RSS Feed MenuAm I the only one baffled and a little bit disappointed in the speech by President Obama last night? Let’s recall that House Democrats wrote their version of the stimulus bill without any pretense of soliciting Republican input, and were happy to pass it without a single vote from across the aisle. The public greeted the result with nearly universal condemnation for the vast array of unnecessary, silly, or even offensive provisions. Polling indicates that public support for the bill has fallen below 50 percent and recedes every day.
As action shifted to the Senate, President Obama encountered a problem with Democrats. During a meeting with Senator Susan Collins, he agreed that the $920 billion stimulus gorilla needed diet, and pledged to see the bill come in at least $100 billion smaller. What happened? During a day of vigorous amendments, Senate Democrats pumped the bill up to $995 billion, a development that sparked a revolt among House Democrat Blue Dogs.
So it was a bit shocking to have the President open his remarks with sweeping praise for the “discipline” of the House Democrats effort. Discipline is the last adjective that most would assign to the House effort. And it was disappointing to see him retreat to a partisan broadside against Republicans, when in fact it is Republicans who are engaged in a bipartisan effort to save the Democrats from their internal divisions and bring the bill closer to the President’s stated wishes. And, frankly, it was at odds with the facts to assert that opponents of the bill were standing in the way of the change Americans want – the public hates this bill.
There is a bipartisan understanding that the economy is in trouble, and a bipartisan commitment to rapid action that will address the freefall. And one of the best things to include in stimulus is more rapid implementation of things that you want to do anyway. But therein lies the real clash of agendas.
For Democrats, this apparently means big, new spending programs in health, education, transportation, energy, environment, and other areas to address social goals and economic infrastructure (broadly defined). For Republicans, it means cutting marginal tax rates to improve growth incentives. Once the need for stimulus is over, Republicans don’t trust Democrats to cut other spending to accommodate their new programs and keep the debt explosion at bay. And Democrats don’t trust Republicans to engage in the loophole-closing, base-broadening that will transform stimulus tax cuts into needed tax reform.
I understand that a dinner with the home team is a tempting occasion for a partisan podium-thumper. But it was an even better opportunity for a measured lecture to his Democratic colleagues about their contribution to the failures that have slowed the Senate effort. Repeating his commitment to reducing the scale of unnecessary spending in the bill would have gone a long way to bridge the skepticism that plagues this debate.
Bill Harrison // Feb 7, 2009 at 10:53 pm
Chekote that’s certainly true enough but the point is that trying to establish a market price for these assets has proven nigh on to impossible although there has been some activity in this regard by private outfits like pennymac which has been set up by Highfields Capital and BlackRock to purchase home mortgages at something like .$30/$.50 on the dollar with backing from the FDIC.
More to the point though if today’s New York Times is on the money it looks as if TARP II is going to be a variant on both TARP I and the pennymac model — http://www.nytimes.com/2009/02/07/business/economy/07bailout.html?hp
dragonlady // Feb 7, 2009 at 10:55 pm
Chekote, what exactly about the repeal of Glass Stegall do you think fueled the crisis? I’m not saying we don’t need regulation in light of what happened, but it seems the banks that have diversified under GLB are in a much better position than purely commercial or investment banks. Also, since you said you are in the regulation industy, how much of our current regulations are really enforced? Are the regulatory agencies staffed with appropriate resources?
Chekote // Feb 7, 2009 at 11:08 pm
Dragonlady. Spot on! I also agree that the GOP has the tendency to say tax cuts as the solution of every problem. They are doing the right thing by proposing to reduce the two bottom rates and employment taxes but they are still using the wrong language. Instead of just talking about reducing taxes, they should talk about helping those who needed most. Same with social programs, they need to emphasize that we believe that government should help those who can’t help themselves while the Dems insist on making everyone a ward of the state. In discussing infrastructure, the GOP needs to talk about improving our electrical grid, sewer systems. Point out that a water park is nice but it will not improve our infrastructure.
Chekote // Feb 7, 2009 at 11:22 pm
Dragonlady. Repeal of Glass Steagall led to riskier investments/activities by banks which led to losses. The problem is our current regulatory environment – I am only speaking of securities firms – is that burdensome and not effective. As a result, most of the resources of the regulators are spent making sure that firms are in compliance with books and records requirements, mailings of privacy notices, things like that. Lots of resources are wasted in things that have nothing to do with ferreting out fraud or abuses. And Mary Shapiro is a great politician. Not a great regulator.
Bill Harrison // Feb 7, 2009 at 11:51 pm
“As a result, most of the resources of the regulators are spent making sure that firms are in compliance with books and records requirements, mailings of privacy notices, things like that.”
To some extent from the effects the well-intentioned but seriously flawed Sarbanes-Oxley legislation enacted in the wake of the Enron and WorldCom fiascos.
Chekote // Feb 7, 2009 at 11:52 pm
Bill. That’s why I opposed the TARP. I could never figure out how they were going to establish price. And price was the key to making the program work. Interesting article. I am looking forward to hear what Timmy the Tax Cheat has to say about the new plan.
