Where to Go From Plan B, And Why the Answer Is “Nowhere”

nowhere man

I couldn’t think of a more fitting story on my last day of blogging to symbolize the nature of our government than the aborting of Plan B, wherein House Republicans couldn’t even pass a messaging bill with no chance of advancing. Sometimes we’ve seen Speaker Boehner miscount the votes – the most notable time I can think of was an initial vote reauthorizing the Patriot Act, when some civil libertarians revolted – but not on a pure messaging bill.

In the aftermath, nobody can help but try to analyze the strategy going forward. The White House’s statement basically gave up on everything in the fiscal slope but the tax rates, saying “The President’s main priority is to ensure that taxes don’t go up on 98 percent of Americans and 97 percent of small businesses in just a few short days.” Harry Reid’s spokesman said that ”
“It is now clear that to protect the middle class from the fiscal cliff, Speaker Boehner must allow a bill to pass with a combination of Democratic and Republican votes.”

Surely, that’s the conventional wisdom. If Republicans can’t even get a bill done where they get everything they want out of the deal (including cutting Meals on Wheels, food stamps, all kinds of anti-poverty programs, and holding the military and Wall Street harmless) but raising tax rates on not even 0.5% of the population, what compromise measure could get more than token support?

But Boehner, following the Iron Law of Institutions, probably cares more about his position as Speaker than forging a deal for the country. Which means he cannot possibly put forward legislation that would get 190 Democratic votes and 20 Republican ones until he gets re-elected Speaker January 3, and maybe not even then. There’s also the question of whether a rump caucus even exists among House Republicans, especially… after January 3. Sure, there are a few lame ducks now who would commit to raising tax rates above $250,000 and going home – Steve LaTourette, Mary Bono Mack, just to name a couple. But they’re both headed home after 2012. I know that bipartisan bills occasionally get through the House – it’s how TARP got done, and the 2011 debt limit deal – but none of them raised taxes.

Then there’s the question of what’s still operative. I agree with Dan Burton (shudder) that Republicans may consent to a bill purely cutting taxes on the first $250,000 in income, after the Bush tax cuts sunset. But would the leadership say that, since the President offered the concession to raise the dividing line to $400,000, they won’t go any further than that? The only way to square this is for President Obama to publicly take his last offer off the table, saying that, given the demise of negotiations, he’s returning to his initial position and won’t sign any legislation that extends tax cuts for rates above $250,000. This is what Damon Silvers of the AFL-CIO counseled yesterday. The Press Secretary’s statement, in referencing 98% of individuals and 97% of small businesses, actually alludes to the $250,000 dividing line.

But the President is still hunting a deal, and might want his options open for something that splits the Republican caucus. But again, you get to the dead end of there not being enough House Republicans, even if you find something that House Democrats grudgingly accept, to pass a bill that raises tax rates in 2012. I just don’t see it. Nothing shows you more about how ideologically aligned against taxes that caucus is than last night. And the White House desperately needs that fig leaf of a tax rate hike to accomplish a deal, purely for public relations purposes if nothing else. Republican intransigence stopped the grand bargain again.

So these strategic considerations are I think a non-starter. So is wondering about the Obama offer, with its chained CPI and the rest. There’s no negotiating partner on the other side, and Democrats can’t pass something by themselves. That’s why I’m fairly resigned to going over the slope. Preferences are really out the window at this point; it’s what will happen.

UPDATE: Matt Yglesias offers a slatepitch that’s the complete opposite view. I really don’t see it. The bill last night represented a maximalist, Republicans-get-everything-they-want view of something with tax increases in it. Anything less than that – i.e. something that could get wide Democratic support – would be rejected wholesale by the Republican rank and file, because a) Obama wants it and b) they wouldn’t get everything they want, making the tax lift harder. There’s also a difference between sticking with leadership on a messaging vote and sticking with them on something that could pass into law. (more…)

What the Housing Market Actually Looks Like

This week brought more good statistical news for the housing market. Existing home sales rose at a decent clip in November, nearing post-bubble highs not seen since the artificial spike from the homebuyer’s tax credit (I’ve noted that the end of the Mortgage Forgiveness Debt Relief Act could be giving the same spike). Inventory fell again, which presages higher prices. And while housing starts fell in November, the more stable indicator of homebuilding permits rose above expectations. There’s a huge hole to dig out from – even with its 25% rise, housing starts in 2012 would be the 4th-lowest in history – but the digging is occurring.

