Economics

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From the Party of “No” to the Party of “Zero”?

What’s up with the Republican House leadership anyway?  After being criticized by all stripes of poltical commentators and just ordinary citizens for not offering any alternative to the President’s proposed budget, they released an eighteen page booklet with no numbers.  I repeat, no numbers.

According to David Gregory on MSNBC’s First Read,

Dude, where’s my budget? Let’s be honest: Yesterday’s House Republican budget rollout was a P.R. disaster for the GOP. “Here it is, Mr. President” was the title of the GOP Leader blog touting that they had answered Obama’s dare to produce a budget. The problem — their budget rollout didn’t contain any hard budget numbers or deficit projections. They say those hard numbers will come out next week. But now we learn that Reps. Eric Cantor and Paul Ryan objected to unveiling yesterday’s “blueprint,” but were overruled by Reps. John Boehner and Mike Pence. But bigger than any internal disagreements or any criticism about a lack of details is the fact that yesterday’s GOP non-announcement moved the attention away from the Obama-vs.-congressional Democrat storyline to the GOP’s lack of a budget. In fact, after yesterday, the White House and congressional Democrats can agree on one thing: The GOP — at least until next week — is the “Party of No.” What’s more, it puts more pressure on Ryan to truly put out a comprehensive budget alternative; Also, this episode could end up creating a rift in the GOP over how to combat the Obama White House. After all, Senate Republicans wanted nothing to do with an alternative, and now Mitch McConnell, et al are either laughing at their House GOP colleagues, furious at them, or both.

As proof that the Democrats are refocusing on the Republicans rather than each other is the new Democratic Party video.  Kate Phillips writes in the New York Times Caucus

As the House and Senate head toward a heavy budget battle next week, Republicans have been facing criticism from the White House and from Democrats over whether they have offered a real alternative when it comes to the proposals on the table.

In the Senate, what Republican leaders are promising is a lot of amendments. But in the House, Republicans held a news conference yesterday to announce that, despite President Obama’s remarks to the contrary, they did have a plan of their own.

Carl Hulse, chief congressional correspondent of The New York Times, reported that Representative John A. Boehner, the minority leader, was grilled by reporters on Capitol Hill because the blue 18-page “recovery” pamphlet that the Republican leadership released was short on figures, spending or revenue details.

Next week’s budget debate will be interesting.  The Democratic Blue Dogs have their own ideas and the Republicans are split.  The look of the final budget may depend on which party can come together sooner.

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Obama’s Press Conference at 60+ days and other Presidential Matters

How’s he doing?  I thought the press conference last night showed a more subdued President Obama.   David Biespiel said on Politico’s Arena

Overall: Professor in chief. I saw the news conference on CNN from my hotel room. Will cable TV present every Obama news conference as if it’s the last night of Yalta? I disagree with the interpretation that these night time press conferences should be for dramatic events only. Meeting with the press monthly on prime time is good for democracy–whether the climate is dramatic or not. 

I tend to agree with him.  I don’t think the President is at his best with press conferences – he seems to do better with town hall meetings – but they are informative.  Maybe he should think about a prime time town hall meeting.

Thomas Mann from Brookings said on Politico’s Arena

What struck me about last night’s press conference was how the President managed both to maintain his signature leadership style — cool, intelligent, knowledgeable, and reasonable — and to forcefully advocate his position that his economic recovery program and his budget are inextricably linked. He also signaled clearly, especially in his closing remarks, that he fully understands the obstacles he faces and that some of his priorities will take years to accomplish. It appears he will continue to aim high with an ambitious agenda in spite of the clamor of critics for cutting back on his objectives. In a world in which an exclusive focus on short-term gains has dominated behavior in government and in the private sector, Obama is planning an eight-year program of governance that aspires to grapple seriously with long-term challenges.

Which leads me to talk about the Republican opposition.  Several Republicans posted on the Arena their disappointment that there was no real opposition agenda.  I believe that the President has also pointed out that there is no alternative budget so there can be a real discussion.

Eugene Robinson wrote in today’s Washington Post

Some listeners thought they heard flexibility or even retreat on the president’s ambitious agenda of health care, energy and education. I heard the opposite — a single-minded focus on these three initiatives, which Obama maintains are vital if the economy is to be put on sound footing. His strategy is to let Congress work out the details, but he was clear that he expects all of the Big Three to be reflected in the budget. One thing we’ll learn about him, the president said, is that he’s persistent. I’m going to take him at his word.

