Morning Report: Forbearance curve flattening

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S&P futures 2940 -7.1
Oil (WTI) 33.54 1.19
10 year government bond yield 0.73%
30 year fixed rate mortgage 3.28%

 

Stocks are flattish this morning on no real news. Bonds and MBS are down.

 

Fed Chairman Jerome Powell and Treasury Secretary Steve Mnuchin head to Capitol Hill to testify in front of the Senate today.  In his prepared remarks, Jerome Powell basically laid out everything the Fed has done so far, so it doesn’t look like anything new is going to come out of this.

 

Social distancing took a bite out of housing starts in April, falling 30% to 891 thousand. Building Permits also fell 19% from March. Separately, the NAHB Housing Market index increased in May to 37 from 30.

 

CNBC explains why this isn’t the Great Depression, even though the unemployment numbers are up there. The simplest explanation – there was no economic rot that caused the drop in the economy. No asset bubbles, no bad investments, no bank failures – it isn’t comparable. This was a healthy economy that was put in a deep freeze in response to a pandemic. Recessions generally exist because bad debt needs to be written off, excess inventory needs to be sold, and bad businesses liquidated. There isn’t any of that this time around. Just like the predictions of millions of deaths in the US from COVID turned out to be overly pessimistic, I think many of the predictions of a long, drawn out recovery will be too.

 

The Despot missed earnings expectations this morning, but maintained its dividend. It also withdrew its guidance for the rest of the year. The company took some actions to help its employees including paid time off, bonuses, and healthcare expense help which hit earnings by 60 cents a share. Meanwhile, WalMart reported strong numbers this morning as shoppers stockpile necessities.

 

It looks like the “forbearance curve” is flattening. “The pace of forbearance requests continued to slow in the second week of May, but the share of loans in forbearance increased,” said Mike Fratantoni, MBA’s chief economist. “There has been a pronounced flattening in loans put into forbearance – despite April’s uniformly negative economic data, remarkably high unemployment, and it now being past May payment due dates.”

38 Responses

  1. https://thehill.com/opinion/criminal-justice/497729-how-the-fbis-intelligence-experiment-went-wrong

    Unfortunately the flaws in the intel vs. evidence wall are very apparent here.

    I have no way of knowing if Casey is making plausible inferences or guessing on some of this, but the flaws detailed in the IG’s report are very suggestive that Casey’s message for going forward should be taken seriously.

    I have to add that from experience I tend to trust the FBI as a criminal investigation unit and distrust them as an intelligence gatherer, which has left me confused as to which narrative I found reliable, and when.

    H/T to Scott who led me to reexamine my own bias in favor of the FBI from many years of contact with agents who played straight with me on different crim and civil matters, none of which were intel related. My intel suspicions were from interactions FBI had with some lawyer acquaintances of mine after the Patriot Act.

    As this applies to the Flynn matter, I believe the inception of the case was unnecessary, that there was inherent unfairness about it, but that a Federal Judge cannot simply let go of a case where a guy twice pleaded guilty and made his courtroom a circus endeavor [as I think Joe pointed out]. Flynn should not get more than a wrist slap and a thorough examination of the conduct not so much of the prosecutors but centered on the FBI should be the Judge’s recommendation.

    Whatever can lead to a better wall between intel [which by necessity is full of garbage as it collects everything] and admissible evidence should be a primary goal going forward and Judge Sullivan can and should add fuel to that mission.

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    • As this applies to the Flynn matter, I believe the inception of the case was unnecessary, that there was inherent unfairness about it, but that a Federal Judge cannot simply let go of a case where a guy twice pleaded guilty and made his courtroom a circus endeavor [as I think Joe pointed out]. Flynn should not get more than a wrist slap and a thorough examination of the conduct not so much of the prosecutors but centered on the FBI should be the Judge’s recommendation.