However, it might be worth looking at some other statistics, to understand not the housing market based on prices and starts and sales, but based on what it looks like for the average person. And that shows a very different picture.

First of all, here’s a fairly astonishing stat:

Bank of America Corp. has amassed $64 billion of mortgages that are at least six months delinquent and have yet to enter foreclosure, more than twice the amount held by its four largest competitors combined […]

The data, published last month by the monitor of the settlement, highlight Bank of America’s vast backlog of delinquencies, and the years it will take to work through them as borrowers fall further behind and losses mount for investors in mortgage-backed securities. While the Charlotte, North Carolina-based bank has begun modifications for many of its 275,000 homeowners at least 180 days behind as of Sept. 30, some will join the already clogged U.S. foreclosure pipeline.

I would focus less on how routing these $64 billion in mortgages into the foreclosure pipeline will affect prices and sales (though that will happen) and more about how the people behind those $64 billion of mortgages will survive without their house. Your talking about several hundred thousand if not millions of people, and this is but one mortgage lender.

Meanwhile, the mortgage market is now entirely a government-sponsored enterprise:

…with little planning and paltry public discussion, the government has almost completely taken over the American home mortgage market. Banks and other for-profit financial services companies lend money to homeowners, but without the guarantees and other support the government provides, the housing market would barely be functioning now.

Fannie Mae and Freddie Mac, the taxpayer-controlled housing giants, guaranteed 69 percent of new mortgages in the first nine months of the year, up from about 27 percent share in 2006, according to Inside Mortgage Finance. Meanwhile, the Federal Housing Authority and the Department of Veteran’s Affairs currently back another 21 percent of mortgages, up from just 2.8 percent in 2006. Altogether, 9 of every 10 new mortgages are backed by the U.S. taxpayer, up from three in 10 in 2006, when the government share hit a decade-low, according to the publication.

Similar to this, one should also point out the extreme price sensitivity in the mortgage market, and how the slightest increase in mortgage rates cause applications to crash. This has been a consistent dynamic, especially as it relates to refinancing. This lets you understand how much the Federal Reserve is propping up the mortgage market by purchasing mortgage backed securities and keeping rates extremely low. There is massive financial support being thrown at lenders.

And who does that enable? Companies which, as shown by this incredible chart, have committed vast amounts of fraud over the past several years, which the regulatory apparatus is only beginning to capture, and even then in cost-of-doing-business settlement. The one guilty plea that UBS had to give in the Libor scandal was the first criminal fraud charge agreed to by a major bank since 1989. Regulators have basically granted forbearance for 20-plus years, and with the other hand they shovel money toward the same fraudulent banks.

When you have the government this involved in a market, it breeds a certain corruption, or at least enables it. That’s how you get a market where banks can leave houses off the market for years and artificially constrain supply. That’s how you get investors able to scoop up all sorts of housing in the creation of another bubble. And considering that the same elements of fraud and fabrication and abuse remain evident within the marketplace, you have to say that such an enabling is already well underway.

Fatster’s Roundup

{!hitembed ID=”hitembed_1″ width=”350″ height=”197″ align=”right” !}

Good evening, all.

Breaking News: It’s now December 21, 2012 in New Zealand and they are reporting that they are still there and the world, apparently is not ending. Whew! Thanks for that, New Zealand!

International Developments

? As “many as 100,000 Palestinians” have fled the Yarmuk refugee camp in Damascus as warplanes began air strikes on the camp and rebels “expelled” most pro-Assad fighters. According to an AFP photographer on the Syrian-Lebanon border, “hundreds of Palestians were seeking to cross, mostly women, children and the elderly.”

