I hope the president hangs tough and doesn’t blink. I hope he stands with the interventionist, activist element within the Democratic Party. I’m not referring to Iran or Syria. I hope President Obama doesn’t back down on his decree to force Catholic institutions to disavow sacred tenets of their faith in order for him to dictate a certain lifestyle and force his choices on the rest of us.

For the record, he doesn’t like the colored guy and he thinks this is an unforced error, and then comes the appeal to authority:

Peggy Noonan is America’s muse. She is sui generis. She is the Peggy Noonan of modern American commentary. Read her Saturday Wall Street Journal column to gain an appreciation of the emotional mark that will linger in the thoughtful minds and consciences of millions of voters. In a close race, this could make the difference.

Oh my. Looks like someone will be getting laid at CPAC this weekend and he won’t even have to wear the Reagan mask….

(photo: Eclectic Blogs)

The Post doesn’t like the plans because the government could lose money on the deals. They also say that they may not fix the housing market.

Let’s take these in turn. In answer to the first, the question is how much money does the government stand to lose by allowing homeowners who are already underwater to refinance at lower rates. Remember, we are already on the hook for the loans. The deal is simply that homeowners will now be paying lower interest to holders of mortgage backed securities, or in cases where Fannie and Freddie held the loans directly, to the government. The downside risk to the government seems pretty small and, as the Fed noted, if it reduces the default rate, then it could be a net gainer. Of all the ways in which we can conceivably help homeowners, this one should top the list as no-brainer.

The question about fixing the housing market depends on what we mean by “fixing?” There was a housing bubble. It burst. Does the Post think that we will get house prices back to their bubble-inflated levels? That is probably not possible and certainly not desirable. If the point is to get homes occupied and to allow people who are no longer homeowners to find good rental housing, then again the Fed’s proposals seem like no-brainers.

The Fed deserves tons of ridicule; letting the housing bubble grow to such dangerous levels was an act of ungodly stupidity. But its latest proposals on housing are definitely a step in the right direction.

Larry Summers (photo: Fortune Live Media/flickr)

From the problems of Britain and Italy in the 1970s, through the Latin American debt crisis of the 1980s and the Mexican, Asian and Russian financial crises of the 1990s, the IMF has operated by twinning the provision of liquidity with strong requirements that those involved do what is necessary to restore their financial positions to sustainability. There is ample room for debate about precise policy choices the fund has made. But the IMF has consistently stood for the proposition that the laws of economics do not and will not give way to political considerations.

This is arguably wrong as a general proposition, but it is certainly wrong in reference to the East Asian bailouts in 1990s that were largely engineered by Larry Summers and the U.S. Treasury Department, which controls the IMF. The conditions demanded in the East Asian bailouts required the countries in crisis in repay loans to western banks in full.

It allowed them to get the money needed to make the repayments by having the dollar rise in value against the currencies of the region (i.e. Robert Rubin’s strong dollar policy). It was not only the East Asian countries that deliberately lowered the value of their currency against the dollar, developing countries throughout the world adopted a policy of accumulating massive amounts of reserves in order to avoid ever being in the same situation as the East Asian countries.

This led to the enormous trade deficits that the U.S. has incurred in subsequent years. This situation was not sustainable, contrary to Summers’ assertion that the IMF puts countries on a sustainable course.

In fact, the trade deficit between the United States and the rest of the world was the major imbalance in the global economy in the last decade. It created the gap in demand that was filled by the stock bubble in the 90s and the housing bubble in the last decade. It is striking that the Post’s opinion pages are only open to people who try to conceal this fact rather than economists who try to explain this history to readers.

Rep. Bob Corker, R-TN (photo: Republican Party of Shelby County)

Corker tells readers:

During the boom years, the GSEs’ affordable housing goals were coupled with a Congress and an administration that saw only the bright side of rapidly increasing homeownership rates. That meant that as housing prices began to spike, it was impossible to make credit slightly more expensive. Without countercyclical market mechanisms able to operate naturally, as housing prices went higher, the GSEs simply raced each other to lower guarantee fees, out of fear that they might lose business from mortgage originators such as Countrywide and Washington Mutual. The result, we now know, was a government-induced bubble followed by a painful collapse.