      I have some sympathy for Flynn hear because he was coerced with threats to prosecute his son and his legal representation had a FARA conflict. I think coercion is a common tactic in the criminal justice system and I’m having a very hard time believing Sullivan doesn’t know this. I’m guessing he’s trying to drag this out until after the election so that a new administration will agree to re-prosecute Flynn. Remember, Sullivan accused Flynn of Treason in open court, he hates the dude for whatever reason.

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    • Mark:

      Judge cannot simply let go of a case where a guy twice pleaded guilty and made his courtroom a circus endeavor…

      Not only can he, but it seems to me that from a legal standpoint he has to. From what I can tell he has no legal basis on which to reject the prosecution’s dismissal of the case (prosecution power rests with the executive branch, not the judicial branch). My understanding is that the Supreme Court has ruled that the “leave of the court” requirement prior to dismissal of charges is a narrow requirement that exists only to protect defendants from perpetual harassment from a prosecution that continually dismisses a weak case in order to avoid an acquittal, so as to keep the ability to re-press charges over and over again. It doesn’t exist to give Judges carte blanche to decide whether or not a defendant should be charged or tried. And it seems like even Sullivan recognizes this, as he is looking for a way of charging Flynn with an entirely new crime, specifically contempt of court for “perjuring” himself by pleading guilty. Ironically, Sullivan is pretty clearly attempting to use his “leave of the court” power to achieve precisely what it exists to prevent, ie continued legal harassment of a defendant.

      Beyond that, though, I think there are two parties that have turned his courtroom into a circus, and neither of them are Flynn. First, there is the prosecution which filed illegitimate charges against Flynn (even if he lied to the FBI, for which there is no evidence, there was no underlying investigation to which the lie was relevant) and then went on to violate its duties by withholding exculpatory evidence. And second there is Sullivan himself with his invitation of amicus briefs in a criminal proceeding, which seems not only contrary to all ordinary practice, but indeed is contrary to one of his very own rulings in the very case he is currently presiding over! And now he has gone even further by appointing as a person to advise the court, John Gleeson, someone who has already staked out a public position on the issue in a WaPo op-ed, declaring that the dismissal was politically motivated and that the judge must not allow it. Gee, I wonder what his amicus brief is going to say?!?

      This whole thing is a joke. If Sullivan wants to convict Flynn of something, I say get it over with finally, and let Flynn get it overturned on appeal, as it almost certainly will be.

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      • They Legal Eagle video seemed to thing the judge could, though I’m not sure how that works. Doesn’t make sense to me but I’m not a lawyer.

        I would think some other action could be brought regarding the disparity of treatment–Flynn is benefitting from being prominent and connected in a lot of ways by all appearances. But that seems more of an indictment of the DoJ and then just how prosecutors do their job in general, or the entire system.

        (even if he lied to the FBI, for which there is no evidence, there was no underlying investigation to which the lie was relevant)

        Didn’t he lie or fail to report foreign payments and then lie about it? Potentially things could get conflated though. I need to rewatch the Legal Eagle video again.

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        • KW:

          They Legal Eagle video seemed to thing the judge could, though I’m not sure how that works.

          I just watched it. The guy elides, omits, and otherwise mischaracterizes all kinds of things in his explanation of the whole episode, and it would take me several hours to debunk the whole video, which frankly I would like to do, but alas, I don’t have the time. So let me focus on the biggest problem. While he is ostensibly trying to show how the DOJ’s explanation for why it is dismissing the case doesn’t make sense, he never actually addresses what the DOJ has said.

          Your youtube guy rightly focuses on the “materiality” issue of Flynn’s ostensible lies, and then argues that it was obviously material to the intelligence investigation of Flynn, an investigation that he says had been kept open precisely because of Flynn’s phone call to Kislyak. But what the DOJ argues in its dismissal document is that since it had already been determined by the FBI, prior to the phone call, that there was no derogatory information found on Flynn, and therefore no reason to continue to investigate him, and that the phone call itself was not a legitimate cause to re-initiate the investigation, the subsequent interview of Flynn was not “material” to any on-going investigation.