? “Parts of Aleppo, much of Homs and even sections of Damascus are now in worse shape than even Sarajevo or Grozny ever were. The UN is trying to raise $520m to cater for the needs of the 4 million people, almost a quarter of Syria’s total population”. Photos. 73% of Americans polled are against US military intervention in Syria–unless the Syrian government uses or loses control of chemical weapons.

? Things are coming into focus: The US “is poised to take ‘nascent steps’ to open up military ties with Myanmar as a way of bolstering political reforms undertaken by the former pariah state”. The China-jitters definitely play a part. Will US leaders forget the brutality and human rights violations of the current military regime in the recent past?

? Between 1968-73 Britain “forced removal of 1,500 Chagossians from the island of Diego Garcia” because the US wanted to put a military base there. Ever since, the Chagossians, now living in Britain and Mauritius, have been trying to get back to their homelands. Finally, the European Court of Rights in Strasbourg has ruled–against them.

International Finance

? Hong Kong Monetary Authority is investigating “Swiss bank UBS over possible misconduct related to the Asian financial centre’s benchmark interest rate.” Meanwhile, the US has begun “extradition proceedings against two former UBS employees” on criminal charges for manipulating “key benchmark interest rates.” More on the fine the US has imposed on UBS for Libor fraud, and the fact that two staffers were targeted for prosecution out of 40 who were said to be involved.

Money Matter USA

? Seems the Libor scandal had a major impact on Fannie Mae and Freddie Mac--$3+billion loss. An unnamed “federal regulator” made the estimate and said “legal action against banks involved in fixing the Libor rate should be considered.” Ya think?

? Major criticism: “Why Nate Silver is Not Just Wrong, but Maliciously Wrong”

? NYSE Euronext, parent of the New York Stock Exchange, is being sold to the Intercontinental Exchange (ICE) for $8 billion. ICE is headquartered in Atlanta, GA. [cont’d.] (more…)

Boehner Bails on Plan B

Let's call the whole thing off

I just finished laughing from this spectacle on the House floor today. The House leadership tried desperately to pass “Plan B,” the main part of which was an extension of the Bush tax cuts on the first $1 million of income. In truth, all of the other giveaways in it would actually result in lower taxes for many wealthy earners, but tax rates have this weird power, especially within the Republican caucus. And you could just feel today that conservatives weren’t willing to pass the bill, even at that ridiculously high level. John Boehner and the leadership added a sweetener in the form of a package that eliminated the sequester on defense spending and applied it to more discretionary spending cuts, and even that barely passed, tainted by the association to Plan B.

We waited for a vote. And waited. Then the House Republicans held a closed caucus. And then Boehner had to come out and call the whole thing off.

The House did not take up the tax measure today because it did not have sufficient support from our members to pass. Now it is up to the president to work with Senator Reid on legislation to avert the fiscal cliff. The House has already passed legislation to stop all of the January 1 tax rate increases and replace the sequester with responsible spending cuts that will begin to address our nation’s crippling debt. The Senate must now act.

This is astonishing. Boehner spent three days talking up Plan B, which you just don’t do without the votes in hand. But conservative groups rule the House, and they turned against a bill that gives tax breaks to everyone making up to $1 million, along with enough reductions in other taxes to soften the blow for those poor millionaires. But House Republicans just aren’t going to do it, on this or any tax increase.

This completely changes the dynamic of the talks, in my view. The President is simply not going to be able to win a grand bargain. The House couldn’t even do this simple millionaire’s bracket. There’s no way the President can continue to negotiate with someone who cannot bring the votes of his caucus forward. There is simply no negotiating partner on the other side, which has given way to crazy. It’s an impasse.

This way lies the slope. Going down. And frankly, I don’t see how you can be all that unhappy about it. The reality is that there will be no deal. The White House must recalibrate to that.

