Rather than hiding these underlying differences, we should be fully aware of them and plan the allocation of our limited resources accordingly. Only by having good data at the right level of analysis can policymakers and health care practitioners draw proper inferences about which approaches are working and which are not.

A Different Decision-Making Approach

There is still tremendous uncertainty on what exactly needs to be done to stop the virus. Several key aspects of the virus are still unknown and hotly debated, and are likely to remain so for a considerable amount of time. Furthermore, significant lags occur between the time of action (or, in many cases, inaction) and outcomes (both infections and mortality). We need to accept that an unequivocal understanding of what solutions work is likely to take several months, if not years.

However, two aspects of this crisis appear to be clear from the Italian experience.

  1. First, there is no time to waste, given the exponential progression of the virus. As the head of the Italian Protezione Civile (the Italian equivalent of FEMA) put it, “The virus is faster than our bureaucracy.”
  2. Second, an effective approach towards Covid-19 will require a war-like mobilization — both in terms of the entity of human and economic resources that will need to be deployed as well as the extreme coordination that will be required across different parts of the health care system (testing facilities, hospitals, primary care physicians, etc.), between different entities in both the public and the private sector, and society at large.

Together, the need for immediate action and for massive mobilization imply that an effective response to this crisis will require a decision-making approach that is far from business as usual. If policymakers want to win the war against Covid-19, it is essential to adopt one that is systemic, prioritizes learning, and is able to quickly scale successful experiments and identify and shut down the ineffective ones. Yes, this a tall order — especially in the midst of such an enormous crisis. But given the stakes, it has to be done.

Maria Butina is just the tip of the Russia iceberg

There is no right to bear arms in Russia, and under this regime there never will be. According to court papers, Butina nevertheless convinced some naive members of the National Rifle Associationthat she was a genuine activist. In doing so, she gained access to their world.

.. They were both seeking to assist political movements they believed to be pro-Kremlin (the Communist Party of the 1930s; the pro-gun wing of the Republican Party of the 2010s). They were both backed by Kremlin money, diverted through cutouts (the Communist International, in the former instance; a couple of Russian oligarchs, allegedly, in the latter).

.. Butina, even if considering only her role as an open, pro-Kremlin activist, also has many counterparts, agents of influence who are openly agitating for Russian interests, now on the far-right edge of Western politics instead of the far-left.

  • Gianluca Savoini, the leader of the enigmatic Lombardy-Russia Cultural Association, seems to perform a similar role in Italian politics, even showing up recently as a member of an official Italian government delegation to Moscow.
  • Bela Kovacs , a Hungarian member of the European Parliament, is on trial in Budapest on a charge of spying on European Union institutions on behalf of Russia.

.. they too are part of a long-term project, though it’s not a proletarian revolution. Instead, it’s a kleptocratic coup d’état: The modern Kremlin project seeks to undermine Western democracies, break up the E.U. and NATO, and put corrupt relationships rather than the rule of law at the center of international commerce.

.. it’s worth remembering why Golos and his network failed. In large part,

  • it was because the center-left — especially the anti-Soviet wing of the American trade union movement — rejected Soviet-style communism in the United States. It’s also because,
  • in the 1940s and 1950s, the American political establishment, Democratic and Republican, unified around the need to defeat Soviet-style communism in Europe. And it’s because,
  • even in the depths of the Depression, the majority of Americans were never beguiled by the appeal of authoritarianism.

.. A wing of the Republican Party is preparing to double down and support the Russian autocracy, which it believes, mistakenly, is “Christian.” 

.. To push back against them, as well as their equivalents from the rest of the autocratic world, we will need not only to catch the odd agent but also to

  • make our political funding systems more transparent, to
  • write new laws banning shell companies and money laundering, and to
  • end the manipulation of social media.

It took more than a generation for Americans to reject the temptations of communist authoritarianism; it will take more than a generation before we have defeated kleptocratic authoritarianism too — if we still can.

 

 

How to Destroy Democracy, the Trump-Putin Way

All around the world, strongmen are seizing power and subverting liberal norms.

fascism came out of particular historical circumstances that do not obtain today—

  • a devastating world war,
  • drastic economic upheaval, the
  • fear of Bolshevism.

.. When Naomi Wolf and others insisted that George W. Bush was taking us down the path of 1930s Germany, I thought they were being histrionic. The essence of fascism after all was the obliteration of democracy. Did anyone seriously believe that Bush would cancel elections and refuse to exit the White House?

