Senate “Moderates” Cut 1 1/4 Million Jobs from Stimulus Bill

(Update: New numbers have come out indicating cuts are 88 billion, not the 120 we heard last night.  In that case the difference between the original Senate and the Gang of four compromise would be 951,000.)

The bottom line on the changes demanded by "centrist" gang of four Senators Collins, Specter, Lieberman and Nelson is that the compromise Senate bill will create about 728,143 fewer jobs less than the House bill.  This is a back on the envelope figure and very rough, but if anything it should be a slight underestimate.  If you compare the compromised Senate Bill to the pre-gang Senate bill, it comes out to 1,271,000 fewer jobs.

Friday night during the stimulus debate Senator Ben Nelson (D-Neb) said that:

"Our plan pares back a very substantial amount of money that we believed didn’t belong in the bill. Didn’t belong in a bill that was designed to fix our economy called a stimulus package.

Now if we looked at these proposals many of them will work well in a budget or in another bill.

But we just didn’t think that they deserved to be in this particular bill which was about jobs, jobs, jobs. Now if we ask taxpayers to support it as we are, they deserve to get the biggest bang for their buck. The remaining plan will generate new jobs, save jobs and expands job opportunities all across America as it also boosts our economy." 

Clearly, Ben Nelson doesn’t know what he’s talking about.  Worse than that, White House Press Officer Robert Gibbs then congratulated Nelson and co. for gutting the bill:

On the day when we learned 3.6 million people have lost their jobs since this recession began, we are pleased the process is moving forward and we are closer to getting Americans a plan to create millions of jobs and get people back to work 

Here are the assumptions and the math.

The Senate Bill is apparently $780 billion, 42% is tax cut, 58% spending.  That means tax cuts are: (more…)

Hit The Phones To Stop a Depression

It’s time to hit the phones for the stimulus bill.  Calls are running at 100:1 against.  Yes, it’s not that good a stimulus bill, I’ve said so myself, but it’s not a case of scrapping it and starting over, what looks likely to happen is that it gets badly watered down with bribes to Republicans and "moderate" Democrats like Ben Nelson to get it through.  As Our Future noted in their action email, this probably means changes like:

-Giving corporations a 30% tax cut, instead of investing in clean green energy that will put people to work.

-$3.1 trillion in tax cuts for the wealthy that we know simply don’t work to create jobs.

-Less help for states that will be forced to lay off workers, instead of funds to retain police and teachers.

Let’s be really clear on this.  The rich got their bailout with TARP, 700 billion, they’re already getting tax cuts in this package, and it looks like the way the proposed bad bank is going to be done is hundreds of billions or even trillions more of bailout for rich people.  What the stimulus is is the only money that regular people; that you, are likely to see.  This is whether your State has to to cut teachers, whether there’s health care for people who lose their jobs and whether there’s a cop or firefighter to come when you call. 

Even more, while I can’t say that passing the stimulus bill will prevent a Depression, I can say that the more it’s watered down, the more likely a Depression becomes.  That’s probably what Republicans want, since it would mean a better chance of electoral victory for them (what Ben Nelson and other "moderate" Dems are thinking, I have no idea.  I assume they’re just stupid enough to think tax cuts work despite never having done so for 30 years).  

So, please, hit the phones and let your Senators know that you expect the bill to pass with no further watering down or gifts for the rich.  The Congressional Switchboard operator is at 1-866-544-7573. Remember, be polite, but let them know where you stand.

(List of Senators who need particular attention, below the fold): (more…)

The Choice: A Generation of A Lousy Economy, Or?

Image by TW Collins

Image by TW Collins

Yesterday I discussed the "let the banks go under" option.  Let’s talk about the ups and downs of this possibility, because there are significant risks associated with it, which is why folks like Summers and Geithner are acting like they stared at the Gorgon and have been turned to stone.

