Limbaughconomics

In the interest of making a snarky attempt at bi-partisan balance and fairness, I offer a link to Rush Limbaugh's prescription for the 'stimulus' bill http://online.wsj.com/article/SB123318906638926749.html and a compliment. Rush Limbaugh has a very deep speaking voice.

But seriously, folks. Ew...I just used Limbaugh-type language. I feel dirty. I didn't mean to call anyone a folk. That's just too...yuck. What I find fascinating about Rushie is that his ideas and rap (especially this one) is so full of stupid, unworkable policy ideas that I think he is not being serious. He has always seemed like a comedian to me. A comedian who's words are believed and repeated by the majority of radio talk show hosts, and repeated again as serious by countless Americans who listen to talk radio for some daily entertainment.

Best economic news yet

On the heels of Tim Geithner's confirmation as Treasury Secretary, and Obama's attempts to work out a stimulus deal with two visits to Capitol Hill thus far; comes the news that the Federal Reserve will renegotiate mortgages in its possession from the Bear Stearns and AIG rescues. This is a great precedent, although it is outside of the understanding of the average Republican voter and radio talk show listener, it means that they Fed will renegotiate troubled individual mortgages to mitigate (or 'prevent' for the average Limbaugh listener) foreclosure.

I expect this is just another step in the right direction; a step that can be taken with the Bush assholes out of the way. Even better, the Fed intends to make this the beginning of a program to slow the foreclosure landside observed by the Bush Administration with little or no action. This is from the end of an article from Reuters this evening:

The Fed has said it will purchase up to $500 billion of mortgage-backed securities by the end of June to make home loans more affordable to boost demand for houses.

Mortgage-backed securities pool many different mortgages, which makes them extremely tricky to separate in a loan modification designed to prevent foreclosure.

The Fed said it would consider reducing the interest rate paid on mortgages at risk of default, extending the term of the loan, and accepting "a deferral or reduction of the outstanding principal balance of the loan," according to the Fed document.

There's a political context to this photo, but I'm not sure what it is

Big elephant shits on little elephant

Republican Congressional leaders on ending the Bush recession

This morning, House Minority Leader John Boehner said the following stupid thing:
"At the end of the day, the government can't solve this problem. The American people have to solve it. And the way they can solve it is if we allow them to keep more of the money that they earn."

The good news is that he is the MINORITY Leader. The bad news is that this foolishness continues to cross the lips of a person who appears to be educated, intelligent and has some political power. As his own logic points out, government must be involved in solving this problem. Who (or what) but government is going to enact these tax cuts that will solve all our problems? Not only is it illogical, but the economics of the theory are all wrong. Then there's the stupidity of the fallacy that government is against people. So much foolishness in just a few choice words.

In other economic news, incoming Treasury Secretary Geithner (who has a fucking clue) said:
"We are going to need sweeping changes, in regulatory policy, the oversight structure and in our tools for crisis management. There may be a number of ways to achieve this, but steps to be taken in the short-term include bringing standardized products within centralized clearing mechanisms and setting an effective statutory and regulatory framework for regulating all derivatives."
--and--
"I support the goal of having a registration regime for hedge funds because we need greater information and better disclosure in the marketplace. I believe that we should also establish an effective regulatory framework for derivatives dealers."

The good news is that he at least has some understanding of the regulatory shortcomings of the outgoing Bushies. The slightly bad news is that this testimony came in the midst of answering questions about his personal tax screw-up. The man understands the big picture, which is why the country needs him. He was also one of the few government officals who saw this mess coming and spoke out about in far in advance of the destruction only to be ignored by Bush appointees who were wearing rose-colored glasses.

Pro-Death, Pro-Choice Obama

"On the 36th anniversary of Roe v. Wade, we are reminded that this decision not only protects women’s health and reproductive freedom, but stands for a broader principle: that government should not intrude on our most private family matters," said the president. "I remain committed to protecting a woman’s right to choose."