Okay, maybe Senator Corker really never heard of Citigroup, Goldman Sachs, Lehman Brothers, Bears Stearns, and the other Wall Street investment banks. He may not know that they were making tens of billions of dollars during these years securitizing the worst of the sub prime mortgages, without any government guarantees except their implicit too big to fail insurance. News may take a long time to reach Tennessee.

But surely the Post knows about private issue mortgage backed securities and their role in the bubble. It even published a very good column by Barry Ritholz a couple of weeks back outlining the story. So why does it allow Corker to publish something that it knows is not true? Would it print an opinion column blaming President Bush for actually doing the World Trade Center bombing? [cont'd.]

There is a ton of data showing that the blame Fannie and Freddie story is nonsense, but my favorite entry in this debate is a contemporaneous assessment from that well-known promulgator of left-wing propaganda, Moody’s:

“Freddie Mac has long played a central role (shared with Fannie Mae) in the secondary mortgage market. In recent years, both housing GSEs [Government Sponsored Enterprises] have been losing share within the overall market due to the shifting nature of consumer preferences towards adjustable-rate loans and other hybrid products. For the first half of 2006, Fannie Mae and Freddie Mac captured about 44 percent of total origination volume – up from a 41 percent share in 2005, but down from a 59 percent share in 2003. Moody’s would be concerned if Freddie Mac’s market share (i.e., mortgage portfolio plus securities as a percentage of conforming and non-conforming origination), which ranged between 18 and 23 percent between 1999 and the first half of 2006, declined below 15 percent. To buttress its market share, Freddie Mac has increased its purchases of private label securities. Moody’s notes that these purchases contribute to profitability, affordable housing goals, and market share in the short-term, but offer minimal benefit from a franchise building perspective.” (Moody’s, “Federal Home Loan Mortgage Corporation, Analysis,” December 2006, p.8)

So here we have Moody’s expressing concern about the ongoing viability of Freddie Mac because they are losing out in the subprime and Alt-A market to the investment bank. This is its assessment at the time, before it was apparent (to them) that this market was a disaster in the works.

When someone claims that the bubble was the fault of Fannie and Freddie, they are either ignorant or lying. And, I am saying this as someone who was harshly critical of both at the time and would happy to see the euthanasia of these mortgage giants — at least if the alternative is to see them returned to some sort of public-private hybrid.

Both companies deserve tons of blame, they could have possibly stopped the bubble cold if either of them had done something radical like announcing that they would require appraisals of rental values and only buy mortgages with a purchase price below some price to rent ratio (e.g. 18 to 1). However, their failure to be heroes does not make them the prime villains. That would be the Wall Street boys, end of story.

Btw, if anyone is interested in knowing what happens to a public agency committed to homeownership in the middle of a housing bubble, that is not run for profit, then they should look to the Federal Housing Authority (FHA). While far from perfect, the FHA did not get caught up in the irrational exuberance of the bubble years. Its market share fell from around 10 percent in the late 1990s to 2 percent in 2005.

As Glenn Greenwald points out Pexton admits (but secretly! shhhhhh. don’t tell!) that Rubin should probably be shown the other side of the door but, hey, he’s just a ineffective apologist for the sins of the paper and he has no other-worldly powers except for Super Regret and Angst:

That’s all fine as far as it goes, but what about the question posed by the reader: wouldn’t Rubin have been fired for promoting this hate-mongering had it been directed at Jews and Israelis rather than Palestinians? Pexton’s email response, published by the reader who emailed him, was this:

[Pexton]: Off the record, I think it’s quite possible. But the ombudsman does not hire or fire people here. I only comment.

Leave aside the bizarre belief of establishment journalists that they can unilaterally decree their statements to be “off the record” and then expect that to be honored in the absence of any agreement by the person to whom they’re making the statement. What is most striking here is Pexton’s highly revealing cowardice — probably well-grounded — in wanting his observation about this double standard to be kept private; shouldn’t an Ombudsman who believes this be eager to raise it in public?

What’s particularly remarkable is that Pexton is admitting (albeit wanting it kept secret) what any honest observer knows to be true: that there is a very high likelihood — I’d say absolute certainty — that Rubin would have been fired had she promoted a post like this about Jews and Israelis rather than Arabs and Palestinians.

