Progressive Breakfast: What's Next?

After the Economic Recovery Bill, What's Next?

NYT editorial board offers a game plan [1] for after the economic recovery bill:

They need not, and should not, wait to start a foreclosure-prevention effort, but it’s not clear whether Mr. Obama’s team understands the scale of the effort required. Earlier this week, Treasury Secretary Timothy Geithner suggested that some $50 billion from the bank-bailout funds may be used on foreclosure prevention. That is the low end of the estimate that had been floated.

The administration also appears to be waffling in its support for passing new legislation that would allow bankrupt homeowners to have their mortgages modified under court protection. To be powerful, an anti-foreclosure effort must include both carrots, like interest-rate subsidies that would make it easier for lenders and borrowers to agree on modified loan terms, and sticks, including the option for a bankruptcy court judge to impose a settlement on lenders who aren’t doing enough to prevent unnecessary foreclosures.

The administration’s next shot at advancing its economic aims will be Mr. Obama’s first budget. The new president should stop courting Republicans who have shown no interest in compromise or real economic fixes. The budget resolution is immune from filibustering.

W. Post on housing plans: [2] "The Obama administration is considering a proposal to help distressed homeowners by subsidizing lenders who cut the interest rate on mortgages, according to sources familiar with the discussions."

The Hill reports in the near-future, House Democrats want to dare Senate Republicans to actively filibuster bolder bills [3] instead of kowtowing to a few Senate moderates.

Grist's David Roberts details the strategies and possibilities for clean energy legislation: [4]

The next big green priority after stimulus will be energy. It is possible that some of what I describe below will be broken out into separate bills -- for instance, Markey and Platts in the House and Bingaman in the Senate have put forward freestanding Renewable Energy Standard bills. But partially because I think it will all be clumped together for political reasons, and partly for convenience, I'm going to treat it all together.

The goal is twofold:

1. Get a big win and build momentum. Unlike carbon restrictions, which sharply divide the public, investing in and otherwise supporting clean energy and efficiency is wildly popular. Many of the elements likely to be in this bill came within a hair of passing in the last session of Congress, but failed narrowly in the Senate, where Dems now have six more votes.

2. Juice the renewables and efficiency markets by creating long-term, predictable incentives that get investment flowing. Remember, there are two ways of accelerating the energy transition: raising the price of dirty energy, and lowering the price of clean energy. The latter is far more popular, and can help ease the passage and blunt the regressive effects of the former.

NYT's Paul Krugman calls for more stimulus, stronger banking reforms: [5]

For while Mr. Obama got more or less what he asked for, he almost certainly didn’t ask for enough. We’re probably facing the worst slump since the Great Depression. The Congressional Budget Office, not usually given to hyperbole, predicts that over the next three years there will be a $2.9 trillion gap between what the economy could produce and what it will actually produce. And $800 billion, while it sounds like a lot of money, isn’t nearly enough to bridge that chasm...

...Now, the chances that the fiscal stimulus will prove adequate would be higher if it were accompanied by an effective financial rescue, one that would unfreeze the credit markets and get money moving again. ... The plan sketched out by Tim Geithner, the Treasury secretary, wasn’t bad, exactly. What it was, instead, was vague. It left everyone trying to figure out where the administration was really going. Will those public-private partnerships end up being a covert way to bail out bankers at taxpayers’ expense? Or will the required “stress test” act as a back-door route to temporary bank nationalization (the solution favored by a growing number of economists, myself included)? Nobody knows.

Over all, the effect was to kick the can down the road. And that’s not good enough. So far the Obama administration’s response to the economic crisis is all too reminiscent of Japan in the 1990s: a fiscal expansion large enough to avert the worst, but not enough to kick-start recovery; support for the banking system, but a reluctance to force banks to face up to their losses. It’s early days yet, but we’re falling behind the curve.

