A Blue View

Obama Again Attempts To Bridge The Divide With The GOP

Wash Post:

President Obama brought Republicans to the negotiating table on Tuesday, hoping to stem a steady deterioration in relations between the two parties that has brought business in Washington to a standstill, left the Democratic agenda in tatters and angered voters who are eager to have lawmakers address their concerns.

The two-hour session was part of a renewed drive by the White House to create legislation by consensus, regardless of party label. Obama tried the approach after he took office, but it did not take hold. After the meeting, the president paid a surprise visit to the White House press room to brief reporters.

He accused Republicans of indiscriminate obstruction that he said has created legislative gridlock, especially in the Senate, but he also called on Democratic leaders to "put aside matters of party for the good of the country."

Obama outlined issues that could bridge the divide, including job creation, health-care reform, energy and trade. But he extracted few concrete commitments from his GOP visitors.

A new Washington Post-ABC News poll suggests that the public is frustrated by the bickering and recriminations. According to the survey, 57 percent of Americans consider the loss of the Senate Democrats' filibuster-proof supermajority a "good thing," but few think Republicans should wield their new power to block bills frequently. Nearly six in 10 say that Republicans are not doing enough to forge compromise with Obama on important issues, while nearly half view the president as doing too little to overcome differences with the GOP.

On the issue of health-care reform, public attitudes about the stalled Democratic legislation remain virtually deadlocked. But nearly two-thirds of voters, or 63 percent, want Congress to keep trying to tackle the issue.

A major test of whether Obama's new strategy will yield legislative results could come when the Senate takes up a job-creation bill, which Senate Majority Leader Harry M. Reid (D-Nev.) had hoped to introduce last week but which was sidetracked by a snowstorm.

Sens. Orrin G. Hatch (Utah) and Charles E. Grassley (Iowa) -- senior Republicans who walked away from health-care talks last year -- have been heavily involved in drafting the legislation but are reluctant to sign on to the bill unless it attracts broad GOP support. After the White House meeting, Senate Minority Leader Mitch McConnell (R-Ky.) said there is "a chance" that Republicans would back the jobs measure, although he said his conference is "not entirely comfortable with it yet."

Later, McConnell convened GOP members of the Senate Finance Committee for an impromptu gathering, and the senators emerged expressing some support for the overall framework. But Republicans were reluctant to agree to Reid's timeline for speeding the legislation to completion by the weekend. On Tuesday evening, Reid announced that snowstorms made continued legislative action all but impossible, and put off its formal introduction and a final vote until later this month ...

Obama has reached out to Republicans on health-care reform by inviting them to participate in a bipartisan summit on Feb. 25. GOP leaders have expressed wariness that the event will amount to little more than political theater and so far have not committed to attending.

With Stimulus Money Gone, Many Schools Face A Budget Cliff

NY Times:

Federal stimulus money has helped avoid drastic cuts at public schools in most parts of the nation, at least so far. But with the federal money running out, many of the nation’s schools are approaching what officials are calling a “funding cliff.”

Congress included about $100 billion for education in the stimulus law last year to cushion the recession’s impact on schools and to help fuel an economic recovery. New studies show that many states will spend all or nearly all that is left between now and the end of this school term.

With state and local tax revenues still in decline, the end of the federal money will leave big holes in education budgets from Massachusetts and Florida to California and Washington, experts said.

“States are going to face a huge problem because they’ll have to find some way to replace these billions, either with cuts to their K-12 systems or by finding alternative revenues,” said Bruce Baker, an education professor at Rutgers University.

The stimulus program was the largest one-time infusion of federal education dollars to states and districts in the nation’s history. As the program took shape last year, Education Secretary Arne Duncan and other officials repeatedly warned states and districts to avoid spending the money in ways that could lead to dislocations when the gush of federal money came to an end.

But from the start, those warnings seemed at odds with the stimulus law’s goal of jump-starting the economy, and the administration trumpeted last fall that school districts had used stimulus money to save, or create, some 250,000 education jobs.