The problem is that Rubin is doing exactly what Fred Hiatt wants her to do: [cont'd.]

As a general matter I think it isn’t wise for me to comment on the work of the ombudsman, who is entitled to his views, and over whom I do not have editorial control.

However, I will say this: I think Jennifer is an excellent journalist and a relentless reporter. I think because she has strong views, and because she is as willing to take on her home team, as it were, as the visitors, she comes under more scrutiny than many and is often the target of unjustified criticism. I think she brings enormous value to the Post.

So basically, Rubin can advocate the skullfucking of Palestinian orphans causing Pexton to run and complain to Fred Hiatt who will give it great consideration before consulting the sacred texts of the WaPo stylebook to see if skullfucking is one word or if it is hyphenated.

As they say: duly noted….

Mrs. Eleanor Gilman of Dublin, Ohio has no qualms about popping a cap in your bitch ass

As part of Washington Test Prep Newsletter Post’s war against The Olds and The Poors they have recently taken the fight to the front page where they printed outright lies about Social Security and, when called upon it, shoved staff weasel out the front door and onto the porch to do that weaseling thing that he is paid to do for a skeptical audience. To say the he has been Pfotenhaueresque in his pfailures is pfutting it mildly.

Taking a cue from rightwing bloggers who have attempted to demonize the Occupy Wall Street Movement as a bunch of smelly violent rapey drum-beating anti-Semitic ACORN communists, the WaPo unleashes the Hounds of Hiatt upon the old, the sick, and the standing-up-for-themselves:

That’s right. The growing “mob” of “thuggish” Olds are getting all up in America’s grill when there are important decisions to be made about destroying the social safety net as well as tearing up that agreement we made with them back in ’35, and then amended in ’39, where the Olds gave us money when they were Youngs and we agreed to keep it until they needed it. Well, a funny thing happened, and we kind of borrowed some of that money and blew it on candy and toys and wars and after-tax benefits to General Electric and now we don’t have it and we don’t want to pay it back anymore. I mean we could, if we returned to the tax rates under Ike (remember him? such a nice man with a nice smile) but that would be communism and remember how hard Ike fought communism? No, that will never do.

So maybe the AARP should just step off jack, possibly even hire someone who is a little more open to compromise. Maybe that nice young man with the sincere blue eyes, Paul Ryan. I hear he has a Medicaid plan that includes coupons from Groupon good for valuable discounts on dialysis and hip replacements and, God knows, you Olds love your coupons….

(photo: Eclectic Blogs)

While this assertion was presented in a sensationalistic manner in the Post, as both the headline and the lead, it is actually not true. Social Security has not gone “cash negative” in the sense that the trust fund is still growing. While current benefit payments exceed designated Social Security tax revenue, the income to the system, which includes interest on its holdings of government bonds, still exceeds benefit payments.

In this sense it is simply wrong to say that the system is cash negative. More money is still coming into the system than is going out. Obviously the Post meant to say that benefit payments exceed tax revenue, but tax revenue is only part of the income for the program. It is a serious failure by the Post to ignore the income stream from interest payments, which is compounded by the failure of the ombudsman to recognize this failure.

This is really not something that is arguable — Social Security has a stream of income from the interest on its bonds. The Post and its ombudsman may not like this fact, but it is nonetheless true.

The ombudsman also chose to ignore several misleading or false claims that the Post used to advance its Social Security crisis story. For example, the original piece told readers that “the payroll tax holiday is depriving the system of revenue.” This is not true. Under the law, the Social Security system is fully reimbursed for the money not collected as a result of the payroll tax holiday. [cont'd.]

The piece also claimed that Senate Majority Leader Harry Reid was wrong when he claimed that Social Security was not contributing to the budget deficit. In fact, under the law Social Security has a separate budget that is not part of the on-budget budget. The program can only spend money from its own trust fund, which is money raised through designated taxes or the bonds purchased with this tax revenue. For this reason, it cannot legally contribute to the budget deficit. Presumably the Post and its budget reporter (and its ombudsman) are aware of this fact, but rather than clarifying the issue it chose to take a swipe at Senator Reid for defending Social Security. (The payroll tax holiday put in place for 2010 is arguable an exception to this.)