If you recall, Barack Obama stuck to a consistant message throughout his campaign.  He never let himself get sidetracked to drawn into debates he didn’t want to have.  I think last night showed he is still the same person, that what we saw during the campaign is what we got as a President.

One negative note to my evaluation of his first 60 days.  I am still worried about some of his appointments, particularly in the economic area.  As I have said before I am very very skeptical about Larry Summers in particular.  Christopher Hayes gave this piece of advice back in January and I think it is still relevant.

But as the Obama administration continues to fill thousands of government positions, they’d do well to heed the words of a wise man who once said that “tallying up your years in Washington is no substitute for judgment.” That was President Obama, whose primary campaign was largely predicated on the principle that having gotten something crucial, like the Iraq War, right when other people got it wrong was of such overwhelming importance that voters should elevate someone who’d been a state senator just a few years earlier to the highest office in the land over a competitor with years in Washington under her belt.

The voters agreed, and I continue to think they got it right. Maybe the president should go back and read some of his old speeches the next time there’s an opening in his administration.

And not to beat a maybe dead horse:  where is a job for Howard Dean?

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Paul Krugman v. Tim Geithner

It is no secret that I’m not an economist.  I have long depended on Paul Krugman to help me understand what was going on.  And given the current state of the world, I seem to be blogging about economics a lot.

So is the Tim Geithner toxic assets plan viable or not?    Larry Summers (against whom I have a grudge because of what he did to Cornel West while president of Harvard) took at slap at Paul Krugman’s op-ed piece saying “I wish he waited for the plan to be announced before he wrote his column.” 

What exactly did Paul write?

And now Mr. Obama has apparently settled on a financial plan that, in essence, assumes that banks are fundamentally sound and that bankers know what they’re doing.

It’s as if the president were determined to confirm the growing perception that he and his economic team are out of touch, that their economic vision is clouded by excessively close ties to Wall Street. And by the time Mr. Obama realizes that he needs to change course, his political capital may be gone.

Let’s talk for a moment about the economics of the situation.

Right now, our economy is being dragged down by our dysfunctional financial system, which has been crippled by huge losses on mortgage-backed securities and other assets.

As economic historians can tell you, this is an old story, not that different from dozens of similar crises over the centuries. And there’s a time-honored procedure for dealing with the aftermath of widespread financial failure. It goes like this: the government secures confidence in the system by guaranteeing many (though not necessarily all) bank debts. At the same time, it takes temporary control of truly insolvent banks, in order to clean up their books.

If I understand him correctly, what Krugman is worried about is 1) should we have just gone ahead and nationalized the banks temporarily and gotten it over with and 2) if the plan doesn’t work does it will Congress vote more money to nationalize.

I think Krugman is a great economist, but he maybe underestimating the larger political situation.  I think President Obama believes that health care reform and, to a less extent, eduational reform are additional keys to turning the economy around.  Obama is already hearing the footsteps of those in Congress who are looking at the deficit and wanting to put the breaks on.  Obama wants to pass his budget. Therefore he didn’t want to pick my option 1 and nationalize the banks.  If the plan doesn’t work, option 2 is an unknown.

One thing I do know is that while the market did go up today and that Tim Geithner did do marginally better that his first disasterous press conference, I love Jonathan Mann of Rock Bottom Cookie’s new song, “Hey Paul Krugman”.  Mann extoles Krugman while putting Geithner down.  Great catchy song.  Listen to the song and sing along with the refrain.” When I listen to you it seems to make sense, when I listen to him [Geithner] all I hear is blah, blah, blah.”

At this point all we can do is hope that the Geithner gamble works out.  I’m sure that Paul Krugman will be the first to be happy if it does.

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AIG Backstory: The Gramm Leach Bliley Act

Today (May 11, 2012) JP Morgan Chase appears to have engaged in the same kind of behavior that lead to the 2008 meltdown and people are talking about reviving the Glass-Steagall Act.  I thought I should repost this from March 2009.