Now the new studies point to the problems likely to beset thousands of school districts when the federal money runs out.

Obama's Dilemma (cartoons)

He's got to execute a very tough maneuver

While relying on a very inept team

"I am not a hypocrite" Says The Politician As He Decries The Deficit While Resisting Cuts In His District

NY Times:

While Senator Saxby Chambliss, Republican of Georgia, said he was all for slowing federal spending, he has no appetite for the substantial cuts in farm programs proposed in President Obama’s new budget.

Representative Todd Akin, Republican of Missouri, issued a press release simultaneously lamenting the deficit spending outlined in the new budget and protesting cuts in Pentagon projects important to his state.

And Senator Jeff Sessions of Alabama, a fiscal conservative and a senior Republican on the Budget Committee, vowed to resist reductions in space program spending that would flow back home.

The positions of these Republicans — and similar stances by dozens of other lawmakers of both parties — are a telling illustration of why it is so hard to control federal spending. Every federal program has a constituency, and even lawmakers who profess to be alarmed by rising deficits will go to the mat to preserve money that provides jobs and benefits to their constituents.

“I am not a hypocrite,” Mr. Sessions said in reconciling his fiscally conservative credentials with his outrage over the administration’s proposal to essentially end the human space flight program and allow private enterprise to take on some of the load — an approach that Republicans typically favor.

Mr. Sessions said money taken from NASA would not be saved but would instead be directed to other Obama administration priorities that he did not support. He said his preference would be to set an overall spending limit and allow Congress to determine what programs should get the money. “Then we can debate it,” Mr. Sessions said.

Others said that the annual tableau in which members of Congress criticize the spread of red ink even as they reassure voters back home of protection for popular subsidies and Pentagon projects exposed the high degree of cynicism and lack of conviction that colors the fight over Congressional spending.

“It shows that in Washington, you can be firm on your opinions; it is your principles you can be flexible on,” said Rahm Emanuel, the White House chief of staff.

The Republican juggling act on spending comes after a legislative proposal for an independent commission to study ways to cut the deficit stalled in the Senate, partly because some Republicans who had originally backed the idea balked.

A Peek Behind The Curtain At How Washington Really Works

Though the Wash Post thinks the big news in this Propublica report is the suggestion that GE lied to investors about the condition of its short term debt, I found the most interesting thing to be how freely and how often Immault, GE's CEO, picked up the phone and spoke directly to Paulson, Bush's Sec of the Treasury. It is this unfair access (how many businesses do you know that have a direct line to the Treasury?), and the resultant ability to influence decisions as this story implies, that is the root of corporate & special interest control of our government.

As the financial crisis worsened toward the end of 2008, chief executive Jeffrey Immelt and other leaders at General Electric repeatedly assured the public there was no need to worry about the company's ability to access credit markets and refinance its massive debts as they came due.

But in private conversations that alarmed then-Treasury Secretary Henry M. Paulson Jr., Immelt laid out a different picture of GE's credit situation, according to Paulson's new book about the crisis.

Instead, Paulson writes, Immelt on at least four occasions expressed worries about GE's short-term debt, known as commercial paper, and eventually lobbied for access to special government guarantees for such debt.

To take one example: On Sept. 15, 2008, the day Lehman Brothers declared bankruptcy, Paulson says he was "startled" when Immelt came to his office and told him GE was finding it "very difficult" to sell short-term debt "for any term longer than overnight." A day earlier, GE sent investors a letter saying its ability to sell commercial paper was "robust."...

Today's Digest

Sorry, I don't have time today to separately post each of the stories I today found interesting.  Instead, here they are in a "quickie" digest form:

Obama Maps a Way Forward for a Health Overhaul

President Obama on Thursday evening presented his clearest plan yet to move forward with comprehensive health care legislation, saying that he wanted to meet with Democrats, Republicans and independent experts, lay out the facts for the American people and then, he said, “I think that we have got to move forward on a vote.”