The Plan B Follies: Freedomworks Jumps Off the Ship

This clown show on the House floor just got more hilarious. At some point in the last four hours or so, Freedomworks, a key tea party group, abandoned their support of Plan B, this Boehner proposal to create what looks like a conservative wish list. They wrote a long encomium to Plan B at 9am this morning, and by 1:30pm, they added this:

[Update 12/20, 1:30 p.m. ET: After review of the Boehner Plan B legislation, pending in the House today, FreedomWorks has found it must oppose the legislation, and will be urging House members to vote NO on the bill. We will post our formal opposition letter on our site, soon.]

Hysterical. There’s been no reason given for this change of heart. Meanwhile, RedState continues to oppose the bill as a tax hike. It actually cuts taxes on many rich people relative to current law, while raising taxes relative to current law on the middle class and working poor.

I wonder how long they’ll have to keep this vote open to get their desired result. And meanwhile, Senate Democrats reiterated they won’t even bother to bring Plan B up for a vote. So the entire big lift here is completely meaningless. No wonder Republican numbers are tanking. (more…)

Plan B Morphs Into a Conservative Wish List

House Republicans will wait until tonight to pass “Plan B,” and while I think ultimately it will pass, the reason they’re waiting so long is that they have to figure out what to put into it to get conservative votes. Erick Son of Erick has a whip list of 34 no votes and 12 leaners, and Republicans can only lose 23, assuming no Democratic crossovers. So leadership must sweeten the pot if they want to win the vote.

And the way you sweeten the pot for House Republicans is that you kick the poor a bit more while handing out some aid to Wall Street and Lockheed Martin. Here’s the template bill in question. Basically the sequester, the automatic cuts to defense and discretionary spending, would get replaced by new cuts:

Cuts to food stamps that could knock millions of low-income Americans out of the program;

Cuts to Meals on Wheels, a program that delivers meals to seniors or other individuals who are unable to prepare their own food;

Cuts funding to health exchanges that will be created under Obamacare and funding for Medicaid included in the same law;

Cuts to the Dodd-Frank financial reform law that will yield no cost savings, but will make bailouts of big banks more likely;

Denying the Child Tax Credit to the parents of American children, if the parents are undocumented immigrants.

(Editorial comment: Dodd-Frank won’t make bailouts less likely, but cuts to the resolution authority section of the law are unwise.)

So in essence, Republicans unhappy about passing a bill that cuts taxes on the rich and raises them on the poor will be placated by cutting spending for the poor and easing up on Wall Street and defense contractors. This has become a conservative wish list, basically.

And yet, because of the weird salience of tax rates throughout the debate, the leadership will still have trouble wrangling up the votes.

Photo by marioanima under Creative Commons license.

Testimony Today in Congress About Benghazi Incident

Sen. Bob Corker “imperative that she come before this committee”

Hearings in Congress today pile on the political debate over the attack on the US consulate in Benghazi. The hearings come on the heels of the Pickering-Mullen report, which looked at the actions of the State Department and foreign service leading up to the attack, finding serious deficiencies in management and “grossly inadequate” security at the consulate. As a result four senior State Department officials resigned.

The senior State Department staffers who resigned included Eric Boswell, the assistant secretary for diplomatic security; Charlene Lamb, a deputy assistant secretary responsible for embassy security; and another unnamed person in the diplomatic security bureau, officials said. Raymond Maxwell, a deputy assistant secretary who oversaw Libya, Algeria, Tunisia and Morocco in the Bureau of Near Eastern Affairs, was identified by the Associated Press as the fourth official to resign.

They were held responsible for failing to act on requests for more guards and better fortifications for the U.S. compound in Benghazi, a city overrun by armed militiamen.

I don’t think foreign policy experts would describe Benghazi as “overrun,” but the larger point here is that these State Department officials actually took a measure of responsibility for their actions.

Smelling blood, Senate Republicans pounced today, saying they need the Secretary of State, Hillary Clinton, to personally come in and testify (she’s recuperating from a concussion). She’s already scheduled for testimony next month before the Foreign Relations Committee, but hearings are a time for bloviating.