Yesterday one of my Random Thoughts was to ask if anyone remember when banks were banks and stock brokers were stock brokers.  A few hours later, Rachel Maddow had a piece on the Gramm Leach Bliley Act (GLBA) of 1999. According to the summary of the bill the first provision is

TITLE I — FACILITATING AFFILIATION AMONG BANKS, SECURITIES FIRMS, AND INSURANCE COMPANIES

 Repeals the restrictions on banks affiliating with securities firms contained in sections 20 and 32 of the Glass-Steagall Act.

(The GLBA also did some good things like require lending in poor neighborhoods which began to end redlining, but that’s a whole different story and discussion. It also required ATM’s to post fees for use. And I need to confess that  in 1999, Representative Bliliey was my Congressman.)  

At the signing, by President Clinton, of the Gramm Leach Bliley Act Senator Phil Gramm said

“In the 1930s, at the trough of the Depression, when Glass-Steagall became law, it was believed that government was the answer. It was believed that stability and growth came from government overriding the functioning of free markets.

“We are here today to repeal Glass-Steagall because we have learned that government is not the answer. We have learned that freedom and competition are the answers. We have learned that we promote economic growth and we promote stability by having competition and freedom.

So it has taken about ten years to figure out Phil Gramm was wrong.  We did not “..promote stability by having competition and freedom.”

The GLBA was what allowed AIG to go from insurance company to a financial behemoth “too big to fail”.  It let CitiBank purchase Traveler’s Insurance and become CitiGroup. 

Circling back to Rachel Maddow, her guest David Cay Johnson compared the lack of Wall Street regulation which was supposed to save tax payers money with deciding that we no longer needed the expense of traffic lights, speed limits and stop signs because drivers will regulate themselves. 

My bottom line?  We need to get back to some sensible regulations with proper funding of regulators.  But will Phil Gramm’s sucessors – Eric Cantor and the other Republicans – understand that their essentially unregulated free market because government is bad mantra is what helped get us into trouble and brought us to the place where we are spending trillions to bailout the very companies that Gramm Leach Bliley helped to create.

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Friday Night Random Thoughts

Why have I picked the wrong upsets in the first round?  I picked  Cornell over Missouri and VCU over UCLA for example and totally didn’t see Dayton beating West VA. 

Why is everyone so focused on the President’s Special Olympics “gaffe”?  I thought his dancing around the Tim Geithner question was much worse.  Besides all those special olympians are now going to get to bowl at the White House. 

Why hasn’t Norm Coleman surrendered yet?  I have read that it is expected that Al Franken will likely pick up some votes as the court studies some more ballots.  Then Coleman says he will appeal.  Franken is asking Coleman to pay his legal costs.  I think Minnesota needs an second Senator and let’s just certify the election and let Al take his seat.

Why is is always so cold on the first day of spring in Boston?  At least this year it isn’t snowing.

I wonder what criticism the Republicans will come up with about the White House vegetable garden?  Marion Burros had a lovely story in the New York Times yesterday.  Seems everyone will have to pull weeds, including the President.  I guess that will be more time he is wasting when he should be focused on the economy.

Will President Obama and Barney Frank acually suceed in rewriting the regulations concerning financial institutions?  Does anyone else remember when stock brokers were separate from banks and the twain was never supposed to meet?  Maybe we need to go back to those days?

The cats are gathering and telling me it is time to stop having random thoughts and focus on their dinner.

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Inequality in America

The Republicans can scream that President Obama, Nancy Pelosi, and Harry Reid want to move the country toward a European type socialism all they want while the gap between the rich and poor keeps getting larger.   As many have said (including me), the current AIG bonus debacle seems be symbolize the rich getting richer at the expense of the rest of us. 

Dalton Conley, Acting Dean of Social Sciences at New York University has written in the Nation of March 23 about the Human Development Index (HDI) which shows the United States as Number 15 in the world.  The index “The score consists of three dimensions: health, as measured by life expectancy at birth; access to knowledge, captured by educational enrollment and attainment; and income, as reflected by median earnings for the working-age population. ”

Conley writes

The president’s proposed budget will do much to bring progressivity back to the tax code. Upper-income households–which have gained the most over the past three decades–will contribute around 80 percent of federal revenues, and more modest incomes will finally catch some real tax relief. Meanwhile, the vast majority of Americans have applauded the administration’s move to impose limits on executive compensation by attaching strings to bailout money. The reason is one of basic fairness, of course. But it turns out that limiting the windfalls of the few may actually be good for us all. That’s because there appears to be a relationship in the United States between inequality–which is largely driven by an explosive rise in incomes at the top–and overall levels of human development.