Mr. Obama said he would first work with Congress to enact a jobs package ... But he also said that he would take the time to refute false statements and misunderstandings about the health care legislation and to hear alternate ideas from Republicans. After “several weeks” of work, he said, he would be prepared to live with whatever decision is made by Congress, but he also warned that voters, too, would be watching and would decide at the polls in November whether lawmakers had made the right choice.

The myth of Washington bipartisanship and the art of true compromise

Give this to Scott Brown: He's just been sworn in, and he's already having a positive impact on the governing dynamic in the capital. The president, key lawmakers and even the press have begun to focus on the dysfunctionality of the political process that now threatens all incumbents, irrespective of party and ideology. People have begun to talk to one another -- Obama with House Republicans, Jon Stewart with Bill O'Reilly -- and the tone has gotten noticeably more civil. In the 12-step program for overcoming our partisan addiction, we're now somewhere between Step 1 (acknowledging the problem) and Step 2 (accepting personal responsibility for doing something about it).

GOP senator blocking all Obama nominees

Sen. Richard Shelby (R-Ala.) has placed a blanket hold on more than 70 Obama administration nominees because he wants funding for projects in his state.

Republican lawmaker's budget plan gets Obama's attention

Released two days before the unusual back-and-forth session between Obama and the GOP, the bill sponsored by Ryan and five other House members would seek to reduce the deficit and spur economic growth by cutting the tax rate on corporations, shifting future Medicare and Medicaid beneficiaries to private insurance plans, and both raising the retirement age gradually to 70 and reducing the growth of benefits to make Social Security solvent ...

By Sunday, less than 72 hours after Obama praised Ryan, Office of Management and Budget Director Peter Orszag was highlighting potentially controversial elements of the plan. Ryan, meanwhile, was leading the GOP opposition to what he called the president's "far-left budget" and attacked the administration's support for a fiscal commission to examine how to reduce the national debt as "not leadership," but "punting."

Obama to get deficit commission with or without Republican help

President Obama will appoint a commission to tackle the nation's budget problems with or without the cooperation of Republican congressional leaders, House Majority Leader Steny Hoyer (D-Md.) said Thursday.

Lobbying Imperils Overhaul of Student Loans

An aggressive lobbying campaign by the nation’s biggest student lenders has now put one of the White House’s signature plans in peril, with lenders using sit-downs with lawmakers, town-hall-style meetings and petition drives to plead their case and stay in business. House and Senate aides say that the administration’s plan faces a far tougher fight than it did last fall, when the House passed its version.

Scott Brown Raised A Tsunami Of Money From Financial Industry: 80% From Outside Mass.

Scott Brown 's a real man-of-the-people, beholden to no one. That's why he raised as much as the Boston Globe reports he did from the financial industry and why I couldn't resist reposting this cartoon:

In a six-day span just before the US Senate election, Republican Scott Brown collected nearly $450,000 from donors who work at financial companies, a sign the industry is prepared to spend heavily in the upcoming midterm elections to beat back new controls and taxes President Obama wants to impose.

The donations, from hundreds of financial executives, far exceeded what Brown received from doctors and others in the health care industry in the final days of the campaign. While Brown saw donations from all quarters explode in mid-January, as polls showed him closing fast on opponent Martha Coakley, the donations from financial workers coincided with several key developments that would affect their companies.

On Jan. 14, five days before the Senate election, President Obama proposed a fee on large financial firms to recoup the cost of the government’s bailout of the industry, and he angrily demanded that those firms cut executive bonuses.

The president was also pushing the Senate to follow the House of Representatives and adopt sweeping changes that would impose controls on the trading of exotic securities, limit risk-taking by the largest institutions, and create an agency to protect consumers from abusive lending practices.

Martin Gruss, owner of a West Palm Beach, Fla., investment firm, said he gave $2,400 to Brown because he vehemently disagrees with the policies being pursued by Obama and his economic aides.

