Progressive Breakfast: 'Green Shoots' Hit Fall Chill

There's more pessimism on the economic front that should bolster the case for more sustained action in Washington to pump-prime the economy. A panel of Wall Street Journal economists [1] points to a prospect of sustained high unemployment for at least the next three to four years.

The 48 surveyed economists expect the economy to bounce back from four quarters of contraction with 3.1% growth in gross domestic product at a seasonally adjusted annual rate in the just-ended third quarter.

Expansion is seen continuing through the first half of 2010, though at a slower rate. But the massive downturn means the labor market will take years to heal. On average, the economists don't expect unemployment to fall below 6% until 2013; unemployment hit 9.8% in September.
 

That news comes as Dr. Doom himself, economist Nouriel Roubini, underscored concerns Thursday that the financial system is heading for another shock from the commercial real estate market. From Reuters [2]:

"The stress is moving from residential mortgages that are still in deep trouble, to commercial real estate, where they are just starting to recognize that they're going to have massive, massive losses," Roubini of RGE Global Monitor told reporters after a presentation for a World Economic Forum report on the global financial system.

The Congressional Oversight Panel today issues the latest in its largely critical series of reports on how the Wall Street bailout is working for Main Street and for taxpayers. This time, McClatchy reports [3], the panel says that the administration's Home Affordable Modification Program, is doomed to be ineffective.

"Foreclosures continue every day as Treasury ramps up the program, with foreclosure starts outpacing new HAMP trial modifications at a rate of more than 2 to 1," the report said.

... The congressional panel wasn't critical of those efforts; it simply said that they'll be swamped by changes in the housing market. The economic crisis, with an unemployment rate of 9.8 percent and rising, is pushing many more prime mortgages, those given to the most creditworthy borrowers, into default.

On top of that, a new class of exotic mortgages called pay option adjustable-rate mortgages and interest-only mortgages are due to reset to higher variable rates. These exotic loans were usually given to richer borrowers on fancy homes worth far less today than the value of the underlying mortgages. These mortgages are often too high-priced to qualify for government modification programs.

 

While being criticized for his financial regulatory overhaul bill, House Financial Services Committee Chairman Rep. Barney Frank ripped into banks on Thursday [4] for what he called abuse of the "grace period" before new credit card regulations go into effect.

There have been a spate of news stories about how banks have jacked up credit card fees in anticipation of new rules that will curb their baility to manipulate rates and force more disclosure. In response,

the Massachusetts Democrat ... has introduced legislation that would move up the enactment date to Dec. 1.

"It is very clear that this is the kind of protection that shouldn't wait and we should move forward," Frank said about the new credit card rules.

The Washington Post [5], meanwhile, makes it clear that three of the biggest financial institutions—Goldman Sachs, Citigroup and J.P. Morgan Chase—have almost continuous access to friendly ear at the White House.

[Treasury Secretary Timothy F.] Geithner's calendars, obtained by the Associated Press under the Freedom of Information Act, offer a glimpse into the extraordinary influence of those three companies. More than any of their rivals, Goldman Sachs, Citigroup and J.P. Morgan Chase can get Geithner on the phone -- several times a day if necessary -- giving them an unmatched opportunity to influence policy.

In the first seven months of Geithner's tenure, his calendars reflect at least 80 contacts with Blankfein, Dimon, and Citigroup Chairman Richard Parsons or chief executive Vikram Pandit.

Geithner had more contact with Citigroup than with House Financial Services Committee Chairman  Barney Frank (D-Mass.), who leads the effort to approve Geithner's overhaul of the financial system. Geithner's contacts with Blankfein alone outnumber his contacts with  Sen. Christopher J. Dodd (D-Conn.), chairman of the Senate Banking Committee.

Will progressives opt-out of opt-out?

The latest idea for salvaging a public health insurance option as part of health care reform—allowing states to opt out of it—is getting predictably mixed reviews in the progressive blogosphere. And those reviews generally run from tepid to downright hostile.

Ezra Klein says [6] its virtue is that it offers "a neat policy experiment."

We can see, over time, what happens to state insurance markets that include the national public option and compare them with those that don't. We can see whether the worst fears of conservatives are realized and private insurers are driven out and providers are forced out of business due to low payment rates, and we can see whether the hopes of liberals are right and costs come down and private insurers become leaner and more efficient.

But Jon Walker at FireDogLake says [7] an opt-out provision would "deny the public option to those people who need it most."

Most of the states with the highest percentage of uninsured residents tend to be Republican states.

The top ten states with the highest percentage of residents without health insurance in 2008 were, in order: TX, NM, FL, AK, LA, AZ, CA, MS, NV, GA.

Of these states, only one (New Mexico) has a Democratic governor. Four of the states have their state legislature controlled by Republicans in addition to a Republican governor (TX, FL, AZ, GA).

RJ Eskow asks [8] what would have happened if Congress had added an opt-out provision to Medicare and a bloc of conservative states took advantage of it:

Our hypothetical Medicare program, which was already likely to enroll only a few million elderly people, is now likely to enroll even less, reducing it by 20-30% or even more. That means it has even less operational efficiencies, even fewer economies of scale, and less leverage with those suppliers with whom it is permitted to bargain.

The end result would probably have been a pretty weak Medicare - one that's unable to report significant savings.

Chris Bowers at Open Left [9] wonders what's the point of touting the opt-out idea when "not a single one of the four Senators who are a major worry for cloture on health care reform with a public option--Evan Bayh, Blanche Lincoln, Mary Landrieu, and Ben Nelson--have come out in favor of this proposal" and when, he says in another post [10], the number of senators supporting a more robust public option plan by Sen. Charles Schumer, D-N.Y., has just gotten the backing of Montana Sen. Jon Tester, which he says brings the number of votes for his proposal to 51.

Josh Marshall at Talking Points Memo concedes that "If 3/4 loaf doesn't secure more votes or enough votes more, you might as well stick with a whole loaf." But still, he concludes that the opt-out provision is "the one 'compromise' I've heard of that sounds like it might be the way to thread the needle."

Bill Scher will return Monday.