Sweet. I remain committed to using bad language and both sides of spun words to express my views. On this I want to be very clear. Babies are conceived, are grown in, and are born out of the bodies of individual mothers. The laws should respect this natural fact and give them the individual right to choose an abortion.

to sum up the day

pragmatism not idealism

My favorite part of the inaugural speech

"What the cynics fail to understand is that the ground has shifted beneath them - that the stale political arguments that have consumed us for so long no longer apply. The question we ask today is not whether our government is too big or too small, but whether it works - whether it helps families find jobs at a decent wage, care they can afford, a retirement that is dignified. Where the answer is yes, we intend to move forward. Where the answer is no, programs will end. And those of us who manage the public's dollars will be held to account - to spend wisely, reform bad habits, and do our business in the light of day - because only then can we restore the vital trust between a people and their government.

Nor is the question before us whether the market is a force for good or ill. Its power to generate wealth and expand freedom is unmatched, but this crisis has reminded us that without a watchful eye, the market can spin out of control - and that a nation cannot prosper long when it favours only the prosperous. The success of our economy has always depended not just on the size of our Gross Domestic Product, but on the reach of our prosperity; on our ability to extend opportunity to every willing heart - not out of charity, but because it is the surest route to our common good."

This and that

GREAT article here by the great James Galbraith on what a good economic policy would look like:
http://www.motherjones.com/news/feature/2009/01/stimulus-is-for-suckers.html

I watched W's farewell speech last night. I could stomach him in this setting, a short scripted speech. Still...I felt some cramps in my stomach. The guy really believed (and still believes) that his childhood Sunday school lessons of good vs evil are applicable to international diplomacy and war. Goodbye, asshole.

Words killed by partisan rhetoric

My choices of words that have been worn out, and that I wish to go away from political discussion: markets, elite and freedom.

I'm sure I could add to this, this will do for now. These words have been used as weaponry for so long that their meaning is gone.

TARP rock and roll

This really is getting exciting.
As Barney Frank issues his draft legislation, the Bush Administration is preparing their formal request for the balance of the $700Billion. If Congress votes their request down, Bush (or Obama) can veto their turndown and the cash will flow into the Treasury. Very dramatic stuff, with HUGE stakes.

We have the clashing of right, left, inside, outside all with high ideals and goals. The health of the US financial system (and consequently the global system), the future political careers of Barney Frank, Tim Geithner, President Obama, and others is also at stake. Its almost like the clashing of musical instruments than could produce anything from total destruction to sublime beauty.

Rock on.

I am enjoying this too much

Now THIS is what American political discourse should be about. I am not joking. I love this. The economic debates are mostly substantive, very important, and mostly rational. All the real talk I hear from Washington is about philosophical and practical differences of opinion. Sure, there's some marginally necessary noise about who's to blame for the mess (Barney Frank, George Bush, Bill Clinton, Alan Greenspan, etc.) and some stupidity about what good and bad buzzwords can be hurled (socialism, facism, eitism, etc.). But personally, the current action is thrilling my heart and mind.

Next week the House will start committee debate on what oversight will occur with the 2nd installment of the TARP funds. Incoming Treasury Secretary Geithner will face the Senate confirmation people by the end of the week. Geithner will likely release his thoughts on how the TARP funds should be monitored.

This really is almost too much fun.

Before the new TV season starts

I watched a bunch of fun stuff yesterday. The best of it was a 1-on-1 interview on CNBC with Pres Obama mostly discussing the economy. The man is speaking plainly and giving it up very straight. That's his best feature at this point. He is playing the moderate executive very well. He is probably a bit too conservative for my partisan blood, but I appreciate the fact that he's an executive not a legislator. And most importantly for your average 'independent' voter, he was embarrassed about the paparazzi shots of his naked chest from Hawaii.

President Obama did address the issue of most interest to me, which is probably the key to my pleasure with the interview. He said that he understood the need for foreclosure prevention to be part of the coming big bill, and has heard some good thoughts from Chris Dodd and Barney Frank on putting the next $350Billion in TARP funds to work on that.

I spent a few minutes watching Sean Hannity trying whine his way past the conservative economists provided by his network for our entertainment. The economists were talking about the tax breaks for poor and middle class people in Obama's plan and while they could not come up with any objections to these ideas, Hannity threw a few keywords out to scoff at the notions. The keywords were redistribution, freedom, big gubment...you get the idea.

I also saw a replay of Ann Coulter's interview with Harry Smith from a few days ago. She's a trip. Trying to be funny and then turning the humor on a dime into nasty, nasty anger is quite a personna. I understand some people like that in a real way. I find her to be compelling like a car wreck.