…

This decline proceeded apace through the Reagan and first Bush administrations, during the go-go Clinton ’90s, and through the regime of George W. Bush. We have slipped in periods of budget deficits and during the largest surplus in US history. So something deeper about the structure of American society is probably responsible.

Of course, there are some pretty good suspects. There is, for example, the issue of nearly 50 million people who don’t have health insurance. There is the fact that college completion rates have been flat since the ’70s despite an increasingly technological economy. And there is the wage stagnation for the bottom half, a problem that has dogged us since the oil shock of 1973. But there is one larger force underlying these trends that has been gaining steam over the past three decades, and that’s income inequality.

So it seems that what the Republicans call “redistribution of wealth” might actually be good for our country.

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AIG, Bonuses, and the Auto Workers

I’m pretty sure that those traders at AIG who are due for massive taxpayer paid bonuses would be insulted being compared to members of the UAW, but I’d like to understand exactly how they are different.   Both work for industries/companies in financial difficulty.  Both companies got help from the taxpayers.  Both the traders and the auto workers had valid contracts.  So those are some ways they are the same.  How are they different?  Only the UAW is being asked to renegotiate their valid contract, to make sacrifices for the good of the country. 

In this morning’s New York Times there is a defense of paying the AIG bonuses by Andrew Ross Sorkin.  Sorkin writes

That may strike many people as a bit of convenient legalese, but maybe there is something to it. If you think this economy is a mess now, imagine what it would look like if the business community started to worry that the government would start abrogating contracts left and right.

As much as we might want to void those A.I.G. pay contracts, Pearl Meyer, a compensation consultant at Steven Hall & Partners, says it would put American business on a worse slippery slope than it already is. Business agreements of other companies that have taken taxpayer money might fall into question. Even companies that have not turned to Washington might seize the opportunity to break inconvenient contracts.

If government officials were to break the contracts, they would be “breaking a bond,” Ms. Meyer says. “They are raising a whole new question about the trust and commitment organizations have to their employees.” (The auto industry unions are facing a similar issue — but the big difference is that there is a negotiation; no one is unilaterally tearing up contracts.)

And there we have it in the last sentence.  The UAW is negotiating.  So what’s keeping AIG from negotiating with Congress.  With Senator Feingold, Senator Bond, Congressman Frank, and Secretary Geithner.    Senator Russ Feingold wrote to Geithner

I am deeply troubled by reports that the American International Group intends to pay about $165 million in bonuses to its executives. As you know, the federal government has provided AIG with $170 billion in taxpayer money and currently owns 80 percent of the company. I share your outrage that a company which has been bailed out by the taxpayers for its mistakes would turn around and pay its executives such a staggering sum of money. 

Reports suggest that AIG’s chairman claims AIG is legally obligated to pay some or all of these bonuses. I write to ask why any bonuses would be legally required, given the company’s abysmal performance. In addition, I would like to know what legal options have been explored for canceling the bonuses or recouping the money from the recipients, and in particular whether the administration has considered holding AIG executives accountable in court for any breaches of their fiduciary duties to the shareholders

To me the most troubling part of all this is calling what these AIG employees are “legally obligated” to receive a bonus.  I think most people would agree with me and Senator Feingold that a bonus is something one gets for outstanding performance.  As a taxpayer/shareholder in AIG I want to know what the performance level – as judged from some outside auditor- of each person to receive a bonus is before I hand over the money. 

In Politico, Roger Simon  writes what I think many of us wish we had written first

The only real difference between Bernie Madoff and the management of AIG is that when Bernie Madoff got caught, he pleaded guilty. When AIG got caught, it asked the government for $170 billion.

And it got it. Now the American International Group is going to pay $165 million to its executives as a reward for the fine job they did in duping everybody.

The last word goes to Republican Senator Kit Bond

It is outrageous and unacceptable for failed Wall Street executives to receive a bonus after the American taxpayer was forced to bail them out. Policymakers should quit debating how to lower pay for some of these executives who got us into this mess.