.. So maybe fascism isn’t the right term for where we are heading. Fascism, after all, was all about big government—grandiose public works, jobs jobs jobs, state benefits of all kinds, government control of every area of life. It wasn’t just about looting the state on behalf of yourself and your cronies, although there was plenty of that too. Seeing Vladimir Putin and Donald Trump at the press conference following their private meeting in Helsinki, though, I think maybe I’ve been a bit pedantic. Watching those two thuggish, immensely wealthy, corrupt bullies, I felt as if I was glimpsing a new world order—not even at its birth but already in its toddler phase. The two men are different versions of an increasingly common type of leader:

  • elected strongmen ‘who exploit weak spots in procedural democracy to come to power, and
  • once ensconced do everything they can to weaken democracy further,
  • while inflaming powerful popular currents of
    • authoritarianism,
    • racism,
    • nationalism,
    • reactionary religion,
    • misogyny,
    • homophobia, and
    • resentments of all kinds.

.. At the press conference Putin said that associates of the billionaire businessman Bill Browder gave Hillary Clinton’s campaign $400 million, a claim Politifact rates “pants on fire” and about which The New York Times’ Kenneth Vogel tweeted, “it was so completely without evidence that there were no pants to light on fire, so I hereby deem it ‘WITHOUT PANTS.’”

.. A Freudian might say that his obsession with the imaginary sins of Clinton suggests he’s hiding something. Why else, almost two years later, is he still trying to prove he deserved to win? At no point in the press conference did he say or do anything incompatible with the popular theory that he is Putin’s tool and fool.

.. These pantsless overlords are not alone. All over the world, antidemocratic forces are winning elections—sometimes fairly, sometimes not—and then using their power to subvert democratic procedures.

There’s Recep Tayyip Erdoğan in Turkey—remember how when he first took office, back in 2014, he was seen as a harmless moderate, his Justice and Development Party the Muslim equivalent of Germany’s Christian Democrats? Now he’s shackling the press, imprisoning his opponents, trashing the universities, and trying to take away women’s rights and push them into having at least three, and possibly even five, kids because there just aren’t enough Turks.

.. Then there’s Hungary’s Viktor Orbán, who coined the term “illiberal democracy” to describe these elected authoritarian regimes, now busily shaping the government to his own xenophobic ends, and

.. Poland’s Andrzej Duda, doing much the same—packing the courts, banning abortion, promoting the interests of the Catholic church.

Before World War II Poland was a multiethnic country, with large minorities of Jews, Roma, Ukrainians, and other peoples. Now it boasts of its (fictional) ethnic purity and, like Hungary and the Czech Republic, bars the door to Muslim refugees in the name of Christian nationalism.

One could mention

  • Philippine President Rodrigo Duterte,
  • Egyptian President Abdel Fattah el-Sisi,
  • Israel’s Benjamin Netanyahu, and
  • India’s Narendra Modi as well.

Pushed by anti-immigrant feeling, which is promoted by

  • unemployment and
  • austerity,

right-wing “populist” parties are surging in

  • Italy,
  • Greece,
  • the Netherlands,
  • France,
  • Germany,
  • Austria, and even
  • Sweden and
  • Denmark.

And don’t forget Brexit—boosted by pie-in-the-sky lies about the bounty that would flow from leaving the European Union but emotionally fueled by racism, nativism, and sheer stupidity.

.. At home, Donald Trump energizes similarly antidemocratic and nativist forces. Last year, outright neo-Nazis marched in Charlottesville, and Trump called them “very fine people.” This year, Nazis and Holocaust deniers are running in elections as Republicans, and far-right misogynist hate groups like the Proud Boys are meeting in ordinary bars and cafés.

.. The worst of it is that once the leaders get into power, they create their own reality, just as Karl Rove said they would:

  • They control the media,
  • pack the courts
  • .. lay waste to regulatory agencies,
  • “reform” education,
  • abolish long-standing precedents, and
  • use outright cruelty—of which the family separations on the border are just one example—to create fear.

While everybody was fixated on the spectacle in Helsinki, Trump’s IRS announced new rules that let dark-money groups like the National Rifle Association and the Koch brothers’ Americans for Prosperity keep their donors secret. 

.. American democracy might not be in its death throes yet, but every week brings a thousand paper cuts.

.. There’s nothing inevitable about liberal democracy, religious pluralism, acceptance of ethnic diversity, gender and racial equality, and the other elements of what we think of as contemporary progress.