“They have no real understanding of the business implications of their actions,’’ he said, adding that limits on trading securities would undermine the position of the United States as the world’s financial capital. “I contributed to Scott Brown because his election will help redress the balance of power in the Senate.’’

The industry’s giving could also spell trouble for Democrats in next fall’s midterm elections, especially following the US Supreme Court decision last month that allows corporations to spend unlimited amounts to influence political contests.

Already, the financial services sector is the single largest base of donors to federal campaigns, giving an industry record $476 million in the 2007-2008 election cycle, much more than the second-largest giver, lawyers and lobbyists, who contributed $270 million, according to the Center for Responsive politics.

“People like me are scouring the country for conservative candidates,’’ said John Mumford, a California venture capitalist who gave the maximum $2,400 contribution to Brown four days before the election. “What’s going on in Washington is against everything I believe in, which is small government, balanced budgets, and support for free enterprise.’’

It's The Economy Stupid: 4Q09 GDP Grew 5.7%; Most In Six Years

What's the GOP going to do if the economy is noticeably healthier by November? Bloomberg:

The economy in the U.S. expanded in the fourth quarter at the fastest pace in six years as factories cranked up assembly lines and companies increased investment in equipment and software.

The 5.7 percent increase in gross domestic product, which exceeded the median forecast of economists surveyed by Bloomberg News, marked the best performance since the third quarter of 2003, figures from the Commerce Department showed today in Washington. Efforts to rebuild depleted inventories contributed 3.4 percentage points to GDP, the most in two decades.

Manufacturers such as Intel Corp. may keep leading the recovery as increasing sales prompt companies to restock. A slowdown in consumer spending last quarter is a reminder that 10 percent unemployment is causing Americans to hold back, one reason why the Federal Reserve is keeping interest rates low and the Obama administration is proposing new plans to create jobs.

“The economy is still healing and improving,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who projected a 5.6 percent gain in GDP. “I think this is a sustainable recovery.”///

Confidence Rising

Private reports released today showed confidence among U.S. consumers improved in January for a second month, and companies expanded this month at the fastest pace in more than four years as orders and employment increased.

The economy was forecast to grow at a 4.7 percent annual pace, according to the median estimate of 84 economists in a Bloomberg News survey. Estimates ranged from gains of 3 percent to 7.5 percent.

For all of 2009, the economy shrank 2.4 percent, the worst single-year performance since 1946.

Consumer spending, which comprises about 70 percent of the economy, rose at a 2 percent pace, more than anticipated following a 2.8 percent increase in the previous three months. Economists projected a 1.8 percent gain, according to the survey median.

Third-quarter purchases received a boost from the government’s auto-incentive program that offered buyers discounts to trade in older cars and trucks for new, more fuel- efficient vehicles. The plan expired in August.

Media Comparison: The "strategy for breaking the partisan logjam holding up President Obama’s agenda" Begins To Come Into Focus

Or at least the NY Times thinks so. The Wash Post isn't so sure, however.  As regular followers of our Media Comparisons know, there is no "truth" ... just different news sources interpretations of "truth."

The White House on Thursday signaled the outlines of its strategy for breaking the partisan logjam holding up President Obama’s agenda, saying Democrats would move quickly to underline their commitment to fixing the broken economy and to build an election-year case against Republicans if they do not cooperate.

With Mr. Obama’s health care overhaul stalled on Capitol Hill, Rahm Emanuel, the White House chief of staff, said in an interview that Democrats would try to act first on job creation, reducing the deficit and imposing tighter regulation on banks before returning to the health measure, the president’s top priority from last year.

But Mr. Obama quickly got a taste of how difficult it would be to bring the opposition party on board.

One day after the president upbraided Congress in his State of the Union address for excessive partisanship, Senate Republicans voted en masse against a plan to require that new spending not add to the deficit (it passed anyway as all 60 members of the Democratic caucus hung together). And some Republicans peremptorily dismissed Mr. Obama’s main job-creating proposal, expressing no interest in using $30 billion in bank bailout money for business tax credits.