The case for it is simple enough: if you don’t force the losses and the write downs, and instead allow a combination of impaired bank balance books and government accepting the losses, whether through a bad bank, insurance or other means, you have to write off trillions and trillions (I’m guessing, globally, a minimum of 8 trillion, and it is probably much higher than that).  That money will not be available for useful investments, for income, for social security or anything else.  It will be commited for a generation.  This is essentially what happened in Japan, when Japan refused to have its banks really accept and acknowledge their losses.  If you’re old enough, you remember the days when Japan had probably the world’s most dynamic economy.  No longer, instead they have an economy that’s in and out of the hospital, one where the good times have never, ever returnred.

That’s the zombie bank route combined with a bad bank that doesn’t nationalize banks.  Pay it off over a generation.  (more…)

No Banks Means No Banking Crisis

image by Twolf

image by Twolf

Stiglitz is saying something slightly more radical than what I’ve been saying for some time.  You don’t need the current banks. If they won’t lend, let them go under.  If the Fed can lend to banks, why can’t it lend directly to banks and consumers.

Banks exist to be intermediaries between central banks and those who need credit.  They are given the ability to create money through fractional reserve money (yes, create) and they also have the right to borrow money at rates that no one else can receive.  If you could take your money, multiply it by 10 (that’s not the exact number, but as an example) and lend it out, think you could make a profit?  If you could borrow money at 1 to 5% and then lend it out for more than that, in some cases 15% more, think you could make money?

Banks thus are given by governments an incredibly valuable privilege.  It’s really hard to overstate how easy it is to make steady returns as a bank as long as you don’t get greedy.  In exchange for the right to create money and borrow it at rates no one else gets, banks are expected to add some value to the equation.  Specifically, they are expected to figure out who is a good credit risk, and where money should best be loaned and used.  There are two sides of this – money should be loaned where it has a high return.  It should also be loaned to folks who can pay it back.  It should be invested in the same way—return averaged with risk.  

Banks haven’t been doing this.  (more…)

Cutting the Gordian Knot of Bad Contracts to Save the Economy

by Roel 1943

Gordian Knot by Roel 1943

One of the main reasons why the financial crisis is not getting significantly better is that governments are not willing to forcefully break contracts.

This may seem like a good thing. Who wants governments to break contracts? But the problem is that contracts as now written are adding to the crisis. Mortgages, for example, cannot be lowered to costs that homeowners can actually carry because the ownership of the derivatives those mortgages were packaged into makes too many people into owners. Even if you were able to figure out all the owners, getting dozens or even hundreds of people to all agree to modify the contract is effectively impossible. And if you modify it anyway, all it takes is one person to sue for breach of contract. In short, banks can’t modify the terms of most mortgages, because they are only intermediaries servicing the mortgages, they don’t own them.

When mortgages aren’t rewritten to make them more affordable, homeowners have to walk away from them. When they do that the cost is much higher than if the default had occurred in the first place – the municipalities lose the tax income, the owners of the mortgage wind up with a property that can’t pay back the loan either, more losses cascade into the system, causing one of the spirals we discussed above.

And it all happens in slow motion-one house at a time, one contract at a time, one family at a time. It drags on and on. No floor is being put under the market, and uncertainty abounds. No one can know how long this will go on or how bad it’s going to be. If a wholesale rewrite was allowed, then the losses could be figured out.

Even if a retail rewrite was allowed, as in the proposed changes to bankruptcy law, which would allow judges to rewrite the terms of mortgages, estimates could be made. Such rewrites, done properly, would follow the principle of "what can the family manage" and rules of thumb like "30% of earned income typical of the neighborhood". You can much more easily figure out what the value of collateralized debt obligations are in such a case.

The problem, though, is larger than this. Fundamentally, most of the instruments at the heart of the financial crisis were sold based on fraud. (more…)

How Republicans Intend to Win in 2010 and 2012

Correction: The section of this article relating to pay-go legislation was incorrect.  It has been corrected.  My apologies for the error. – Ian

Yesterdays events, where House Republicans all voted against the stimulus bill, after getting a couple key concessions should tell us a lot about Republican strategy for the next elections.