          While Youtube guy never addresses this straight up, he does try to spin a theory of why the phone call makes Flynn a legitimate target of a continued intelligence investigation, but it rests first on a mischaracterization of the contents of the call (at least as far as we know, since no transcript has ever been released) by falsely presenting that Flynn told Kislyak the Russians didn’t “need” to retaliate (he simply asked then not to escalate in their retaliation), and then later on rank speculation about what this (again mischaracterized) conversation might have meant (if they don’t “need” to retaliate, that can only mean that Trump is signalling to them that he will pull the sanctions because he doesn’t “care” about Russian interference.)

          He also spins a counter-intelligence justification – that Flynn lying about the contents of the discussion gave Russians leverage over him – that is both absurd on its face (all the FBI had to do was tell the Trump admin about the lie and the leverage disappears) and had not actually happened at the time they decided continue to investigate Flynn.

          His theory simply doesn’t make any sense.

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        • You should be a lawyer on YouTube! That was great.

          Wouldn’t a normal outcome in a case like this be a mistrial? That would make the most sense to me. If the judge was going to intervene in any capacity declaring a mistrial would seem the thing I would expect as a layperson.

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      • “And now he has gone even further by appointing as a person to advise the court, John Gleeson, someone who has already staked out a public position on the issue in a WaPo op-ed, declaring that the dismissal was politically motivated and that the judge must not allow it. Gee, I wonder what his amicus brief is going to say?!? ”

        That doesn’t bother me. It’s intentional as he wanted someone to argue the contrary position since the DoJ wouldn’t.

        Reminds me a bit of how a court will sometimes let outside advocates defend a law on appeal if the DoJ decides not to which is becoming more common now since the Obama administration declined to defend DOMA.

        Liked by 1 person

        • It’s intentional as he wanted someone to argue the contrary position since the DoJ wouldn’t.

          Agreed.

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        • Looking back at the history of Rule 48[a] there are a couple of points that have never been thoroughly addressed. When it was adopted it changed existing law that gave federal prosecutors total discretion. Now most states have also changed that position. The change was to serve a dual purpose: to protect a D against abusive dismissals and re-prosecutions, and to give a judge the ability to look into abuse of process by a prosecutor who was unduly influenced by matters outside the courtroom – say bribery, but also, say, the power of some individuals to bend the system.

          Looking at guilty plea law it is pretty clear that no one anticipated a dismissal after a guilty plea and testimony – three times to two judges, no less.

          This could be the case that makes new law. If Sullivan says “I cannot accept the withdrawal of the guilty plea but I now dismiss the case without sentencing” we have a conviction with no sentence, which timing wise probably stands on appeal. He has been convicted, but not sentenced, after all. If he goes after Flynn, however, for perjury or even contempt, I think Flynn would win a reversal that might set aside the whole proceeding depending on how this case of first impression is decided.

          I could also see Flynn pursuing the expunction of the conviction from his record as a first offender if he is found to have been convicted but cannot be sentenced.

          These are guesses about logistic issues about what hurdles have to be jumped at this late stage in the case.

          George – that appeal is a collateral attack before a final ruling of the trial court. I suppose the Circuit could take it up by saying the language added to 48[a] to give Judges the final say on Dismissals is sheer gloss when the prosecution and defense agree, and then we would have the decision on appeal ahead of the decision at the trial level. Not what judges like to do, of course.

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        • Mark:

          Looking at guilty plea law it is pretty clear that no one anticipated a dismissal after a guilty plea and testimony

          How can that possibly be? A person pleading guilty to a crime he never committed is hardly unprecedented. It can’t be something that has never been considered.

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        • That would be an appeal, right? I mean typically?

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        • jnc:

          Reminds me a bit of how a court will sometimes let outside advocates defend a law on appeal …

          This is not an appeal, which is precisely what makes it so unprecedented. Court’s allow outside advocates to defend a law on appeal because appeals often generate legal principles that then effect all kinds of people beyond the specific parties to the case. There is no such principle at stake here, outside the judge himself allowing such 3rd party advocates into a criminal proceeding.