Rev. Jesse Jackson proposed low student loan rates as additional stimulus in USA Today oped: [6] "If Congress really wants to invest in our future, it would be well advised to pass -- after the recovery plan -- a bold initiative to make college and advanced training affordable. I'd suggest a simple proposition: Make college loans available at a 1% interest rate -- roughly the same terms banks receive. Republicans worried about the speed with which the stimulus money will hit the economy would have no worries about this money: Strapped graduates would likely spend every dollar saved. And more students would stay in college -- a win for them, and a win for our economy."

The Nation's William Greider previews the looming Social Security fight: [7] "Governing elites in Washington and Wall Street have devised a fiendishly clever "grand bargain" they want President Obama to embrace in the name of 'fiscal responsibility.' The government, they argue, having spent billions on bailing out the banks, can recover its costs by looting the Social Security system ... These players are promoting a tricky way to whack Social Security benefits, but to do it behind closed doors so the public cannot see what's happening or figure out which politicians to blame. The essential transaction would amount to misappropriating the trillions in Social Security taxes that workers have paid to finance their retirement benefits. This swindle is portrayed as 'fiscal reform' In fact, it's the political equivalent of bait-and-switch fraud."

OurFuture.org's Isaiah Poole interviews Grieder: [8]

Democrats make clear additional stimulus may be needed. CQ: [9] “'We hope the package will have the effect most economists believe it will have,' said House Majority Leader Steny H. Hoyer , D-Md. But he added, 'Several economists have said that this may not be enough. And they might be right, but this is what we could get.'"

[10]

Still Have To Get This Passed

CNN: Final votes expected today [11] on House and Senate floor, while The Hill projects a Saturday [12] Senate vote. Last chance to contact your representatives. [13]

USA Today has an easy-to-follow rundown [14] of main provisions.

Stateline [15] breaks down what state governments will get. LA Times cautions [16] states governments still don't know how they can use all the funds.

NYT: "New York State and New York City officials expressed a measured sense of relief...". LA Times: [17] "[California's] deficit through mid-2010 is $41 billion, and not all of the federal money can be used to help erase it ... Still, lawmakers say the legislation's effect will be profound."

Grist: [18] "looks good in terms of green spending ... $62.2 billion in direct spending on green initiatives and $20 billion in green tax incentives, while funding for nuclear and coal projects was dropped from the final version."

The Washington Post apparently has never eaten bacon [19] because they nonsensically deemed critically-needed, energy-efficient, can't-be-done-without-public-investment high-speed rail "pork."

ataxingmatter [20] combs through the tax provisions.

W. Post notes some economists lowering job creation estimates [21] because of concessions to Senate moderates.

The Treatment's Harold Pollack: [22] "The Right's Real Fear: People Will Like the Spending."

Drum Beat For Bank Nationalization

NYT reviews economist opinion of more direct government intervention: [23] "without a cure for the problem of bad assets, the credit crisis that is dragging down the economy will linger, as banks cannot resume the ample lending needed to restart the wheels of commerce. The answer, say the economists and experts, is a larger, more direct government role than in the Treasury Department’s plan outlined this week. The Treasury program leans heavily on a sketchy public-private investment fund to buy up the troubled mortgage-backed securities held by the banks. Instead, the experts say, the government needs to plunge in, weed out the weakest banks, pour capital into the surviving banks and sell off the bad assets."

Matthew Richardson and Nouriel Roubini pen W. Post oped laying nationalization principles: [24]

First, and this is by far the toughest step, determine which banks are insolvent. Geithner's stress test would be helpful here. The government should start with the big banks that have outside debt, and it must determine which are solvent and which aren't in one fell swoop to avoid panic. Otherwise, bringing down one big bank will start an immediate run on the equity and long-term debt of the others. It will be a rough ride, but the regulators must stay strong.

Second, immediately nationalize insolvent institutions. The equity-holders will be wiped out, and long-term debt-holders will have claims only after the depositors and other short-term creditors are paid off.

Third, once an institution is taken over, separate its assets into good and bad ones. The bad assets would be valued at current (albeit depressed) values. Again, as in Geithner's plan, private capital could purchase a fraction of those bad assets. As for the good assets, they would go private again, either through an IPO or a sale to a strategic buyer.

The proceeds from both these bad and good assets would first go to depositors and then to debt-holders, with some possible sharing with the government to cover administrative costs. If the depositors are paid off in full, then the government actually breaks even.

