Tuesday, November 25, 2008

A fisking of...

WSJ: Obama Eyes $500 Billion in Stimulus; Paulson Weighs Ramping Up Aid Again

Aides to President-elect Barack Obama and President George W. Bush are rushing to craft measures to shore up financial markets and prevent a policy vacuum from further harming the economy during the transition of power between the two men.
OK. Let me get this right...President HopeandChange--the guy who incessantly decried the "failed Bush economic policies"--is telling us he will continue these same policies?
Mr. Obama's team is putting together a new economic stimulus plan containing more than $500 billion in federal spending and tax cuts over the next two years, Obama aides and advisers said Sunday. That package would be far more aggressive than anything envisioned during the campaign.

Let's slow down a bit and look at this again. Bush announced a $168 billion tax rebate program in February as a means of "economic stimulus". Then, in March, the Treasury and the Fed engineered the J.P. Morgan Chase takeover of Bear Stearns--another $30B. The FDIC had to takeover IndyMac--to the tune of $8.9B--in July.The insurer AIG needed a $85B bailout in early September. Fannie and Freddie were bailed out for an unknown(!) pricetag. A week later, we were bailing out all of Wall Street with $700B. This, of course, became an issue in the campaign. Recently, they've been wrestling with how to bailout the Big Three in Detriot--$25B.

Update: As if all this weren't enough (and courtesy this morning of DrewM. at Ace's Place), how about another $800B to further unfreeze lending. [Will this ever end? Ever?]

So, with that as background, I have two questions...

  • Have we really, really not been aggressive enough in addressing our economic problems? Does anyone seriously believe that Bush hasn't been doing exactly what Obama is proposing here?
  • What am I to understand by "$500 billion in federal spending and tax cuts"? What is the division between additional federal spending and tax cuts? Where should we expect to see this additional federal spending? Who benefits from these tax cuts? (And is this a walkback from Obama's promise to increase taxes on the top 5%?)

Back to the fisking....

Democratic leaders in Congress are preparing to rush passage shortly after New Year's to have a stimulus-plan bill ready for Mr. Obama to sign once he is inaugurated Jan. 20.
Welcome to the West Wing, Mr. Obama. Here is your housewarming gift.

Meanwhile, Mr. Bush's outgoing Treasury secretary, Henry Paulson, is now considering a more activist stance in his final weeks in office than he had signaled as recently as last week. He is considering tapping the second half of the government's $700 billion financial-industry rescue fund, and rolling out new programs in response to worsening market conditions, according to people familiar with the matter.
Let's keep something else in mind here. Hank Paulson (like Bush) is no conservative. He never has been.

Among other things, he is seeking ways to make it easier for households to borrow money. He is also looking for ways to reduce the burden of foreclosures on homeowners.
Wait a minute. Just. Hold. The. Damned. Phone.

Isn't the availability of easy credit the reason we're in this pickle in the first place? And we want to cure the problem by doing more of the same? Is this not the definition of insanity?
The moves came as officials at the Treasury and the Fed spent the weekend on yet another emergency rescue plan, this one for giant Citigroup after its stock fell 60% the past week. Citigroup's deterioration underscores the fragile state of markets and the economy during Washington's long transition of power.
And now, Citi. $20B. "A necessary safeguard". More insanity, if you ask me.
Mr. Obama is planning a press conference Monday to introduce the leaders of his economic team, which is headed by Harvard economist Lawrence Summers, who will run the White House National Economic Council, and New York Federal Reserve Bank President Timothy Geithner, his choice for Treasury secretary.

The president-elect is likely to use the event to assure investors and consumers that he will take rapid, large-scale action in the coming weeks and months. The message will be: "This is an extraordinary time, and extraordinary responses are going to be needed," said one aide.
Isn't this exactly what we've been hearing from Bush? Have any of these programs worked? I am far from well-versed in macro-economics, but isn't debt destruction necessary here?
Mr. Obama is also expected to try to calm Wall Street worries about trying to rewrite the rules of existing aid to Wall Street, and excessive spending in his new administration, according to Obama transition officials.
OK. I'm confused here. Are we getting more regulation or less? Do we want more "excessive spending" or less?
So far, the main government response to the economic crisis has been the $700 billion Troubled Asset Relief Program, or TARP, designed to help banks and other financial institutions. Mr. Obama's economic-stimulus plan would be separate from that.
OK. Now I think I'm beginning to see. $700 billion, not preventing the collapse of Wall Street banking, is seperate from the $500 billion that Obama proposes to spend elsewhere. Exit question: Why should we expect O's $500B to be spent any more wisely?
On Monday, Mr. Obama will likely offer for the first time an explicit pledge to honor all commitments already made by the Bush administration in the TARP program, without imposing new conditions even if there are changes are made to the program in the future. Obama officials also say the president-elect will promise to find spending cuts to try to keep short-term stimulus spending from ballooning the budget deficit over the long term.
Finally! A place where I can agree with the Prophet Obama. Spending cuts! More please! Faster! (But I thought O's approach was to have more federal spending?)
While Mr. Obama is moving quickly to give markets unusually early clarity on what he'll do when he takes office in January, Bush aides are rethinking how they'll handle their final weeks in power.