Capping pay or taking away corporate jets isn’t enough. Before these companies get any more tax dollars, the failed senior executives and board of directors need to be fired 

The President is angry.  Democrats in Congress are angry.  Even some Republicans are angry.  The UAW is making concessions.  Time for the Wall Street moguls to do the same.

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Why so negative?

Let’s see.  Barack Obama has been President for 50 days today.  Only 50 days. During that time he has outlined a plan for economic recovery and gotten it passed, he has outlined plans to end the war in Iraq, and he has proposals to help some homeowners faced with foreclosures.  He is studying what to do about Afganistan and Guantanamo.  He has said we won’t torture, removed the ban on federal funds to groups who perform and/or counsel about abortion, removed prohibitions on stem cell reseach and etc., etc.  At the one month point, I quoted Eugene Robinson who called this ” an administration on steroids”. 

Politico writes of the first 50 days

It’s been a busy stretch. Obama revisited Bush-era policies on torture and the Guantanamo Bay prison, proposed to remake U.S. health care by year’s end, offered new rescue efforts for the housing and financial services sectors, expanded government stakes in Citigroup and American International Group, put forth a $3.7 trillion budget and announced his education policy Tuesday.

As president, Obama has signed a total of six bills. The most notable was the $787 billion stimulus legislation. He also signed a bill expanding children’s health insurance coverage and another making it easier to file suits alleging gender discrimination in the workplace. Another bill he signed was a so-called continuing resolution continuing temporary funding for federal agencies still awaiting a final appropriation for the current fiscal year. The two other measures were a bill to rename a post office in Illinois and legislation postponing the national conversion to digital television for about four months.

So why is everyone so negative?  Paul Krugman is worried we haven’t done enough.  Some Congressional Democrats are making noises about not wanting to spend any more.  The Republicans are on a vote no kick and want to go back to Bush economics – tax cuts and more tax cuts.  The left thinks he hasn’t done enough about about prosecuting W. and his pals and certainly isn’t withdrawing from Iraq fast enough.  The right thinks he is overturning the entire universe.

I’m certainly not happy with everything that President Obama has done so far.  I think the Tim Geithner appointment is a disaster and he also needs to lose Larry Summers.  I do like Orszag and Christine Rohmer. I don’t think we are planning to withdraw fast enough from Iraq and I’m worried about Afganistan.  I worry that some of the government programs are too complicated for local governments and non profits to administer.  But I’m not negative yet.

Everyone seems to be whining about something without giving things a chance to work.  If we want a large bank to fail – one, Leaman Brothers, already did and it didn’t help the economy much.  We had lots of tax cuts under W. and it didn’t stop the economy from tanking.  So let’s see what happens.  In a few more weeks most of us will get a few bucks more in our paychecks.  The Recovery funds will start hitting the street and projects will be underway in a month or so. 

We can’t let pundit negativity make us lose sight of the fact that is has only been 50 days today.  Give the guy a chance and don’t let negativity become a self-fulling prophecy.  So take a deep breath, relax a bit and notice that the market went up today.

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Pondering the Year of the Ox

There was an interesting op-ed in today’s Boston Globe about Niu which is the Chinese for Ox.  The writers invoke the spririt of niu as the spirit of President Obama.

Niu has been an important labor force on Chinese farms for thousands of years. Therefore, in Chinese culture, niu is often used to symbolize a hardworking and trustworthy spirit. There is a famous saying in Chinese – “Although niu only eats grass, it produces milk” – which praises niu’s willingness to contribute. In addition, a poem by the 20th-century Chinese writer Lu Xun brings home niu’s attitude of serving without complaining: “To a thousand pointing fingers I defy with fierce brows, and to younglings I’d be fain to bow and serve as a niu.” Niu’s qualities – no-complaints, trustworthiness, unselfishness, and willingness to give and serve the people – are exactly the spirit that we should pursue in a time of uncertainty, anxiety, and fear amid the crisis.

That spirit must inhabit us all. As President Obama said in his inaugural address, there is a demand to return to the truth – the values upon which America’s success depends – including honesty, hard work, courage, and fair play.