Chekote // Feb 7, 2009 at 11:54 pm
Bill. Soxs was supposed to prevent another Enron. Of course, the exempted Fannie and Freddy. All Soxs has done is make London richer. Until recently, of course.
sinz54 // Feb 8, 2009 at 8:54 am
larryo: I haven’t noticed that “wages and benefits” have declined. The statistics on *average* personal income over the last 30 years don’t bear that out. The folks working in the service economy, especially the high-tech economy, are paid pretty well. In fact, those who got in on the ground floor of all the successful new high-tech companies (Microsoft, Apple, etc.) are very wealthy. What you have had, is a widening of the distribution–you’ve got the well-paid white-collar folks, and at the other end of the scale, the working-class blue-collar folks with maybe a high school diploma, wages have stagnated. But that was inevitable, given computers and robots and automation. Back in the 1950s and 1960s, it was widely predicted by futurists. There’s just not as much of a market anymore for a guy who’s not very bright but who has strong muscles and is willing to work hard. Prior to the 1970s, such a guy could get a job in manufacturing, working on an assembly line or handling a fork lift or something. Now those assembly lines are 98% automated by robotics.
sinz54 // Feb 8, 2009 at 9:12 am
Chekote & Bill: That was my problem with the TARP too. I saw at least one detailed analysis that the securities that Paulson hoped to purchase at a “fair” price, might actually turn out to be 100% worthless, once all the effects of the deleveraging were factored in. I think Paulson knew it was a big con anyway–his real intention was to buy up securities he knew were worthless (and have the Government eat the loss), just to keep these financial firms from all going bankrupt.
larryo // Feb 8, 2009 at 9:49 am
Bill – I was not arguing tu quoque; I was suggesting that bipartisanship is a two-way street. I will try to be less subtle next time.
ireign // Feb 8, 2009 at 11:12 am
Two way street? The Democrats never gave Bush a chance. 2001-They claim he stole the election, 2002 Nita Lowey head of the DCCC claims the recession is Bush’s fault and somehow he is responsible for Enron. Even though Bush refused to bailout Enron despite pleas from Robert Rubin. The fact that Enron which primarily donated to Republicans but also donated to politicians on both sides of aisle (unlike say Madoff) like Sheila Jackson Lee was irrelevant and was the Democrats way of taking advantage of a crisis. 2003-Democrats claim it was the neocons that lied us into war after half of the Senate Democrats voted for the resolution (hence, bi-partisan). 2004-Democrats claim it is the worst economy since the Great Depression and tax cuts for the “wealthy” caused it. Both untrue. 2005-Democrats opposed both Alito and Roberts and tried to fillibuster both. President Obama voted against both Alito and Roberts. Both were within the mainstream of American jurisprudence. This is after Republicans supported overwhelmingly Breyer and Ginsburg.
Republicans have been less partisan to President Obama than President Obama was when he was in the Senate towards President Bush. Bi-partisanship is a two-way street and given the Democrats performance over the past eight years, the Democrats are lucky that Republicans are not making a big deal that people like Madoff and the Sandlers were Democrats.
Republicans are so far showing the willingness to work with President Obama. Hopefully, the Democrats will remember next time there is a Republican President.
I would also hope that people stop claiming that what Paulson did was a con. I personally thought Paulson did somethings right and other things wrong but the man sacrificed a lot of money to serve his country and while you can question his judgment, you shouldn’t question his sincerity.
dragonlady // Feb 8, 2009 at 3:26 pm
Chekote, I’m not convinced on the repeal of Glass-Stegall because commercial banking services are still heavily regulated by the FDIC. GLB has nothing to do with lending standards. Why did banking failures occur then at purely investment banks (Bear Sterns, Lehman) or commercial banks (WaMu, CountryWide)? The big banks that have diversified commercial banking and investment arms seem to be weathering the storm and buying up the ones who folded (JP Morgan, Citigroup, Bank of America). I trace lot of the failures to the way Fannie and Freddie were run, creating a huge moral hazard for risky MBS that did not meet usual standards. But I think we can agree that a more effective regulatory scheme is needed. One thing the GOP can be strong is on enforcing regulations through appropriate agencies (FDIC, SEC, etc), giving regulators proper resources, and ferreting out those abuses you allude to, in the name of preserving the free market, not for gov’t to nationalize every failing industry. The GOP is known as the party that’s tough on crime…there’s no reason it can not be seen as being tough on financial abuses, either. That would break up the image fair or not, of the GOP being beholden to Wall St.
larryo // Feb 8, 2009 at 6:40 pm
“President Obama voted against both Alito and Roberts. Both were within the mainstream of American jurisprudence.” Actually, no one in the legal community regards either of these men very highly as legal thinkers, and most regard them as political extremists who lied during their confirmation hearings to get on the bench.
Chekote // Feb 8, 2009 at 6:42 pm
Dragonlady. Citigroup is in trouble because of its investment in MBS. Bank of America is also in trouble for purchasing Merrill. I think it is best to keep investment banking separate from commercial banking. It worked since the 1930s until the 1990s. If it works, don’t fix it. Bubbles are created because as certain psychology takes over the market. It is hard to explain. Basically, a belief of invincibilty sets in and greater risks are taken. I have seen it many time. The regulators have plenty of resources. What they need to do is hire staff with street experience and focus the examination process on finding fraud.
larryo // Feb 8, 2009 at 6:42 pm
Another thing – Bush didn’t even think of bipartisanship in 2001, because the Republicans had both houses of Congress – of course, his approval rate was already dropping when September came along, but then the country rallied to his posturing and we were on our way to Iraq.
larryo // Feb 8, 2009 at 8:10 pm
Actually, the first step on the road to our economic predicament was the enactment, in the mid-1980’s, of REMIC (Real Estate Mortgage Investment Conduit) provisions in the Internal Revenue Code. 236 USC 860A. There were actually two Glass-Steagal Acts, codified in various sections of Title 12 of the United States Code. The first passed within FDRs first one-hundred days, and the second, passed in June, 1933, was known as the Banking Act of 1935. The first primarily prohibited the hoarding of gold coins and provided for the well-known bank holiday of 1933, permitted the Federal Reserve to issue paper currency and separated commercial banking from investment banking. The second imposed regulations on banking across the board, including the creation of another wall between banking and insurance. The separations of the two kinds of banking from each other and of both from the insurance business were put in place, originally, to avert another depression.