Obama's speech this morning should be very high level and general. Trying to whip up some excitement for the coming big bill. I don't think excitement is necessary, his hand seems to be very strong. But, what the hell do I know?

Here's the talking points I've been waiting for!

January 7, 2009, 5:31 pm
Barney Frank Lays Out Plan on TARP Limits
House Financial Services Committee Chairman Barney Frank (D., Mass.) sent a memo to other lawmakers Wednesday laying out his plan to place limits any future use of money from the Treasury Department’s Trouble Asset Relief Program, known as TARP.

Rep. Frank acknowledged in the memo that many members were frustrated at the way the Bush administration handled the program and promised major changes if the second half of the $700 billion is requested. (he said he thinks it would be useful for the Obama administration to have access to the money). He also said there must be new limits on the money even though he “personally” has “confidence that President Obama would spend the money more wisely and in line with Congressional wishes than it has previously been the case.”

Mr. Frank said he has – with the blessing of Speaker of the House Nancy Pelosi – proposed to the Obama administration that a new set of “conditions” be placed on the remaining $350 billion. He said the “following elements” were necessary for any future spending:

1) Substantial efforts to reduce foreclosures, including a version of a proposal pushed by Federal Deposit Insurance Corp. Chairman Sheila Bair to give incentives to lenders to make loans more affordable.

2) Require banks to tell Congress how money received from the government is being used.

3) Strict requirements that any money given to banks would have to be used to “promote systemic stability and increased lending,” including limits on executive bonuses. Also, there would be limits on how the money is used for acquisitions.

4) Use funds to offer mortgages at low and affordable rates.

5) Assist cities and other tax-exempt issuers who are having a hard time finding investors for their general obligation bonds.

6) Explicit authority to make sure funding is available for automobiles.

The House could vote on a version of the plan as soon as next week. – Damian Paletta

Permalink | Trackback URL: http://blogs.wsj.com/economics/2009/01/07/barney-frank-lays-out-plan-on-tarp-limits/trackback/

I'm a bit disappointed, but perhaps the details will be juicier. What's the teeth in th first item above?

Barney Frank and mortgages

I found a few tidbits in the news about efforts to get at the main cause of our current economic woes.

U.S. House Meeting On Financial Rescue Rescheduled

Monday January 5th, 2009 / 21h52

By Jessica Holzer Of DOW JONES NEWSWIRES WASHINGTON -(Dow Jones)- A Wednesday meeting of a U.S. House panel on the $700 billion financial rescue has been postponed indefinitely.
A statement from the House Financial Services Committee did not specify a new date for the meeting but indicated that it would be rescheduled. The panel chairman, Rep. Barney Frank, D-Mass., had called the meeting to discuss the incoming Obama administration's use of the remaining funds authorized under the Troubled Asset Relief Program, or TARP.
Federal Reserve Chairman Ben Bernanke and Federal Deposit Insurance Corp. Chairman Sheila Bair were expected to appear before the panel, Dow Jones Newswires reported Friday.
The current Treasury Department has committed $358.4 billion of the $700 billion of TARP funds. However, only slightly more than $200 billion has been spent.
Treasury must receive approval from Congress to spend the remaining $350 billion, and it cannot release the entire $358.4 billion it has committed without Congress' consent.

and

WASHINGTON, Jan 5 (Reuters) - U.S. Rep. Barney Frank, a Massachusetts Democrat and chairman of the House Financial Services Committee, in a CNBC television interview:

* Says the Democrats' economic stimulus package 'will help improve the quality of life' with better bridges, mass transit, environment in addition to creating jobs.

* Says he has been focusing on Treasury Dept's $700 billion TARP program, not on potential changes in U.S. business tax rates at this time.

* Says TARP program must be used to help reduce mortgage foreclosures and that other non-financial industries' potential use of TARP money 'depends on what the purpose would be'.

* Says 'getting the credit loosened up' should be No. 2 priority after reducing U.S. mortgage foreclosures.

He had to reschedule the TARP discussion so they could take up the Madoff scheme and the regulatory failures the let it happen. They'll get to it. Deep cleansing breath, Buck.