The one thing I don’t really understand is the writers seem to be using “ox” and “bull” to refer to the same animal.  In English “bull” refers to a male and would never give milk no matter how much grass he ate.  But that quibble aside, they have a point.  They conclude

In Chinese, crisis (wei ji) means crisis (wei) and opportunities (ji). The crisis may open up an opportunity for the world’s largest developed country and largest developing country to address global challenges instead of triggering a crisis in bilateral relations. Obama has the choice to turn a crisis into an opportunity – if he leads in the spirit of niu and works with world leaders to turn the year of the ox into the year of the bull.

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The Military Budget

President Obama said he expected to save money by withdrawing troops from Iraq (which savings will actually show up in the budget now that Iraq and Afganistan spending is no longer “off-line”) and that saving is part of how he proposes to spend on things we all want like health care, education, and energy efficiency.  That is all well and good.  But the elephant in the room (and I don’t just mean Republicans, but also Democrats with their own self-interests) is military spending.

Congressman Barney Frank has an article in the March 2 issue of the Nation in which he talks about military spending.  He begins

I am a great believer in freedom of expression and am proud of those times when I have been one of a few members of Congress to oppose censorship. I still hold close to an absolutist position, but I have been tempted recently to make an exception, not by banning speech but by requiring it. I would be very happy if there was some way to make it a misdemeanor for people to talk about reducing the budget deficit without including a recommendation that we substantially cut military spending.

As Congressman Frank points out there has been a huge increase in the military budget and not all of it attributable to the Wars in Iraq and Afganistan.

It is particularly inexplicable that so many self-styled moderates ignore the extraordinary increase in military spending. After all, George W. Bush himself has acknowledged its importance. As the December 20 Wall Street Journal notes, “The president remains adamant his budget troubles were the result of a ramp-up in defense spending.” Bush then ends this rare burst of intellectual honesty by blaming all this “ramp-up” on the need to fight the war in Iraq.

Current plans call for us not only to spend hundreds of billions more in Iraq but to continue to spend even more over the next few years producing new weapons that might have been useful against the Soviet Union. Many of these weapons are technological marvels, but they have a central flaw: no conceivable enemy. It ought to be a requirement in spending all this money for a weapon that there be some need for it. In some cases we are developing weapons–in part because of nothing more than momentum–that lack not only a current military need but even a plausible use in any foreseeable future.

It is possible to debate how strong America should be militarily in relation to the rest of the world. But that is not a debate that needs to be entered into to reduce the military budget by a large amount. If, beginning one year from now, we were to cut military spending by 25 percent from its projected levels, we would still be immeasurably stronger than any combination of nations with whom we might be engaged.

So are there any signs of hope that we might, despite what will be a conservative outcry about “keeping America strong” and the loss of jobs from miliary spending (can’t many of those folks shift toward developing good things like better batteries for electric/hybrid cars?) and so on?  Christopher Hayes  in a companion piece to Frank’s writes

Indeed, over the past year Defense Secretary Robert Gates has made a series of speeches about shifting resources toward nonmilitary international engagement, as well as reducing spending on outdated weapons systems. “The spigot of defense spending that opened on 9/11 is closing,” he told senators on the Armed Services Committee in January. “The economic crisis and resulting budget pressures,” he said, would provide “one of those rare chances…to critically and ruthlessly separate appetites from real requirements, those things that are desirable in a perfect world from those things that are truly needed in light of the threats America faces and the missions we are likely to undertake in the years ahead.”

Obama expressed similar sentiments on the campaign trail: “I will cut tens of billions of dollars in wasteful spending,” he said in a campaign video. “I will cut investments in unproven missile defense systems. I will not weaponize space. I will slow our development of future combat systems.”

Most recently, Rahm Emanuel hinted on Meet the Press that the administration might have the Pentagon in its sights as part of its promise to trim fat from the budget. “We have about $300 billion in cost overruns,” he said. “That must be addressed, and we will be addressing it.”

We seem to be getting some mixed signals, however.  William Lynn from defense contractor Raytheon who has been described by Hayes (and others) as “never having met a weapons system he didn’t like”  has been appointed deputy defense secretary.  On the other hand,  Obama has just appointed Ashton Carter from the Kennedy School to be Under Secretary of Defense for Acquisition, Technology and Logistics.  As far as I know, Dr. Carter has mostly worked on non proliferation issues and has no ties to any defense contractors.