“I think there is a right way and a wrong way to do it, and that is not the right way,” said Senator John Cornyn, the Texas Republican heading the effort to elect more Republicans to the Senate.

On Friday, Mr. Obama will travel to Baltimore to announce specifics of his jobs plan, including a proposed $5,000 tax credit for small businesses for each new employee they hire in 2010. While there, he will address House Republicans at a retreat they are holding.

The instant Republican resistance to the jobs plan — coupled with a vote this week to kill a deficit-reduction panel that had been initiated with high bipartisan hopes — illustrated the chasm between the two parties and the difficulties Mr. Obama faces if he is serious about trying to work with an energized opposition.

Increasingly confident of their prospects after the Massachusetts Senate victory, Republicans are disinclined to give ground in policy debates and appear willing to stick with their near-unanimous opposition to major initiatives unless Democrats offer significant concessions.

“House Republicans will seize the opportunity in respectful terms, but candid and frank terms, and make it clear to the president that we have better solutions,” said Representative Mike Pence of Indiana, the chairman of the House Republican Conference.

The administration showed no signs of capitulating either, with officials saying the White House will pursue a strategy of trying to shame Republicans whenever they stand in lock-step against Mr. Obama. In an interview Thursday, Mr. Emanuel warned that Republicans would suffer politically for their opposition to the pay-as-you-go plan.

Media Comparison: "Democrats confused about path ahead"

Or at least the Wash Post thinks so. The NY Times isn't so sure, however.  As regular followers of our Media Comparisons know, there is no "truth," just different news sources interpretations of "truth."

A day after President Obama called on them to renew efforts to pass his ambitious agenda, congressional Democrats remained in disarray Thursday about how to move forward, with at least some pointing at the White House as the cause of the legislative standstill gripping Capitol Hill.

Democrats left town early Thursday weighing their next steps on everything from the stalled health-care bill to competing job-creation packages. Before they departed, some criticized Obama for casting blame on the Senate, where moderates felt singled out for ridicule. Others sought to shift the burden to the GOP, latching on to Obama's call for Republicans to share responsibility for governing after a devastating special-election loss left Democrats a vote shy of a filibuster-proof majority in the Senate. Still others said the president's calls for bipartisanship were wishful thinking and suggested that daring Republicans to block their ambitious agenda would set up a "liberating" contrast for November's midterm elections.

"We also have the responsibility, if we can't find that common ground, to stand our ground on principles," said House Speaker Nancy Pelosi (D-Calif.), rejecting bipartisanship as a goal unto itself. "If we can't find a bipartisan way to do it, we are not going to say, 'Well, if it is not bipartisan, we are not going to do it.' We are going to do what we believe."

The first order of business continues to be the far-reaching health-care bill that Obama once considered the cornerstone of his domestic agenda but that took a back seat to the economy in his State of the Union address Wednesday. Senate Majority Leader Harry M. Reid (D-Nev.) said he felt "a little bit" more confident about the health-care bill's prospects after Obama sought to rally the 48 million Americans who watched the speech.

"I think he did a good job of laying out the problem," Reid said.

Reid and Pelosi said they remain stalled on the most likely option for moving ahead on health-care reform. That would require the Senate to pass a bill, through a parliamentary move requiring a simple majority, resolving issues in its version of the legislation that have prompted objections from House Democrats. That would allow the House to then approve the Senate's measure, thus avoiding another vote on the entire bill in the Senate, where it would almost certainly face a successful 41-vote filibuster by Republicans.

Pelosi, reiterating her opposition to simply passing the Senate legislation, said it is only "75 percent the same" as the House bill and mocked Obama for suggesting that the two measures are 90 percent similar.

Obama Announces $8 Billion For Rail Improvements

NY Times:

A day after delivering his State of the Union address, Mr. Obama came to Florida to announce the investment of $8 billion in high-speed rail projects in 13 major corridors, which he said would provide a down payment for the most significant advance in transportation since the Interstate highway system was built more than a half-century ago ...