          BTW, he is also asking Gleeson to comment on whether Flynn should be charged with contempt. Is there any other example in the history of American jurisprudence of a judge asking an uninvolved 3rd party to issue a brief on whether he should hold someone in his courtroom in contempt? I’d be surprised if a judge has ever even asked either the defense or the prosecution if he should hold someone in contempt, much less an uninvolved 3rd party.

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        • “A person pleading guilty to a crime he never committed is hardly unprecedented. It can’t be something that has never been considered.”

          Yes, but it’s usually addressed outside of the actual trial court either through executive clemency or appeals.

          Presumably there’s all kinds of examples from the Innocence Project.

          Usually sentencing follows pretty quickly from the actual plea. Here it was dragged out due to the Mueller Investigation.

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        • jnc:

          Yes, but it’s usually addressed outside of the actual trial court either through executive clemency or appeals.

          Sure, but why wouldn’t the law/procedure which govern the appeals court in such a situation apply to Sullivan in this case?

          We have a situation in which a defendant has pleaded guilty to a crime, but the prosecution has subsequently determined that the charge/conviction was unwarranted or in error, and therefore seeks to have it dismissed. Surely this has happened before. The only unique aspect to the Flynn case is that the prosecution made its determination before a sentence was handed down. Why should that fact require new law? Why wouldn’t the same law that governs the judiciary after a sentence has been handed down govern the judiciary before a sentence has been handed down?

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        • “There is no such principle at stake here, outside the judge himself allowing such 3rd party advocates into a criminal proceeding. ”

          In your opinion.

          As Mark notes, this is probably going to make new law. It’s not outrageous for the judge to appoint someone to advocate the contrary position since the DoJ won’t.

          The adversarial process requires actual adversaries, and that’s the framing that grounds American trials.

          On the other hand, it looks like the SCOTUS may side with you:

          “Powell argues that Sullivan is defying a unanimous Supreme Court decision issued earlier this month that swatted down another federal appeals court for inviting outside lawyers to provide friend-of-the-court arguments in a criminal case.”

          https://www.politico.com/news/2020/05/19/michael-flynn-lawyers-federal-judge-268280

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        • The adversarial process requires actual adversaries, and that’s the framing that grounds American trials.

          And since there are no longer adversaries, shouldn’t it be dismissed?

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        • That was a perfectly sound unanimous decision blasting the 9th Circuit for deciding a case outside the legal arguments of counsel, on its own motion.

          That was one of the worst 9th circuit cases yet. The request for amicus briefing on issues not before the court was just plain perplexing. You have to assume that 48[a] and 11 and 410 just don’t mean anything to argue that this Judge is deciding something that is not before him.

          What I am saying is that the 9th Cir panel had no authority or obligation to inquire as it did but Sullivan has the authority and probably the obligation, unless an Appellate Court now rules otherwise.

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        • Mark:

          You have to assume that 48[a] and 11 and 410 just don’t mean anything to argue that this Judge is deciding something that is not before him.

          Sullivan has asked Gleeson to address 2 questions. The second, whether or not to charge Flynn with contempt, was not before him until, like the 9th circuit, he introduced it himself.

          With regard to the first question he asked Gleeson to pontificate on, I don’t think anyone is saying that it isn’t an issue before him. I think the argument is that under the well-established meaning of 48a, he has no discretion about how to rule on that issue before him. So he is requesting Gleeson to make an argument for something that it would be an abuse of power for him to do.

          BTW…think about what it would mean to charge Flynn with contempt of court for perjury in his original plea. In order for him to be guilty of that, he must actually be innocent of the original charge against him. So Sullivan is contemplating the possibility that a man who has been falsely charged with a crime should be punished for being coerced into pleading guilty to a crime that he never should have been charged with in the first place. It’s Kafkaesque.

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        • under the well-established meaning of 48a, he has no discretion about how to rule on that issue before him.

          You keep repeating this as if you have some case law to back it. This is plain incorrect from my recollection.

