Progressive Breakfast: Economic Potholes and Patches

Yesterday's furrowed brows over the long-term prospects for the American economy have been replaced for the moment by raised eyebrows at this morning's Commerce Department report [1] that the economy shrank during the first quarter by 5.7 percent—bad, but not as mad as economists predicted.

Financial Times [2] points to one reason: Corporate profits are up. In particular, banks are able to take advantage of federal bailout efforts to pad their balance sheets.

“Banks are clearly benefiting from being able to borrow at exceptionally low rates thanks to government intervention, which is showing up in their bottom lines,” said Richard Moody, chief economist at Forward Capital.

But it's not all good news. Bloomberg reports [3]:

The Institute for Supply Management-Chicago Inc. said today its business barometer decreased to 34.9 from 40.1 in April. Readings below 50 signal a contraction.

The report ran counter to others this month that indicated manufacturing was starting to improve this quarter, perhaps signaling that Chicago’s proximity to the auto slump in neighboring Detroit may be affecting the entire Midwest. Still, private economists have scaled back forecasts for economic growth in the second half of the year.

The figures are “undoubtedly affected significantly by shutdowns in the ailing automotive industry,” Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc., said in a note to clients. “The rate of decline in manufacturing output will moderate in coming months.”

And McClatchy has this report [4] on the mortgage crisis:

A record 12 percent of all U.S. mortgages were at least one payment behind or in the foreclosure process during the first three months of this year, a report said Thursday.

In a reminder that the nation's economic problems aren't going away anytime soon, the report also found that the foreclosure rate on prime fixed-rate loans to financially healthy borrowers has doubled in the past 12 months. For the first time since the explosion in subprime lending to borrowers with weaker credit began early in this decade, in fact, the largest percentage of new foreclosures in January, February and March were on prime fixed-rate loans.

In its National Delinquency Survey, the Mortgage Bankers Association, an industry trade group, reported that one in four new foreclosure proceedings in the first quarter were on prime mortgages, up from one in five during the last three months of 2008

Big question on the financial regulatory reform front: Is Rep. Barney Frank helping or hindering the reforms we need? The Hill reports [5] he's coming out against proposals by the Obama administration to create a single, large regulatory agency that comines the alphabet soup of agencies that collectively failed to prevent the financial crisis from happening. Frank's quoted as saying, "It's not just the structure of the regulatory authorities but the content of the regulation that is relevant." He's right, but will differing approaches for administering that content turn into a firefight that will derail the effort? Stay tuned.

The Big Bankruptcies

Expect news today on whether Chrysler indeed has the fast lane out of bankruptcy court that it is looking for. From the AP [6]:

Robert Nardelli, Chrysler LLC's departing chairman and chief executive, testified in court Thursday that he expects the required U.S. regulatory approvals for the sale of the bulk of Chrysler's assets to a Fiat-led group to be in place by Friday, with international approvals to come later.

But after a nearly 13-hour marathon session, the hearing was adjourned shortly before midnight, and it remains unclear when testimony and arguments related to the sale will wrap up and allow U.S. Judge Arthur Gonzalez to rule.

Meanwhile, General Motors stock today has slid below $1 [7] as the market responds to an expected bankruptcy filing Monday.

Steven Pearlstein, writing in The Washington Post, [8] takes down some of the silly rumors about the GM and Chrysler bankruptcies from the right, including the one that the Obama administration is targeting Republican-owned car dealerships for closure. His take on the more serious criticism that the Obama administration has socialized the auto industry:

It is hard to recall an instance in which government officials have been as deeply involved in negotiating and, at key junctures, dictating the terms of a union contract or a company's business plan and financing scheme. Nor has so much taxpayer money ever been committed to assure the survival of two private firms. If this were happening in France or Venezuela, we wouldn't hesitate to call it nationalization.

But this is not France, it is not Venezuela, and we have not embarked on a new course for American capitalism. This is simply an extraordinary intervention at an extraordinary moment driven by both economic and political necessity -- economic in the sense that the economy is in no shape to withstand the sudden collapse of General Motors, Chrysler and their supplier network, and political in the sense that their sudden demise would be a mortal blow to national pride and undermine other vital recovery efforts.