The administration announced the $8 billion awards to coincide with the president and vice president’s trip here on Thursday. For months, states have been competing for the financing.

Most of the money, officials decided, will go toward improving existing rail service. More than a billion dollars, for instance, will go to speed train travel between Chicago and St. Louis to up to 110 miles per hour — faster than it is now, but a far cry from the kind of bullet trains that zip along at speeds of more than 150 m.p.h. in Japan and Europe. Two of the largest shares of money are being distributed for investments in bullet-train projects.

The administration said that a $2.25 billion award would help California make a small down payment on its ambitious $45 billion plan to build trains that can go 220 miles an hour. The stimulus money will go to buy right-of-way, build track, and do engineering and environmental work.

Another $1.25 billion will go to build 84 miles of track from Tampa to Orlando, which would allow trains to travel at up to 168 m.p.h., the first leg of a corridor that is eventually expected to go to Miami. If the state and federal financing hold, the first phase of the railway is scheduled to be completed by 2015.

“It’s the biggest thing since Walt Disney World for the I-4 Corridor,” said Representative Kendrick B. Meek, Democrat of Florida, who is running for Senate this year.

The president’s trip to Tampa on Thursday marked his third visit to the state since taking office. The high-speed rail project represented a considerable investment into the state, which the Obama-Biden ticket carried in 2008.

Before any suggestions could be made about any potential political benefits of the awards, Mr. Biden told the audience here that both Florida and California have something in common: Republican governors.

“We didn’t pick this based on politics. I mean this sincerely,” Mr. Biden said. “We’re picking the places that make the most sense, have the highest density, are ready to go.”

$8 Billion In Grants Awarded For "High-Speed" Rail

AP:

High-speed rail projects in California, Florida and Illinois are among the big winners of $8 billion in grants to be announced Thursday by the White House -- the start of what some Democrats tout as a national rail-building program that could rival the interstate highways begun in the Eisenhower era.

Thirteen rail corridors in 31 states received funds. The White House, which supplied a list of the grants to reporters late Wednesday, billed the program as ''high-speed rail,'' but only the California project calls for trains with maximum speeds exceeding the 200 mph achieved by some trains in Europe and Asia.

Some of the money will go toward trains with top speeds of 110 mph, while others -- such as the $400 million allotted to Ohio to connect Cleveland, Columbus, Dayton and Cincinnati by rail -- will go toward trains traveling no faster than 79 mph.

President Barack Obama and Vice President Joe Biden are expected to pitch the program as a boost to the economy at a town hall meeting Thursday in Tampa, Fla. A half-dozen Cabinet members and other senior administration officials were scheduled to fan out across the country for rail events Thursday and Friday. The White House said rail projects will create or save thousands of jobs in areas like track laying, manufacturing, planning, engineering and rail maintenance and operations.

Except for Amtrak's Acela line between Boston and Washington, there are no high-speed trains in the U.S. and no domestic high-speed rail industry. Transportation Secretary Ray LaHood and members of Congress have acknowledged they expect much of the expertise and equipment to be supplied by foreign companies.

Congress set aside the $8 billion as part of the economic recovery plan enacted last year. The money is just a start. Last year, Obama asked Congress in his budget request for an additional $1 billion a year for five years. Congress for this year approved another $2.5 billion that remains to be awarded. And Obama is expected to ask for yet more rail funds when his budget is unveiled next week.

Also, LaHood has hinted that some of the $1.5 billion allotted in the stimulus plan for discretionary transportation projects may go toward high-speed rail.

Japan launched the first high-speed trains in 1964, and France and other European countries followed in the 1980s and 1990s. China has announced plans to expand its high-speed rail system to a network of more than 16,000 miles by the year 2020 and has spent more than $50 billion.

... < See list of  states awarded money> ...

By spreading the $8 billion among so many states, Obama is ignoring the advice of transportation experts and high-speed rail advocates who said the best way to build continuing political support for the program would be to concentrate on two or three grants large enough to get a high-speed line up and running. Once that happens, they reasoned, other parts of the country would lobby for more money to build their own lines.