If the purpose of the piece was to inform readers rather than to raise fears, it might have been useful to put the projected Social Security shortfall in some context so that readers could evaluate the size of the problem. The most recent projections from the Congressional Budget Office put the shortfall over the program’s 75-year planning period at 0.58 percent of GDP (exhibit 5). This is just over one-third of the increase in the size of the annual defense budget since the pre-September 11th period.

Alternatively, the Post could have told readers that the projected shortfall is approximately equal to one-tenth the size of the upward redistribution from the bottom 99 percent to the top 1 percent over the last three decades. These or other comparsions would have been made readers better able to assess the size and implications of Social Security’s long-run problems.

There are many other problems with the article that are not worth repeating here. (Here is the original blogpost.) Clearly the ombudsman was intent on exoneration rather than a serious examination of the issues raised by the piece and its critics.

However what is perhaps most disturbing is how the ombudsman seeks to settle the issue. He tells readers:

“I spent a couple of days last week talking to Social Security experts across the ideological spectrum. Some, mainly those on the left, didn’t like the story, while those on the right did. But some in the middle, like Jonathan Cowan of the Third Way, declared it realistic and on point.”

It is not clear what standing Jonathan Cowan (an English major at Dartmouth college) has to settle this issue other than fitting the Post’s definition of being in the middle. One need not have a PhD in a policy field to take part in public debate, but being in the middle of the political spectrum (by the Post’s standards) does not make one expert on an issue.

And in fact, there are many situations where the truth most definitely does not lie in the middle (e.g. the Civil War). The Post’s ombudsman has substituted finding the middle ground for finding the truth. This might be the way the Post conducts itself, but it is not the way a serious newspaper carries through its business.

(photo: Eclectic Blogs)

News outlets generally like to claim a separation between their editorial pages and their news pages. The Washington Post has long ignored this distinction in pursuing its agenda for cutting Social Security, however it took a big step further in tearing down this barrier with a lead front page story that would have been excluded from most opinion pages because of all the inaccuracies it contained.

The basic premise of the story, as expressed in the headline (“the debt fallout: how Social Security went ‘cash negative’ earlier than expected”) and the first paragraph (“Last year, as a debate over the runaway national debt gathered steam in Washington, Social Security passed a treacherous milestone. It went ‘cash negative.’”) is that Social Security faces some sort of crisis because it is paying out more in benefits than it collects in taxes. [The "runaway national debt" is also a Washington Post invention. The deficits have soared in recent years because of the economic downturn following the collapse of the housing bubble. No responsible newspaper would discuss this as problem of the budget as opposed to a problem with a horribly underemployed economy.]

This “treacherous milestone” is entirely the Post’s invention, it has absolutely nothing to do with the law that governs Social Security benefit payments. Under the law, as long as there is money in the trust fund, then Social Security is able to pay full benefits. There is literally no other possible interpretation of the law. [cont'd.]

As the article notes the trust fund currently holds $2.6 trillion in government bonds, so it is nowhere close to being unable to pay benefits. The whole point of building up the trust fund was to help cover costs at a future date when taxes would not be sufficient to cover full benefits. Rather than posing any sort of crisis, this is exactly what had been planned when Congress last made major changes to the program in 1983 based on the recommendations of the Greenspan commission.

The article makes great efforts to confuse readers about the status of the trust fund. It tells readers:

“The $2.6 trillion Social Security trust fund will provide little relief. The government has borrowed every cent and now must raise taxes, cut spending or borrow more heavily from outside investors to keep benefit checks flowing.”

This is the same situation the government faces when Wall Street investment banker Peter Peterson or any other holder of government bonds decides to cash in their bonds when they become due. In such cases it “must raise taxes, cut spending or borrow more heavily from outside investors.” The Post’s reporters and editors should understand this fact.

The article then goes on to incorrectly accuse Senate Majority Leader Harry Reid of misrepresenting the finances of Social Security:

“In an MSNBC interview, he [Senator Reid] added: ‘Social Security does not add a single penny, not a dime, a nickel, a dollar to the budget problems we have. Never has and, for the next 30 years, it won’t do that.’