Detroit Free Press speculates [9] that one consequence of the auto industry's struggles could be the need for the United Auto Workers union to find abother labor merger partner. It adds"

Merger talk is just one trend facing the UAW in the wake of General Motors' brush with bankruptcy. Just as GM will be a different car company in the future, the UAW will evolve to meet new challenges.

Gary Chaison, professor of industrial relations at Clark University in Worcester, Mass., said one clear trend is that the UAW retirees will gain more of a say within the union. That's because the union-run retiree health care trust fund, known as a VEBA, would own a big chunk of General Motors stock under GM's latest recovery plan.

"Essentially the UAW has gone from being a bargaining agent to being a protector of retirees," Chaison said this week.

That dual role -- representing active workers and being the fiduciary of the multibillion-dollar VEBA trust fund for retiree health benefits -- could create some tension for the union.

Fight Against Right-Wing Health Care Ad Blitz

From Politico: [10]

Progressive health care reform groups demanded on Thursday that Washington’s NBC television affiliate refuse to air a 30-minute infomercial funded by a conservative group opposed to creating a public insurance plan.

The Service Employees International Union sent a letter to NBC4, arguing that the station has a responsibility to pull the documentary-style commercial paid for by Conservatives for Patients’ Rights. The ad, set to run Sunday after “Meet the Press,” “will be false, deceitful, and a distortion,” the union’s attorney wrote in the letter.

To Be Totally Fair...

The Hill reports the latest on another wingnut conspiracy tale: [11]

A Federal Communications Commission (FCC) official told a senior House Democratic aide earlier this year that concerns about reviving the so-called Fairness Doctrine are “conspiratorial.”

FCC official Rick Chessen e-mailed Energy and Commerce Committee Chief Counsel Roger Sherman to coordinate a strategy of responding to an Internet report on reinstating the Fairness Doctrine, which would force stations to make equal time for liberal and conservative talk radio.

The report, posted anonymously for the conservative American Spectator’s website, stated that FCC staffers met with aides working for Energy and Commerce Committee Chairman Henry Waxman (D-Calif.) about reviving the Fairness Doctrine.

Soon after the report emerged, Chessen and Sherman indicated they were baffled about its provenance.

“No idea where it is coming from,” Sherman e-mailed Chessen, adding that the committee had already denied any such meeting had taken place.

A Campaign Finance Reform Vote On the High Court?

Politico notes [12] that Supreme Court nominee Sonia Sotomayor was for four years a member of the New York City Campaign Finance Board, where she developed a rich track record on adjudicating one of the nation's tougher campaign finance laws:

The clarity of her support for limits on campaign fundraising and her background as a pioneering campaign regulator is raising eyebrows among election law experts who say her record is more substantial and explicit than that of any Supreme Court nominee since the dawn of the modern, post-Watergate campaign finance regime.

“There hasn’t been one with as vigorously expressed policy views on campaign finance as this one that I am aware of, and I’ve been pretty aware for a number of years,” said James Bopp, a leading conservative attorney who has won four Supreme Court cases challenging campaign finance regulations.

“I can’t think of anybody who has had such a track record,” said Bob Stern, president of the Center for Governmental Studies and a follower of battles on the issue since the early 1970s. “There are clearly going to be cases coming before the court that will be challenges to the law, and there will be some very important cases.”

Meanwhile, the buzz on the right about how to handle Sotomayor seems to be: "Ease off a bit." Conservative pundit Charles Krauthammer [13] counsels the right to use Sotomayor to argue against the idea of "justice as empathy" but then urges Senate conservatives to confirm the nominee "solely on the grounds -- consistently violated by the Democrats, including Sen. Obama -- that a president is entitled to deference on his Supreme Court nominees."

A more vivid rendering of that idea comes from former Reagan aide Peggy Noonan, who writes (via Taegan Goddard's Political Wire [14]):

"She is of course a brilliant political pick -- Hispanic when Republicans have trouble with Hispanics, a woman when they've had trouble with women. Her background (public housing, Newyorican, Catholic school, Princeton, prominence) is as moving as Clarence Thomas's, and that is moving indeed. Politically she's like a beautiful doll containing a canister of poison gas: Break her and you die."

Bill Scher is away. Research assistance was provided by Terrance Heath.