''We can't try to touch as many political bases as we can with that money. We have got to do major projects,'' Pennsylvania Gov. Ed Rendell said in a recent interview.

Sen. Dick Durbin, D-Ill., disagreed. ''You really have to look at local and regional approaches to create the political will to expand the program,'' he said.

Poll: Americans "Fed Up" With Congress, Both Parties & The Feds; Obama Approval Inches Up

NBC News (complete poll):

Visit msnbc.com for breaking news, world news, and news about the economy

As President Barack Obama prepares to deliver his first State of the Union address Wednesday night, he will be speaking to an American public that’s fed up with Congress, the country’s two main political parties, and the federal government, according to a new NBC News/Wall Street Journal poll.

Only 28 percent believe the federal government is “working well” or even works “okay,” versus seven in 10 who think it’s “unhealthy,” “stagnant” or needs large reforms.

By comparison, in December of 2000 — during the height of the disputed Bush-Gore presidential election — 55 percent said the government was working well or okay.

What’s more, a whopping 93 percent believe there’s too much partisan infighting; 84 percent think the special interests have too much influence over legislation; nearly three-quarters say that not enough has been done to regulate Wall Street and the banking industry; and an equal 61 percent complain that both Democrats and Republicans in Congress aren’t willing to compromise.

And the percentage who believe the country is headed in the wrong direction now stands at 58 percent, the highest level of Obama’s presidency.

“The message is a big one,” said Democratic pollster Peter D. Hart, who conducted this survey with Republican pollster Bill McInturff. “The message is, ‘We hate what’s going in Washington.’”

Public’s anger isn’t directed at Obama
Indeed, the NBC/Journal survey finds that nearly half of the country (48 percent) said last week’s stunning election in Massachusetts, in which Republican candidate Scott Brown won a Senate contest in one of the nation’s most Democratic-leaning states, was aimed at sending a message to Washington. Only 15 percent disagreed.

But if the public is fed up with Washington, its anger isn’t necessarily directed at President Obama.

Only 27 percent say they blame him for not being able to find solutions to the country’s problems. By contrast, 48 percent blame Republicans in Congress and 41 percent blame congressional Democrats.

“The president has problems,” Hart adds, “but the Congress has much bigger problems.”

Obama’s numbers, in fact, are virtually unchanged from last week’s poll, which was released on the day of the Massachusetts election.

The president’s approval rating inched up two points to 50 percent, while the number believing his health care plan is a good idea declined two points to 31 percent.

“This data set reminds us that the Scott Brown election has been a huge event in Washington, D.C.,” said McInturff, the Republican pollster. “But around the country, I think this polling would suggest that it had a modest effect.”

Focus more on the economy, less on health care

Defiant Obama Vows to Push Agenda

NY Times (watch the Town Hall):

President Obama, striking a no-retreat, no-surrender posture in the wake of his party’s humiliating defeat in the Massachusetts Senate race this week, vowed Friday to press on with his expansive domestic agenda — including a health care overhaul and tough new restrictions on banks — even if it meant he had to “take my lumps” from political critics.

Mr. Obama came to this Cleveland suburb for the second stop on his White House to Main Street Tour to spread the word that his administration is about jobs, jobs, jobs. With his approval rating down to about 50 percent, a bruising season of midterm elections ahead and Democrats reeling from the resounding note of disapproval in Massachusetts, the ordinarily cool and cerebral Mr. Obama sounded unusually defiant, even fiery, at a town hall-style question and answer session at Lorain County Community College here.

The president used the word “fight,” or some version of it, more than 20 times.

Mr. Obama vowed to “never stop fighting for policies that will help restore home values.” He promised that he was “not going to stop fighting to give our kids the best education possible.” He pledged he would not “stop fighting to give every American a fair shake,” to continue fighting for a new Consumer Protection Agency and for openness in government. And of course, Mr. