Obama, the FDIC, and private capital


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The FDIC claims the banks are solvent, and valuing their portfolios as required by law, or they could close them down as they are charged to do, also by law.

If Obama believes his FDIC officers and bank examiners are liars, he should take action against them at once.

If he believes the FDIC to be capable and truthful, then what is this about:

Obama Says US Has ‘No Easy Out’ of Banking Crisis

by Edwin Chen

Feb 10 (Bloomberg) — Some banks haven’t been transparent about assets on their books, Obama said. Now they must “just be clear about some of the losses that have been made, because until we do that we’re not going to be able to attract private capital into the marketplace.”

And the emphasis now seems to be on attracting private capital, hence with this claimed reason banks aren’t raising private capital.


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2009-02-11 USER


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MBA Mortgage Applications (Feb 6)

Survey n/a
Actual -24.5%
Prior 8.6%
Revised n/a

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MBA Purchasing Applications (Feb 6)

Survey n/a
Actual 235.90
Prior 261.40
Revised n/a

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MBA Refinancing Applications (Feb 6)

Survey n/a
Actual 2722.70
Prior 3906.30
Revised n/a

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Bloomberg Global Confidence (Feb)

Survey n/a
Actual 8.49
Prior 8.72
Revised n/a

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Trade Balance (Dec)

Survey -$35.7B
Actual -$39.9B
Prior -$40.4B
Revised -$41.6B

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Exports MoM (Dec)

Survey n/a
Actual -6.0%
Prior -6.0%
Revised n/a

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Imports MoM (Dec)

Survey n/a
Actual -5.5%
Prior -11.9%
Revised n/a

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Exports YoY (Dec)

Survey n/a
Actual -8.4%
Prior -2.0%
Revised n/a

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Imports YoY (Dec)

Survey n/a
Actual -14.7%
Prior -10.3%
Revised n/a

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Trade Balance ALLX (Dec)


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Fact sheet on Geithner- Obama plan


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Thanks!

Seems much of the latest proposal is designed to attract private capital by offering investors a sufficiently high level of profit.

This directs income to those with financial capital, who now look to be the main beneficiaries of the new administration.

Hard to expect otherwise from an administration that doesn’t understand how the currency works and therefore believes itself hostage to outside financial capital.

The salary caps on business leaders is in odd contrast with increased returns on private capital.

 

Final Financial Stability Fact Sheet


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Re: Franklin Roosevelt’s Treasury secretary, Henry Morgenthau


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(email exchange)

Yes, then, like now, they were afraid of the numbers, and couldn’t see them in context of the size of the economy.

They were also concerned that ongoing deficits were needed to sustain output and employment, just like they are today.

Within a year after that deficit spending on the war shot up to over 20% of GDP and the Depression ended.

My guess is that we need deficits averaging about 4-5% of GDP to sustain output and employment. Some periods, like now, we need more, some, like the late 90’s during that credit boom, we needed far less.

>   
>   On Tue, Feb 10, 2009 at 10:05 AM, Mike wrote:
>   
>   Franklin Roosevelt’s own Treasury secretary, Henry Morgenthau, lamented in
>   an address to Congressional Democrats in May of 1939:
>   
>   ”We have tried spending money. We are spending more than we have ever
>   spent before and it does not work. And I have just one interest, and if I am
>   wrong … somebody else can have my job. I want to see this country
>   prosperous. I want to see people get a job. I want to see people get enough
>   to eat. We have never made good on our promises … I say after eight years
>   of this Administration we have just as much unemployment as when we started
>   … And an enormous debt to boot!”
>   


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2009-02-10 USER


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ICSC UBS Store Sales YoY (Feb 10)

Survey n/a
Actual -1.80%
Prior -2.50%
Revised n/a

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ICSC UBS Store Sales WoW (Feb 10)

Survey n/a
Actual 0.00%
Prior 1.60%
Revised n/a

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Redbook Store Sales Weekly YoY (Feb 10)

Survey n/a
Actual -1.70%
Prior -2.70%
Revised n/a

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Redbook Store Sales MoM (Feb 10)

Survey n/a
Actual 0.70%
Prior -2.70%
Revised n/a

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ICSC UBS Redbook Comparison TABLE (Feb 10)

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Wholesale Inventories MoM (Dec)

Survey -0.7%
Actual -1.4%
Prior -0.6%
Revised -0.9%

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Wholesale Inventories YoY (Dec)

Survey n/a
Actual 6.3%
Prior 7.9%
Revised n/a

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Wholesale Inventories ALLX 1 (Dec)

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Wholesale Inventories ALLX 2 (Dec)

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IBD TIPP Economic Optimism (Feb)

Survey 44.0
Actual 44.6
Prior 45.4
Revised n/a


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Keynes on payroll tax cuts


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Interesting how much of what I say turns out to have been written by Keynes:

Greg Mankiw, Keynes and the Payroll Tax:

The Mature Keynesian Perspective II
As I previously noted, the older (and presumably wiser) John Maynard Keynes was skeptical of using infrastructure projects as a countercyclical tool. NYU economist Mario Rizzo now brings to my attention that the mature Mr Keynes also favored the payroll tax as a countercyclical policy instrument:

In correspondence with the economist James Meade in 1942 Keynes says he is “converted” to Meade’s idea of altering the social security payroll tax over the business cycle. Here are Keynes’s words:

I am converted to your proposal…for varying rates of contributions in good and bad times.

(June 16, 1942). Keynes, Collected Writings, vol. 27, p. 208.

…[Y]ou are able to show fluctuations in income of an order of magnitude which is significant in the context… So far as employees are concerned, reductions in contributions are more likely to lead to increased expenditure as compared with saving than a reduction in income tax would, and are free from the objection to a reduction in income tax that the wealthier classes would benefit disproportionately. At the same time, the reduction to employers, operating as a mitigation of the costs of production, will come in particularly helpfully in bad times.

(July 1, 1942). Keynes, Collected Writings, vol. 27, p. 218.”


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Krugman: Stimulus package is now way inadequate


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He’s starting to sound more like me. Maybe reading my blog?

Be interesting if he starts pushing a full payroll tax holiday, though that’s tough for a Democrat ideologically nowadays, even though it’s their constituency that’s the most severely punished by it and needs it the most to stay in their homes, as they would be able to make their payments and thereby end the financial crisis as well.

Also, he should favor the idea of giving the states revenue sharing on a per capita basis which means it can be ‘no strings attached.’ $300 billion/$1,000 per capita would be a good starting point.

Feel free to forward this to him, thanks.

What the centrists have wrought

by Paul Krugman

Feb 7 (Wall Street Journal)

I’m still working on the numbers, but I’ve gotten a fair number of requests for comment on the Senate version of the stimulus.

The short answer: to appease the centrists, a plan that was already too small and too focused on ineffective tax cuts has been made significantly smaller, and even more focused on tax cuts.

According to the CBO’s estimates, we’re facing an output shortfall of almost 14% of GDP over the next two years, or around $2 trillion. Others, such as Goldman Sachs, are even more pessimistic. So the original $800 billion plan was too small, especially because a substantial share consisted of tax cuts that probably would have added little to demand. The plan should have been at least 50% larger.

Now the centrists have shaved off $86 billion in spending — much of it among the most effective and most needed parts of the plan. In particular, aid to state governments, which are in desperate straits, is both fast — because it prevents spending cuts rather than having to start up new projects — and effective, because it would in fact be spent; plus state and local governments are cutting back on essentials, so the social value of this spending would be high. But in the name of mighty centrism, $40 billion of that aid has been cut out.

My first cut says that the changes to the Senate bill will ensure that we have at least 600,000 fewer Americans employed over the next two years.

The real question now is whether Obama will be able to come back for more once it’s clear that the plan is way inadequate. My guess is no. This is really, really bad.


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Krauthammer on Obama


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Thanks, the press is starting to turn.

Hope for the best, prepare for the worst.

The Fierce Urgency of Pork

by Charles Krauthammer

Feb 6 (Washington Post) — “A failure to act, and act now, will turn crisis into a catastrophe.”

— President Obama, Feb. 4.

Catastrophe, mind you. So much for the president who in his inaugural address two weeks earlier declared “we have chosen hope over fear.” Until, that is, you need fear to pass a bill.