The Bush Treasury is in the middle of injecting into banks some $250 billion of TARP funds, and Mr. Paulson had suggested earlier this month that he wasn't planning to do much beyond that before he leaves office in two months. Another $40 billion of the
TARP money has been invested in American International Group, Inc., the giant insurer.

But last week's deterioration in the markets heightened concern at the Treasury that it might need to take confidence-boosting steps before Mr. Obama's team takes over. On Friday, Goldman Sachs Inc. revised down its projections for economic growth, saying the economy is in the process of contracting by 5% in the fourth quarter and would contract another 3% in the first three months of 2009. If Goldman is right, it would mark the worst performance since the 1982 recession, one of the deepest contractions since the Great Depression.
You know what? As a political matter, I don't mind at all that Bush and Paulson are spending that money now. [I fully disagree with each of these bailouts, but that is another question.] Obama spent his campaign blaming every bad thing on Bush. The libs have no goodwill--none--towards Bush and conservatives (Again. Bush is not a conservative.) Bush's legacy will not benefit one whit by setting aside some of this money for Obama's use. I say: Spend the money if you think it is necessary.
Goldman placed the blame largely on Washington. "The main reason for the downgrade to our forecast is the policy impasse that has developed in Washington and the tightening in financial conditions it has provoked."
Of course. Blame everything on Washington. Not that they don't deserve blame, but when dishing it out, one ought to look in the mirror first. Goldman, BTW, was once run by Robert Rubin, who now runs Citibank, and was also formerly run by one Hank Paulson. Are the dots beginning to be connected here?

For the sake of time, I'll dispense with fisking the rest of this article, but if it isn't already apparent, I am less-than-impressed with the Bush/Paulson/Bernanke approach to our economic problems, and it appears that Obama will not improve things at all. The rest of the article....
Since winning the presidency Nov. 4, Mr. Obama has expressed reluctance to begin steering economic policy, repeatedly saying the country can have only one president at a time. Large-scale economic stimulus is all but impossible before Mr. Obama takes office, since Mr. Bush has said he would oppose big new spending plans before he leaves the White House.

But Mr. Obama and his team have chosen in recent days to signal fairly explicitly that a sizeable boost will come as soon as he takes office.

Obama advisers decline to detail publicly just how large the stimulus would be. But several senior aides have pointed to analyst reports calling for $500 billion to $700 billion to be injected into the economy.

In an appearance before chief executives in Washington earlier in the week, Mr. Summers suggested stimulus of that size was possible. He also said stimulus should be "speedy, substantial, and sustained"-- a shift in tone from his calls earlier in the year for "temporary" and "targeted" aid. "We're going to need impetus for the economy for two to three years," he now says.

House Majority Leader Steny Hoyer said the new Congress, which will be dominated by Democrats, will have a stimulus package completed "during the first couple of weeks of January."

Mr. Obama's selection of Mr. Geithner for Treasury secretary has, in effect, given his administration a greater role in the current handling of the financial crisis. That's because Mr. Geithner has already been a close partner of Mr. Paulson in managing the bailouts in his role as New York Fed president.

The selection of Mr. Geithner is providing comfort to Treasury officials, who view his selection as an indication they will be able to push ahead with using more of the $700 billion rescue fund to respond to the financial crisis than perhaps Mr. Paulson had suggested last week.

Treasury spokeswoman Michele Davis on Sunday said Mr. Paulson had always planned to implement new programs when they were ready, and never ruled out tapping the remaining half of the $700 billion fund. "We're looking at a variety of programs to support the market and we'll implement them as soon as they're ready," she said.

Treasury's immediate focus is on establishing a program, along with the Federal Reserve, that would help increase the availability of auto loans, student loans and credit cards -- which Mr. Paulson believes will help alleviate strains in the consumer borrowing market.

A person familiar with the planning said the Treasury and the Fed have agreed on the structure of such a program and are working on the details, such as whether the Fed should buy assets itself or provide loans to entice private investors to buy securities. The Treasury is expected to contribute $25 billion to $100 billion to the program, which could be announced within a few weeks, this person said.

Treasury is continuing to look for a way to prevent more foreclosures on homeowners, including trying to improve a proposal floated by Federal Deposit Insurance Corp. Chairman Sheila Bair. Democratic lawmakers have been pressuring Mr. Paulson to use some of the $700 billion rescue fund to help people in danger of foreclosure.

Treasury had also been designing another capital-injection program aimed at financial institutions beyond banks, in addition to considering making more money available to banks that have already received a government infusion.

And only because the truth is so damned funny sometimes, I offer this.....

In The Know: Should The Government Stop Dumping Money Into A Giant Hole?


Jason said...

With the Treasury Secretary on his spending spree he surely isn’t trying to get a good return on the tax payers’ investment. The bailout was to buy up bad mortgage debt but it never did. What is the purpose of the fund? Paulson’s has warrants on many banks and they average 1 – 3 percent when enacted. Yet the cash investment is about 20 percent of the market cap. Maybe the next Treasury Secretary will be less erratic.


Mberenis said...

All of this spending is helping one person, YOU! The bailout is causing lenders to practically give away money. You would be surprised at how much cheap and in some cases "free" money is going around out there.

Bailouts for Everyone

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