Fourth, merge all the remaining bad assets into one enterprise. The assets could be held to maturity or eventually sold off with the gains and risks accruing to the taxpayers.

TPM sees temporary nationalization [25] "gaining steam."

Newsweek's MIchael Hirsh seeks to explain Geithner's thinking and hesitations: [26]

...to the market's chagrin, Geithner declines to provide details on how to unwind the bad loans and assets at these big companies. Geithner's predecessor, Hank Paulson, dithered over this problem as well. The indecision has been dragging on for five months. That's because the problem is all but insurmountable. If you value those toxic assets at actual market levels, most of these banks would become insolvent. Letting them fail would almost automatically trigger the depression the government has been trying to avert. But if instead the government artificially inflates the assets' values, it commits itself to spending trillions more in public money at a time when Congress and the public are fed up with bailouts (the IMF estimates that potential losses are still $2.2 trillion; Bernanke countered Tuesday that only half of those are with U.S. institutions, but he admitted the banks still have yet to write down about $500 billion in losses). And if the government declines to do either of these things -- if it neither values the bad assets at market level nor buys them up at inflated prices -- bank stocks will continue to be suspect and private capital will stay on the sidelines. The economy will remain frozen.

In other words, there are no good choices. According to a Treasury source, Geithner knows what a lot of these assets are worth. ... But knowing the value doesn't help. So the Treasury secretary is trying to finesse his way through, probably case by case, hoping he can gradually nudge asset values higher by restoring confidence to the market.

Geithner may be too optimistic. As one senior economic official in Washington said to me the other day, "the Obama administration has got as much political capital as it's ever going to have. This is the time to lay it all out." In other words, tell everyone just how bad the problem really is. It's more than a matter of how much public money to commit. The "fundamental reshaping" of the financial system that Geithner referred to on Tuesday has to be part of the solution as well. The Citigroups and AIGs should be carefully broken up as soon as possible.

MyDD's Charles Lemos: [27] "It's time to admit reality, restructure banks and, above all, to close failing financial institutions whose levels of under-performing assets cannot be supported by balance sheet restructuring. If you can't read between the lines, then allow me to be blunt: it's time to nationalize the tettering banks that can be saved and to close those that cannot be saved. Shareholders will be wiped out but deposits guaranteed. Putting this off only causes more pain, brings more lingering trouble and higher costs in the long run."

LA Times on the urgency: [28] "The nation's new intelligence chief warned Thursday that the global economic crisis is the most serious security peril facing the United States, threatening to topple governments, trigger waves of refugees and undermine the ability of America's allies to help in Afghanistan and elsewhere."

Anatomy of a Health Care Smear

MSNBC's Keith Olbermann dissects the "Anatomy of a Smear," the coordinated right-wing attack, led by Betsy McCaughey [29], falsely accusing the economy recovery bill of government meddling in private healthcare decisions. Adds Lawrence O'Donnell: "what she's setting up here is ... the campaign against Obama health care reform, she's out to kill it."

More on McCaughey from James Fallows [30] and Ezra Klein. [31]

Visit msnbc.com for Breaking News [32], World News [33], and News about the Economy [34]

Judd Gregg, A Blow Received Or Bullet Dodged?

Judd Gregg on CNBC Feb. 4: [35] "...what I was asked to do in this exercise was basically to come down and present my expertise on fiscal policy but especially on in the area of entitlements [i.e. Social Security and Medicare]."

Judd Gregg, Feb. 12: [36] "We are functioning from a different set of views on many critical items of policy."

OpenLeft's Chris Bowers: [37] "Yes, it is truly awful that one less Republican will be in President Obama's cabinet. It is also 'a blow' to President Obama and Democrats that Judd Gregg is so humiliated by this episode that he won't even seek re-election in 2010. And it is a terrible blow to progressives that the specific policy concerns of the three Congressional minority caucuses have more influence over White House policy than does the press corps' fascination with bipartisanship. I'm devastated. What a huge blow. How will we ever recover from this terrible setback?"