          See this:

          https://reason.com/2020/05/17/why-do-rule-48a-dismissals-require-leave-of-court/

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        • And contempt is always a judicial issue. It is the mode of enforcement of the court’s supremacy within that room. Sometimes judges get it wrong and get wrist slapped for it. I agree that contempt here might lead to a total reversal – it seems so unwarranted.

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        • Mark:

          And contempt is always a judicial issue.

          Sure. But are you aware of any instance in which a judge has requested amicus briefs on whether or not he should hold someone in contempt? Have you ever heard of a judge even asking the defense or prosecution to brief him on whether he should hold someone in contempt?

          I agree that contempt here might lead to a total reversal – it seems so unwarranted.

          I think that anything Sullivan does short of dismissing the charge and vacating the plea will lead to total reversal.

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        • Interesting, the “multiple calls” between Flynn and Kislyak that Obama et al used as the foundation to destroy Trump was really just one conversation as the call kept getting dropped because Flynn had shitty cell reception.

          Plus, the FBI has/had the transcript of the call.

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        • Looks like transcripts of several calls, George.

          https://www.politico.com/news/2020/05/29/trump-flynn-russia-ambassador-289905

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        • Mark:

          You keep repeating this as if you have some case law to back it.

          The DOJ’s motion to dismiss specifically cites United States v. Fokker Servs on this point.

          See this:

          The paper is interesting, but note that the abstract explicitly claims that SCOTUS got it wrong, which means that there is case law supporting what I said. Having said that, it would certainly be interesting to see Sullivan refuse to dismiss on the grounds of DOJ corruption, given the corrupt process by which the charges against Flynn first came to be. Again…Kafkaesque.

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        • “And since there are no longer adversaries, shouldn’t it be dismissed?”

          Sure, after an examination of how that came to be and why a guilty plea was entered in the first place.

          The case is a sufficiently unusual mess that I’m just not outraged that the judge would ask some questions here. My hope would be that he grill the DoJ and possibly call the prosecutors who resigned to testify and possibly question the FBI on it’s methods. But I may well be wrong.

          I’ll wait till he actually rules to pronounce my own judgement.

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        • jnc:

          Sure, after an examination of how that came to be and why a guilty plea was entered in the first place.

          But those are not the questions that Sullivan has posed to the amicus curiae. Which isn’t surprising, since Gleeson is not in a position to shed any light on either. Only the DOJ can answer the former question, which it has in its motion for dismissal. If Sullivan has questions about that explanation, then he needs to pose them to the DOJ. And only Flynn can answer the latter question, which he has in his motion to withdraw the plea. If he wants further clarification of that, he needs to ask Flynn.

          The case is a sufficiently unusual mess that I’m just not outraged that the judge would ask some questions here.

          I’m not outraged that he is “asking questions”. I am questioning under what authority and for what purpose he would appoint an amicus curiae to 1) argue for a ruling that he has no legitimate power to make and 2) advise him on whether whether to hold someone in contempt, a decision that judges make literally every day all on their own without requesting any arguments at all, much less from uninvolved 3rd parties.

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      • Let’s say Flynn is guilty of some chicanery with foreign governments, probably involving money and lobbying. Where does that leave Hunter Biden? Joe Biden? Half the bureaucrats in DC?

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        • The problem is that Flynn relied on his initial lawyers to handle FARA issues prior to this whole thing. Also A LOT of Washington lobbying types involved that have security clearances did not register as foreign lobbyists because it somehow compromises it.

          Ultimately, what the FBI declared as chicanery was common Washington practice until the Mueller investigation. Once Manafort was charged (but not John Podesta’s brother, I might add) a ton of people registered. Again, technically illegal but viewed de riguer until Trump.

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    • Good piece. I didn’t fully appreciate the impact of these changes on the culture:

      “To the contrary, Mueller’s predecessor, Louis Freeh, used to travel to FBI field offices and proclaim the FBI was a field-centric organization supported by HQ. Mueller set about changing that, and the FBI’s headquarters would play a more substantive role going forward.