Actually the plan put forward by Bowles and Simpson would have implied large cuts for most low-income workers who would not have met the work requirements needed for the higher benefit. The cut would have taken the form of a 0.3 percentage point reduction in the annual cost of living adjustment. This cut would be cumulative, after 15 years of retirement a beneficiary would be seeing a benefit that is roughly 4.5 percent lower as a result of the Bowles-Simpson plan. The plan also phased in an increase in the age for receiving full benefits to 69, which is also a benefit cut for lower income retirees.

For lower income retirees Social Security is the overwhelming majority of their income. This means that the benefit cut advocated by Bowles and Simpson would imply the loss of a much larger share of their income than the end of the Bush tax cuts would for the wealthy. However, the Post has never described the ending of these tax cuts as a “modest” or “small” tax increase.

It is also worth noting that “upper-income workers” who would face benefit cuts under the Bowles-Simpson plan are people with average earnings of more than $40,000 a year. This is not ordinarily viewed as the cutoff for upper income. In reference to the ending of the Bush tax cuts, the Post once ran a front page story questioning whether people earning $500,000 a year were wealthy. Clearly they apply a different standard to Social Security beneficiaries.

To push its line of fat and happy seniors the Post misrepresented research by Gene Steurele on returns from Social Security taxes. At one point it told readers:

“That return is diminishing, in part because people today have paid more into the system than previous generations. But a two-earner, middle-income couple retiring this year can expect to get $913,000 in Social Security and Medicare benefits over their lifetimes, in return for $717,000 in payroll taxes.”

The trick in this picture is that the return refers to Social Security and Medicare, not just Social Security which is the topic of the article. The Steurele paper actually has the Social Security returns shown separately in the exact same chart. Stuerele calculated that the two-earner couple referred to in the article would pay a bit less than $600,000 in taxes into the system and collect around $560,000 in benefits.

[This couple will get more back in Medicare benefits than they paid in taxes, but this is primarily because our health care costs twice as much per person as in any other wealthy country. This is a good argument for reforming the U.S. health care system but has nothing to do with the topic of the article.]

This article also repeatedly refers to the debate over cutting benefits as being an “ideological battle.” There is no evidence presented in this piece that there is any ideological issue at stake. On the one hand are hundreds of millions of workers who want to see the benefits that they paid for. On the other hand are many wealthy people, exemplified by people like Peter Peterson and Erskine Bowles who would rather use Social Security money to keep their own taxes low or to serve other purposes.

This is a battle over who gets the money. The references to ideology just confuse the situation.

[Addendum: Art Dover called my attention to another inaccuracy in the article. It asserts: "The payroll tax holiday is depriving the system of revenue." This is not true. Under the law, Social Security is 100 percent reimbursed from general revenue for the taxes that were lost as a result of the payroll tax holiday. This is yet another fabrication by the Post in its crusade to cut Social Security.]

Paying for all the ink at the Washington Post?

That’s the question that readers are undoubtedly asking after seeing this piece on President Obama’s budget proposals. The piece featured three separate cites from Maya MacGuineas, who is the president of the Committee for a Responsible Federal Budget. (One cite included unnamed “others.”) The Committee for a Responsible Federal Budget has received substantial funding from Peterson and his foundation over the years.

It then turns to an unnamed “GOP aide” who criticizes Obama’s “fictitious savings,” moving to Robert Bixby, the executive director of the Concord Coalition, an organization that was started by Peter Peterson and has received substantial funding from him and his foundation.

The piece concludes with a critical comment from Ken Kies, who is identified as “a longtime corporate tax lobbyist.”

So there you have it: two budget experts funded by Peter Peterson, an unnamed GOP aide and a longtime corporate tax lobbyist. That’s Fair and Balanced budget reporting at the Washington Post.

Shorter Fred Hiatt:

Sure 9/11 caused us to compromise our ideals, abandon our sense of right and wrong, and shit-can everything that was ever good and decent about America in the belief that we might keep our real and imagined demons at bay by becoming worse than them …but look at how we’ve grown. I think we all deserve a round of applause. C’mon, give it up…