The report does not describe any kind of cover-up about the Benghazi affair. It does not aver that the White House sought to minimize political damage from the event by claiming that it was inspired by an anti-Muslim video, for example. Really we have a situation where embassy security budgets fell, predictably, since the whole of government’s budget fell in the years described. And the calls for increased security in this specific embassy were not met with action. I would like to be a fly on the wall at the House Republican appropriations committee meeting, if a request for increased embassy security ever got discussed, just to see the variance between how that gets discussed there rather than in the open air.

Certainly there were failures at State and possibly in the intelligence gathering process; that could be the focus of post-Benghazi efforts, if the political shroud over this lifted.

GDP Rises to 3.1% in Final Q3 Estimate, But the Main Drivers Won’t Last

The economy grew at a faster rate than expected in the third quarter, according to the final revision on GDP released today. GDP increased at a relatively healthy 3.1% clip in Q3, a step up from the 1.3% increase in the final revision in Q2. Both figures are annualized. The Bureau of Economic Analysis explains how they arrived at this figure.

The acceleration in real GDP in the third quarter primarily reflected upturns in private inventory investment and in federal government spending, a downturn in imports, an upturn in state and local government spending, and an acceleration in residential fixed investment that were partly offset by a downturn in nonresidential fixed investment and a deceleration in exports.

It’s that uptick in both private inventory and government spending that actually troubles people. Because those are two areas where what goes up must come down. Government spending, which is set on an annual basis, seemed to cluster in Q3, but overall it has contributed negatively to growth since mid-2010. It’s not going to stay elevated like that even for another quarter; budget authorization wouldn’t allow it. Similarly, building up private inventory in one quarter will lead to stagnancy in the next, simply because businesses won’t restock until their inventory gets bought down a bit.

So if you think that those two areas will revert to the mean, you have a rebuilding of state and local government, which is no longer creating anti-stimulus. And you have the housing recovery, which remains a small percentage of overall GDP. Meanwhile exports are down, trade still contributes negatively to GDP, overall fiscal policy has been a drag, and further business investment is up in the air. There are reasons to believe that GDP will continue at a 2% pace, but not at 3% necessarily, especially depending on what happens with the fiscal slope.

But corporate profits are up so we’re in good shape.

Testimony Today in Congress About Benghazi Incident

Sen. Bob Corker “it's imperative that she come before this committee”

Hearings in Congress today pile on the political debate over the attack on the US consulate in Benghazi. The hearings come on the heels of the Pickering-Mullen report, which looked at the actions of the State Department and foreign service leading up to the attack, finding serious deficiencies in management and “grossly inadequate” security at the consulate. As a result four senior State Department officials resigned.

The senior State Department staffers who resigned included Eric Boswell, the assistant secretary for diplomatic security; Charlene Lamb, a deputy assistant secretary responsible for embassy security; and another unnamed person in the diplomatic security bureau, officials said. Raymond Maxwell, a deputy assistant secretary who oversaw Libya, Algeria, Tunisia and Morocco in the Bureau of Near Eastern Affairs, was identified by the Associated Press as the fourth official to resign.

They were held responsible for failing to act on requests for more guards and better fortifications for the U.S. compound in Benghazi, a city overrun by armed militiamen.

I don’t think foreign policy experts would describe Benghazi as “overrun,” but the larger point here is that these State Department officials actually took a measure of responsibility for their actions.

Smelling blood, Senate Republicans pounced today, saying they need the Secretary of State, Hillary Clinton, to personally come in and testify (she’s recuperating from a concussion). She’s already scheduled for testimony next month before the Foreign Relations Committee, but hearings are a time for bloviating.