.. He has consolidated a bloc of voters united in their grievances and their fantasies of redress. The

  • fundamentalist stay-home moms, the
  • MAGA-hat wearing toughs, the
  • Fox-addicted retirees, the
  • hedge-fund multimillionaires and the
  • gun nuts have found one another.

.. Why would they retreat and go their separate ways just because they lost an election or even two? Around the world it may be the same story: Democracy is easy to destroy and hard to repair, even if people want to do so, and it’s not so clear that enough of them do.

Why Justin Trudeau Is Able to Stand Up to Donald Trump

I have the immediate urge to praise Canada, set in motion by Justin Trudeau’s recent rebuke of Donald Trump at the G-7 summit. There, Trudeau made it plain that he and his country were not about to be bullied by the American President, not on a question of unilateral tariffs, not about anything. Trump responded with gangster-style threats and sneers, followed by more threats and sneers from his associates.

.. The question worth asking is what it is in the Canadian national character, if I may call it that, that makes Canadians so ready to take on bullies.

Canada has been doing this as long as there has been a Canada. The Mounties wear red coats, we were taught in school, to defy villains by their very presence.

.. Lester Pearson prompted Charles de Gaulle to cut short a visit to the country, in 1967, after he had insulted Canadian sovereignty.

.. When Pierre Trudeau learned that Richard Nixon, in 1971, had called him an “asshole,” he delivered an unforgettable Canadian retort: “I’ve been called worse things by better people.”

.. Famously obliging in attitude—how do you get twenty-five Canadians out of a swimming pool? You say, “Please get out of the swimming pool”—Canadians are also notoriously stubborn of spirit.

.. Canadian democracy is supported by some of the strongest social capital in the world, exceeded only, by most academic measures, by that of Scandinavia and New Zealand.

.. Trust in social institutions, in the honesty of government and the solidarity of citizens, remains strong in Canada, even when its results, as with the election of Doug Ford—the smarter brother of the late Rob Ford, the onetime mayor of Toronto—to the premiership of Ontario, is not what progressive-minded people might like.

.. the United States now ranks below Canada, it still scored high in recent registries. But it once led the world in social capital. Can it do so again?

.. The term seems to have originated, or at least become most closely associated, with the Harvard political scientist Robert Putnam.

.. in northern Italy, where citizens participate actively in sports clubs, literary guilds, service groups, and choral societies, regional governments are “efficient in their internal operation, creative in their policy initiatives and effective in implementing those initiatives.” In southern Italy, by contrast, where patterns of civic engagement are far weaker, regional governments tend to be corrupt and inefficient.

.. If you have experience working outside your immediate clan or cohort, you’re likelier to be able to practice democratic politics.

.. Jürgen Habermas captured in the phrase “the public sphere,” when he showed how essential civic life was to the Enlightenment: a government is only as strong as its cafés.

.. for all the South’s cultural self-proclamation, it was a paralyzed, frozen society, while the North was full of activity. “Our young men are members and managers of reading rooms, public libraries, gymnasiums, game clubs, boat clubs, ball clubs, and all sorts of clubs, Bible classes, debating societies, military companies; they are planting road-side trees, or damming streams for skating ponds, or rigging diving-boards, or getting up fireworks displays, or private theatricals; they are always doing something,”

.. it was the strength of Canada’s commonplace civilization, the knowledge that a huge and hugely variegated country would find bullying unacceptable, that gave Trudeau the nerve to speak

.. his defense of the idea that there is more to politics than the rituals of domination and submission, which are the sum total of Donald Trump’s understanding of society.

.. The bankruptcy of America’s social capital becomes more evident when we see it flourish elsewhere. It’s no accident that Trudeau, in addition to receiving the support of his own Parliament, has received that of what used to be called the free world. The American President, meanwhile, has found himself more at home with the brutal leaders of gangster governments.

Trump the European Nationalist Puts America Last

President Trump, in concert with several European leaders, including those of Hungary, Poland, Austria and Italy, is intent on dehumanizing immigrants and refugees. The aim is to equate them with terrorists and criminals ready to “infest” — Trump’s word — American and European civilization, defined as a threatened white Judeo-Christian preserve.

It’s a consistent policy buttressed by insinuation and lies about the supposed threat, and designed to manipulate fear and nationalism as election-winning emotions in a time of rapid technological change, large migrant flows and uncertainty. Vermin infest, not humans.

Every utterance of Trump on immigration is meant to conflate immigration with danger. This is a direct repudiation of America’s distinguishing essence — its constant reinvention through immigrant churn.