Buck's testimony before the joint finance committee

Mr Frank: Good morning, Buck. Thank you for taking the time to be with us today. We know how busy you are, so it is indeed an honor. My colleagues and I, from both houses of Congress, on both sides of the aisle, and up to the other end of Pennsylvania Avenue are waiting to hear your ideas on how this government should react to the current financial crisis. You have the floor.

Buck: Thank you, Barney. As I said to you over doughnuts and coffee this morning, we aren't completely fucked. I intend to enlighten the country on my plan for disentangling our banking system from all its problems. By the way, you might want to wipe the jelly off of your shirt. Please excuse me if I have to vacate during the testimony as coffee and doughnuts often leads to cramps. And cramps can lead to...but I digress.

Yeah, you guys seem to have the easy stuff in hand - Unemployment benefits, aid to states and municipalities, a new pool of cash for capital projects, the inevitable cash payments to all made standard by the Bush Administration. But you still haven't tackled the "troubled assets" that started this tumble and represented the "TA" in the TARP fund.

Mr Frank: You're so clever, Buck. Please get to the point or I will hold you in contempt.

Buck: I urge the federal government to create a short-term program to convert near-foreclosure and upside-down home mortgages into fixed rate, long-term, federally guaranteed mortgages. But the first step in this process would be to declare a 90 day moratorium on residential foreclosures, as has already been wisely proposed by several esteemed leaders at both ends of Pennsylvania Avenue.

Mr Frank: Spare us the flattery, boy. Get back to your proposal.

Buck: During this 90-day moratorium the White House, Capitol Hill committee members and leading bankers should sit down to negotiate a deal. The framework of these talks would be to set up guidelines to payoff the troubled mortgages at a discounted rate, and write new mortgages to the estimated 12 million American households who find themselves in this situation. A new, nationalized mortgage agency (BNMA) would be created....

Mr Frank: BNMA?

Buck: Yes, Buck National Mortgage Association or Barney National Mortgage Association if you prefer the flattery. (heh heh)

Mr Frank: I'm intrigued, my colleagues are intrigued, the nation is intrigued. (heh heh) Please continue.

Buck: The BNMA would be set up much like Freddie Mac is right now, only it would be completely nationalized and strictly controlled by a charter written by this committee and enforced by an adminstrator named by the White House.

A key component of this new batch of mortgages is that they would be written without an appraisal. The principal amount of the new mortgage and the payoff percentage to the prior loan servicer would be a calculation based on outstanding principal, overdue interest and the other factors such as credit scores or items the committee deems wise.

Mortgage brokers would be paid either a flat fee, percentage, or combination as determined by the committee to bring these loans to settlement. Removing the appraisal requirement and having a narrowly defined set of calculations should made the process relatively fast. It will need to be fast, because we have 10 million plus mortgages to write while the financial markets are held in a flat or bear state.

Mr Frank: Sounds good. Any questions from my esteemed colleagues?

(silence)

Mr Frank: Thank you for your time this morning, as we know how busy you are.

What to do, what to do???

Republicans want some time to review the yet-to-be-unveiled bill. I think that's fair. You've got a week.
Dems want to spend on 'infrastructure'. That's a good rhetorical angle, but there are more pressing needs. Like stabilizing the mortgage market and propping up state and local budgets. More foreclosures and further erosion of housing prices = bad. Big layoffs in schools, police and fire departments = bad. A delay in the next big road improvement projects = not so bad.
Best idea I haven't seen spoken of explicitly for the residential finance market: Nationalize Fannie and Freddie. Order them to refinance upside-down mortgages without appraisals for long terms at cheap rates. The debt would be held by homeowners but the risk would be shared with the Feds. One way or another this situation is going to hit the entire world economy. It is much better to deal with it in this way than any other. If there are other ideas, I would love to hear them.

Validation of pessimism

Like turd blossoms from heaven, this morning I read an op-ed from one of my heroes that I find to be very very wrong. In this piece
http://www.nytimes.com/2009/01/02/opinion/02krugman.html?ref=opinion
Paul Krugman argues that the ideology of Republican divisiveness is dead and will not come back. His concluding point follows:

Mr. Obama therefore has room to be bold. If Republicans try a 1993-style strategy of attacking him for promoting big government, they’ll learn two things: not only has the financial crisis discredited their economic theories, the racial subtext of anti-government rhetoric doesn’t play the way it used to.