And so much for the promise to banish the money changers and influence peddlers from the temple. An ostentatious executive order banning lobbyists was immediately followed by the nomination of at least a dozen current or former lobbyists to high position. Followed by a Treasury secretary who allegedly couldn’t understand the payroll tax provisions in his 1040. Followed by Tom Daschle, who had to fall on his sword according to the new Washington rule that no Cabinet can have more than one tax delinquent.

The Daschle affair was more serious because his offense involved more than taxes. As Michael Kinsley once observed, in Washington the real scandal isn’t what’s illegal, but what’s legal. Not paying taxes is one thing. But what made this case intolerable was the perfectly legal dealings that amassed Daschle $5.2 million in just two years.

He’d been getting $1 million per year from a law firm. But he’s not a lawyer, nor a registered lobbyist. You don’t get paid this kind of money to instruct partners on the Senate markup process. You get it for picking up the phone and peddling influence.

At least Tim Geithner, the tax-challenged Treasury secretary, had been working for years as a humble international civil servant earning non-stratospheric wages. Daschle, who had made another cool million a year (plus chauffeur and Caddy) for unspecified services to a pal’s private equity firm, represented everything Obama said he’d come to Washington to upend.

And yet more damaging to Obama’s image than all the hypocrisies in the appointment process is his signature bill: the stimulus package. He inexplicably delegated the writing to Nancy Pelosi and the barons of the House. The product, which inevitably carries Obama’s name, was not just bad, not just flawed, but a legislative abomination.

It’s not just pages and pages of special-interest tax breaks, giveaways and protections, one of which would set off a ruinous Smoot-Hawley trade war. It’s not just the waste, such as the $88.6 million for new construction for Milwaukee Public Schools, which, reports the Milwaukee Journal Sentinel, have shrinking enrollment, 15 vacant schools and, quite logically, no plans for new construction.

It’s the essential fraud of rushing through a bill in which the normal rules (committee hearings, finding revenue to pay for the programs) are suspended on the grounds that a national emergency requires an immediate job-creating stimulus — and then throwing into it hundreds of billions that have nothing to do with stimulus, that Congress’s own budget office says won’t be spent until 2011 and beyond, and that are little more than the back-scratching, special-interest, lobby-driven parochialism that Obama came to Washington to abolish. He said.

Not just to abolish but to create something new — a new politics where the moneyed pork-barreling and corrupt logrolling of the past would give way to a bottom-up, grass-roots participatory democracy. That is what made Obama so dazzling and new. Turns out the “fierce urgency of now” includes $150 million for livestock (and honeybee and farm-raised fish) insurance.

The Age of Obama begins with perhaps the greatest frenzy of old-politics influence peddling ever seen in Washington. By the time the stimulus bill reached the Senate, reports the Wall Street Journal, pharmaceutical and high-tech companies were lobbying furiously for a new plan to repatriate overseas profits that would yield major tax savings. California wine growers and Florida citrus producers were fighting to change a single phrase in one provision. Substituting “planted” for “ready to market” would mean a windfall garnered from a new “bonus depreciation” incentive.

After Obama’s miraculous 2008 presidential campaign, it was clear that at some point the magical mystery tour would have to end. The nation would rub its eyes and begin to emerge from its reverie. The hallucinatory Obama would give way to the mere mortal. The great ethical transformations promised would be seen as a fairy tale that all presidents tell — and that this president told better than anyone.

I thought the awakening would take six months. It took two and a half weeks.


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IMF statement


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“Ten days ago, the IMF cut its world-growth estimate for this year to 0.5 percent, the weakest pace since World War II. Stimulus packages alone won’t succeed in dragging the global economy out of recession unless confidence is restored in the banking system, Strauss-Kahn said today.”

I do not agree.

An ongoing fiscal adjustment alone can easily do the trick.

The banking system is functioning well enough (clearing checks and making only the loans it feels are attractive on a risk adjusted basis) to support a full blown economic boom should the government get the fiscal right.

>   
>   Warren:
>   
>   Have you seen this analysis by the IMF. Tell me that they are clueless. My
>   analysis is that they may be on the money.
>   

IMF Says Advanced Economies Already in Depression

by Angus Whitley and Shamim Adam

Feb 7 (Bloomberg)


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