The immigrant brings violence. The immigrant brings terror. The immigrant’s humanity is lesser or nonexistent. These are tropes about “the other” whose capacity to galvanize mobs, and wreak havoc, was proved in the first half of the 20th century. Trump does not hesitate to use them.

.. Viktor Orban, the right-wing Hungarian leader, who has said that “every single migrant poses a public security and terror risk.”

.. The Hungarian parliament has just passed legislation that would throw people in jail for providing assistance to asylum seekers and migrants.

.. Matteo Salvini, the rightist Italian interior minister

.. Before taking office, he said Italy was packed with “drug dealers, rapists, burglars,” whom he wants to send home.

.. the destabilizing impact of globalization on Western democracies; stagnant middle-income wages; growing inequality; fear of an automated future

..  the ease of mob mobilization through fear-mongering and scapegoating on social media.

.. Trump is strong because of a global nationalist lurch; that his feral instincts make him dangerous; and that he may well win a second term, just as Orban has now won four terms.

To ridicule Trump will achieve little absent a compelling social and economic alternative that addresses anxiety. The Democratic Party, for now, is nowhere near that.

.. Trump likes to go for the jugular. He sees opportunity in a Europe that is split down the middle between nations like Hungary and Poland that make no attempt to sugarcoat their anti-immigrant nativism and states like Germany that have not forgotten that the pursuit of racially and religiously homogeneous societies lay at the core of the most heinous crimes of the last century.

.. Orban is the most formidable politician in Europe today. It’s no coincidence that Trump called him last weekend. Their aims overlap.

..  Trump tweeted this week that “Crime in Germany is way up” and that allowing immigrants in “all over Europe” has “strongly and violently changed their culture.”

..  Trump (whose stats on German crime were wrong) backs Orban against Chancellor Angela Merkel of Germany in the continuing bid to make racism and xenophobia the new normal of Western societies.

.. the greatest danger is within. A two-term Trump presidency would likely corrode American institutions and values to the point at which they could scarcely be resurrected.

Can the Euro Be Saved?

Across the eurozone, political leaders are entering a state of paralysis: citizens want to remain in the EU, but they also want an end to austerity and the return of prosperity. So long as Germany tells them they can’t have both, there can be only one outcome: more pain, more suffering, more unemployment, and even slower growth.

.. The backlash in Italy is another predictable (and predicted) episode in the long saga of a poorly designed currency arrangement, in which the dominant power, Germany, impedes the necessary reforms and insists on policies that exacerbate the inherent problems, using rhetoric seemingly intended to inflame passions.
.. Italy has been performing poorly since the euro’s launch. Its real (inflation-adjusted) GDP in 2016 was the same as it was in 2001.
.. From 2008 to 2016, its real GDP increased by just 3% in total.
.. the euro was a system almost designed to fail. It took away governments’ main adjustment mechanisms (interest and exchange rates); and, rather than creating new institutions to help countries cope with the diverse situations in which they find themselves, it imposed new strictures – often based on discredited economic and political theories
.. The euro was supposed to bring shared prosperity, which would enhance solidarity and advance the goal of European integration. In fact, it has done just the opposite, slowing growth and sowing discord.
.. Emmanuel Macron, in two speeches, at the Sorbonne last September, and when he received the Charlemagne Prize for European Unity in May, has articulated a clear vision for Europe’s future. But German Chancellor Angela Merkel has effectively thrown cold water on his proposals, suggesting, for example, risibly small amounts of money for investment in areas that urgently need it.
.. In my book, I emphasized the urgent need for a common deposit insurance scheme, to prevent runs against banking systems in weak countries.
.. The central problem in a currency area is how to correct exchange-rate misalignments like the one now affecting Italy. Germany’s answer is to put the burden on the weak countries already suffering from high unemployment and low growth rates.
..  The alternative is to shift more of the burden of adjustment on the strong countries, with higher wages and stronger demand supported by government investment programs.
.. Matteo Salvini, the party’s leader and an experienced politician, might actually carry out the kinds of threats that neophytes elsewhere were afraid to implement. Italy is large enough, with enough good and creative economists, to manage a de facto departure – establishing in effect a flexible dual currency that could help restore prosperity.
.. Whatever the outcome, the eurozone will be left in tatters.
.. It doesn’t have to come to this. Germany and other countries in northern Europe can save the euro by showing more humanity and more flexibility. But, having watched the first acts of this play so many times, I am not counting on them to change the plot.