      A Directorate of Intelligence was established, an executive from the National Security Agency was brought in to run it, and the FBI hired hundreds of analysts to work in the new intel shop. In addition to what it had done exceedingly well for almost 100 years — investigations — the FBI would connect the dots of future threats.”

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  2. I should add my one dubious experience with what I later suspected was an intel investigation.

    A couple of Asian businessmen with Austin ties made an appointment with me to brainstorm the structure of an import business. During the course of about 90 minutes, one of their suggestions sounded like an attempt to evade a federal statute. I told them that I would have to research that point, and when I did, I concluded that I could see no lawful way around it, and I told them as much, by phone, about 24 hours after the first meeting. That concluded my dealings with them.

    Perhaps a week later I was visited by two FBI agents who flat out wanted me to tell them everything I spoke about with the two Asians in my office. I suggested privilege. They immediately hit me with the truth that planning a crime is not privileged. I said that I did no such thing and told them I would come to see them at our next mutual convenience accompanied by my own attorney experienced in federal criminal litigation, in case there was something I was missing.

    One of them smiled. He said they knew I had advised the Asians that one part of their plan was unlawful and that I recommended strongly they consider dropping it and that I did not continue my representation. He said they were fishing for what they did not know. I was curious as to why my phone conversation was tapped and they assured me that my phone was not bugged.

    I told them I would check with the ethics committee about what I could share legitimately without the Asians’ consent and that I would do so. I said that I was sure there was no other specific idea that was discussed that was a red flag, but I could understand their interest if the entirety of the proposal was of some use to them. I said I would get back with them before the week was out, assuming I had an ethics opinion in hand.

    The friendlier one rose and said I did not need to do that and they would get back with me for specific questions if they had any. Never heard from them again. They were not from the Austin office; I did not know them.

    When I immediately met with the exact lawyer I had mentioned to the agents he said it was obvious to him that this was an intel investigation and not a criminal one. C2006?

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    • Damn! The life you have lived! That’s quite a story! What were they up to–in broad terms?

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      • I had no idea, but my confidant, the aforesaid experienced former prosecutor who had tried many complex fed criminal cases thought it was obviously not a criminal investigation. His guess was that the Asians were going for an elaborate setup of information siphoning, probably from IBM, as it was IBM guys who knew them. The IBMers were straight shooters and would have been pawns if my counselor’s guess was correct.

        One of those IBM guys, now retired, did some consulting work for Chinese firms after his retirement around 2015 – but on the up and up and fully disclosed. The Chinese thought he was so great they gave him a bonus of a two week paid vacation in a lux hotel they owned in FL.

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  3. I’ve seen Tweets and such saying that Trump’s doctor hasn’t prescribed hydroxychoroquine to him and speculating that Trump’s “lie” puts him in an ethical bind . . . but apparently he did and explained why.

    Again I know of nothing that indicates that hydroxychoroquine has a prophylactic effect but also all the Twitterati going on how it’s a poison and will kill people somehow (as if this is somehow different than the, what, 150k prescription drug related deaths we have a year normally?) … I’ve seen nothing solid so far that indicated hydroxycholorquine is uniquely harmful. But I have seen expert pundits confusing it with fishtank cleaner and hydrochloroquine and then get angry at Trump about it.

    From a 20,000 foot elevation and without regard to policy or judges, I’m beginning to feel like Twitter is a cesspool of lunatic trolls and Trump is their God Emperor. The Twitterati’s resentments of Trump are the ultimate example of the narcissism of small differences.

    We need more Ben Smith’s and Matt Taibbis out there.

    And Twitter should be mostly ignored by everybody. A lot of pundits out there that I’ve enjoyed where it appears to me that regular use of Twitter is making them dumber and far less interested in actual facts.

    /incoherent-ramble

    Like

  4. Worth a read:

    “To Be Studied, or Pitied?

    Two books try to understand the other America, 
and stumble along the way.

    by Chris Arnade
    May 15, 2020”

    https://prospect.org/culture/books/to-be-studied-or-pitied-other-America/

    Like

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