The larger picture includes not just Republicans but Blue Dogs, who only allowed the stimulus bill to pass after Obama told them he would follow pay-go rules going forward, meaning that all new expenditures and tax cuts must be matched either by cuts in spending or raised taxes. Obama has also indicated he intends to deal with entitlement reform, which means changes to Medicare and Social Security to make them more financially viable (for the record, Social Security will be fully solvent for at least 30 years, and anyone who tells you it’s in a crisis is lying to you. Medicare, on the other hand, has real problems.)

Given these three facts, here’s what I think Republican strategists are thinking:

The House Republicans voted against the stimulus because they don’t want the Kerry problem of having voted for something they then have to oppose in an election. (Remember Kerry’s problems with having voted for the Iraq war?) The calculus is simple: if Democrats manage to get the economy going again, Republicans are sunk anyway. A good economy means Democratic wins in 2010 and 2012, barring some sort of foreign policy fiasco like the hostage crisis.

In the Senate, a few moderate Republicans will vote for the stimulus bill, allowing it to pass, after having wrung out as many concessions as possible to weaken it and make it less likely to work. The majority will vote against it. Republicans will be able to say that as a party, they were against the stimulus bill. Whether that’s popular now or not is irrelevant, there isn’t another election for 2 years.

Next up will be pay-go legislation, as payoff for the Blue Dogs. That will likely cripple the ability to do another stimulus bill next year, meaning that if this stimulus bill isn’t enough by itself (and odds are pretty decent it won’t be), the government’s hands will be tied. Another really large stimulus will not be possible. (Correction: pay-go legislation was already passed, but it didn’t include emergency measures.  Obama indicated to the Blue Dogs that once this emergency measure was done he’d start following pay-go more carefully.  My apologies for the error). (more…)

Stimulus Bill Passes House With 0 Republican Votes

by TW Collins

by TW Collins

Well, it passed.  After taking out family planning money and ditching bankruptcy reform, plus including significant tax cuts, not a single Republican voted for it. It’s like Democrats are negotiating with themselves.  They give things up and get no votes in exchange.

Of course, votes were never needed in the House, anyway.  The real question has always been the Senate.  While it’s unclear to me that any Republican Senator who would cross lines to vote for the bill was of the theocon wing that believes that contraception and family planning is the devil, perhaps the votes traded were traded in the Senate.  One can hope so.  

The other possibility is that the real negotiation isn’t with Republicans, but with Blue Dogs.  Obama promised Blue Dogs that Pay-Go legislation would come up next in order to get their support.  While there are ways to do pay-go which won’t completely destroy the ability to do stimulus in the future (put all the off budget stuff back on the budget, and then draw down out of Iraq fast to free up money) it’s unclear if that’s the intention.  The fear has to be that pay-go will mean that after the stimulus, TARP, and the 8 trillion or so that the Fed and the Treasury have spent, loaned and guaranteed, the barn doors are about to be shut hard.  What normal people are getting, a few hundred billion, is all they may get.  Large programs like universal healthcare could thus be, in effect, off the table.

While I’ve been a deficit hawk for years, doing a stimulus once, then being unwilling to do another one if necessary, is potentially disastrous.  It was precisely this mistake which FDR made when he tried to balance the budget in the middle of the Great Depression, undoing many of the employment gains of the New Deal.

I hope Democrats aren’t tying their own hands, and at the same time negotiating with themselves, rather than Republicans.  It’s one thing to get Republican votes in exchange for a compromise.  It’s another thing to compromise and get nothing in return.  

Geithner Becomes Treasury Secretary

geithners-fed-reserve-pic.thumbnail.jpg

The Senate has passed him through.  I’m sure he will do as good a job for Obama as he did for Bush, Bernanke and Paulson.

Update: 4 Democrats voted against.