Will the Republicans eventually stage a comeback? Yes, of course. But barring some huge missteps by Mr. Obama, that will not happen until they stop whining and look at what really went wrong. And when they do, they will discover that they need to get in touch with the real “real America,” a country that is more diverse, more tolerant, and more demanding of effective government than is dreamt of in their political philosophy.

Krugman has a lot more faith in the American voters than I do. The American public of my imagination doesn't know or care a bit about economic theories, nor has its diversity killed its love of bigotry. The Repulicans just need to find the right slogans and characters to hit that vein again.

Hopeful and Happy New Year

The Obamas are finishing up their vacation and arrive in Washington this weekend. Congress starts hearings on Monday over the next actions they will take to try and heal some of the economic mess. I hope that liberals have enough political capital to spend that they can get some great stuff passed quickly. I hope that the great liberal economists of our time become the heroes that they should be. Hope does not come easy to me, but I'm trying.

I know the American public is impatient and that any power held by my team right now will be very short-lived. Keynes is back in style, but only for about the next 30 to 60 days. After that, the right-wing will begin to climb out of the hole they have dug for themselves using the ideological bullshit and lies that always work for them. But my cynicism and pessimism is getting ahead of me. At this moment the liberals have the country by the balls.

I have hope that this amazing moment in US history yields some very large, socialist bills that President Obama will sign into law quickly and powerfully. It could be a great morning for America.

I read the following on Bloomberg AFTER I wrote the above:

James K. Galbraith Says Predator State Hit Wall: Year in Review

Commentary by James K. Galbraith

Dec. 31 (Bloomberg) -- This is the first full-fledged credit collapse and debt deflation since 1930, bringing with it a violent economic decline and a surge of unemployment.

How did it happen? For half a decade, a toxic stew of abusive and explosive mortgages, subprime securitization and complicit ratings companies was allowed to simmer, piling leverage on leverage, while credit default swaps spread risk until risk no longer could be traced.

This was market failure. But it happened because of a deep failure of the state. The government has the power to prevent such things. But the state abandoned its post. Marching under the banner of free markets, the government turned regulation over to agents of a predator class. Thus the unchecked growth of derivatives, tax havens, regulatory arbitrage and the carry trades. Thus Bernard Madoff, undetected by the Securities and Exchange Commission.

In August 2007, the banks peered into their books, where each saw the mirror of the others. None could know what they were worth. Trust and clarity and interbank lending broke down. It took a year, via Northern Rock Plc and Bear Stearns Cos., for the larger world to understand. When it did, panic ensued. And panic is deadly to finance.

Paulson’s Gambit

Government responded, but we discovered then how badly economic ideas now failed us. Action was needed. Ideology got in the way. The Treasury and Federal Reserve sought to minimize “intervention,” to preserve “market discipline.” Thus, the decision to let Lehman Brothers Holdings Inc. fail. The result was suspicions of cronyism and more panic.

Henry Paulson now demanded $700 billion from Congress to purchase “troubled assets.” This too was ideology: a price mechanism for assets whose core characteristic, from the beginning, was that they were too opaque and corrupt to be priced.

Congress ultimately took charge. It was necessary to create a zone of safety in banks and money-market funds, by extending deposit insurance and guaranteeing commercial paper. This was done. Banks were also stabilized by partial nationalization. The financial panic subsided -- but now the economic crisis deepened. With housing in collapse, industry, insurance, and state and local governments all threatened to follow.

Two-Part Challenge

The Great Crisis thus transcends market failure. It is system failure, failure at the heart of the mechanism that makes the economy run. We are witnessing the financial and the physical consequences of the end of a governing creed.

The challenge facing the American government now comes in two parts. The first is to maintain spending in an economy that cannot, for the duration, draw spending power from the poisoned wells of private finance. The second part must be to reconstruct the necessary economic functions of government -- beginning with effective global financial regulation -- for our own sake and as a model for the world.

The inauguration of President-elect Barack Obama offers hope that these matters have been understood. Yet it wouldn’t be wise to assume this. The American public, whose common sense and good judgment rejected the predator state in the elections of 2008, needs to remain engaged, informed and active on all fronts.