The report does not describe any kind of cover-up about the Benghazi affair. It does not aver that the White House sought to minimize political damage from the event by claiming that it was inspired by an anti-Muslim video, for example. Really we have a situation where embassy security budgets fell, predictably, since the whole of government’s budget fell in the years described. And the calls for increased security in this specific embassy were not met with action. I would like to be a fly on the wall at the House Republican appropriations committee meeting, if a request for increased embassy security ever got discussed, just to see the variance between how that gets discussed there rather than in the open air.

Certainly there were failures at State and possibly in the intelligence gathering process; that could be the focus of post-Benghazi efforts, if the political shroud over this lifted.

What the Housing Market Actually Looks Like

This week brought more good statistical news for the housing market. Existing home sales rose at a decent clip in November, nearing post-bubble highs not seen since the artificial spike from the homebuyer’s tax credit (I’ve noted that the end of the Mortgage Forgiveness Debt Relief Act could be giving the same spike). Inventory fell again, which presages higher prices. And while housing starts fell in November, the more stable indicator of homebuilding permits rose above expectations. There’s a huge hole to dig out from – even with its 25% rise, housing starts in 2012 would be the 4th-lowest in history – but the digging is occurring.

However, it might be worth looking at some other statistics, to understand not the housing market based on prices and starts and sales, but based on what it looks like for the average person. And that shows a very different picture.

First of all, here’s a fairly astonishing stat:

Bank of America Corp. has amassed $64 billion of mortgages that are at least six months delinquent and have yet to enter foreclosure, more than twice the amount held by its four largest competitors combined […]

The data, published last month by the monitor of the settlement, highlight Bank of America’s vast backlog of delinquencies, and the years it will take to work through them as borrowers fall further behind and losses mount for investors in mortgage-backed securities. While the Charlotte, North Carolina-based bank has begun modifications for many of its 275,000 homeowners at least 180 days behind as of Sept. 30, some will join the already clogged U.S. foreclosure pipeline.

I would focus less on how routing these $64 billion in mortgages into the foreclosure pipeline will affect prices and sales (though that will happen) and more about how the people behind those $64 billion of mortgages will survive without their house. Your talking about several hundred thousand if not millions of people, and this is but one mortgage lender.

Meanwhile, the mortgage market is now entirely a government-sponsored enterprise:

…with little planning and paltry public discussion, the government has almost completely taken over the American home mortgage market. Banks and other for-profit financial services companies lend money to homeowners, but without the guarantees and other support the government provides, the housing market would barely be functioning now.

Fannie Mae and Freddie Mac, the taxpayer-controlled housing giants, guaranteed 69 percent of new mortgages in the first nine months of the year, up from about 27 percent share in 2006, according to Inside Mortgage Finance. Meanwhile, the Federal Housing Authority and the Department of Veteran’s Affairs currently back another 21 percent of mortgages, up from just 2.8 percent in 2006. Altogether, 9 of every 10 new mortgages are backed by the U.S. taxpayer, up from three in 10 in 2006, when the government share hit a decade-low, according to the publication.

Similar to this, one should also point out the extreme price sensitivity in the mortgage market, and how the slightest increase in mortgage rates cause applications to crash. This has been a consistent dynamic, especially as it relates to refinancing. This lets you understand how much the Federal Reserve is propping up the mortgage market by purchasing mortgage backed securities and keeping rates extremely low. There is massive financial support being thrown at lenders.

And who does that enable? Companies which, as shown by this incredible chart, have committed vast amounts of fraud over the past several years, which the regulatory apparatus is only beginning to capture, and even then in cost-of-doing-business settlement. The one guilty plea that UBS had to give in the Libor scandal was the first criminal fraud charge agreed to by a major bank since 1989. Regulators have basically granted forbearance for 20-plus years, and with the other hand they shovel money toward the same fraudulent banks.

When you have the government this involved in a market, it breeds a certain corruption, or at least enables it. That’s how you get a market where banks can leave houses off the market for years and artificially constrain supply. That’s how you get investors able to scoop up all sorts of housing in the creation of another bubble. And considering that the same elements of fraud and fabrication and abuse remain evident within the marketplace, you have to say that such an enabling is already well underway. (more…)