Byrd
Harkin
Feingold
Sanders (well, sort of a Dem)

Feingold’s reasoning after the jump

 Statement of U.S. Senator Russ Feingold
In Opposition to the Nomination of Timothy Geithner to be the Next  Secretary of the Treasury
January 26, 2009

"I voted against the nomination of Timothy Geithner to be the next Secretary of the Treasury with some reluctance. President Obama, like any other President, is entitled to have the Cabinet he wants, barring  serious disqualifying issue, and Mr. Geithner is a very able nominee in many ways. And while I am troubled by Mr. Geithner’s track record on some of the issues that have contributed to the credit market crisis, I do not base my vote on what is, to a certain extent, a matter of policy disagreement.

"Mr. Geithner’s tax liability is a different matter, however. I am deeply troubled by his failure to pay the payroll taxes he owed, despite repeated alerts from his employer at the time, the International Monetary Fund, that he was responsible for paying those taxes. Moreover, his earlier interactions with the Internal Revenue service over his failure to pay sufficient payroll taxes for his household employees make Mr. Geithner’s explanations of his failure to pay his own payroll taxes even less satisfactory. The failure to comply with our nation’s tax laws would be problematic for any Cabinet nominee, but it is especially disturbing when it involves the individual who will be charged with overseeing the enforcement of our tax laws.

"With the condition the economy is in, and the state of our country’s financial institutions, the stakes could not be greater for the next Treasury Secretary. While I could not support his nomination, I respect Mr. Geithner’s abilities and I look forward to working with him to address the serious problems facing our country."

The Stimulus Bill is the Immigration Bill All Over Again

Anyone remember the immigration bill?  The one which increased the number of guest workers and had draconian rules for becoming a citizen that included having to go back to the country of origin?  The one that conservatives hated and liberals were lukewarm about?

Insiders are trying to get some sort of popular enthusiasm going, but really, even most people who support it think "it’s better than nothing.  But it’s not very good".  All the enthusiasm and energy, for killing it, is on the right.  On the left, a palpable yawn.

Unlike the immigration bill, it’ll probably pass, only because there are a lot more Democrats in Congress now.  Putting out a bill liberals and progressives can’t be enthusiastic about left Obama without a left wing that’s fired up to push it, with few surrogates to push back against Republican propaganda, and a bill which will be much less effective economically than it should be.

Which means, in the end, the right may get what they want: a bill so compromised it doesn’t turn the economy around, leading to electoral gains in 2010 and 2012.

And the irony is, it’ll probably pass with as bare a vote margin as if it had been a more effective, more liberal, bill.

The Best Politics Is Good Policy

by Admit One

by Admit One

Atrios cuts to the heart of the stimulus bill debate:

I actually hope every Republican votes against the stimulus package, and I hope that instead of trying to please them the Obama team comes up with what they think the right package will be. The Republicans should lay out a competing vision, which won’t pass because they aren’t in charge. Then, 2 and 4 years from now voters can judge the results and if they aren’t pretty they’ll know who to blame and decide that the competing vision would have been a better one.

But I disagree with him on this:

With bipartisanship you’ll not only get a compromise that sucks, when it’s time to throw the bums out no one will be quite sure which party should be blamed. Then what new candidates do is just run against some generic "Washington."

Democrats have the presidency and big majorities. Instead of hiding behind the spread-the-blame-around tactic, they should announce their vision and run with it. 

Republicans had large numbers of Democrats join them on key votes for their policies over the last 8 years.  It didn’t save them in ’06 or ’08.  It can help in a marginal election, as it did when Kerry was hamstrung by his pro-war vote in 2004, but if a real disaster occurs, you’re sunk. The party in charge gets the blame or the credit for how the country is doing.

If Bush had won the Iraq war in 6 months, set up a compliant semi-democratic government in Iraq, driven oil back down to $20 and had a good economy, Republicans would have won in 08, no matter how many Democrats signed on to the Iraq war, tax cuts and other Bush policies.

The best politics is always good policy.  Turn the economy around and no one will care how many Republicans voted for Obama’s bills.  Fail to turn the economy around and, well, no one will care how many Republicans voted for Obama’s bills.

Results matter.  All else is spin.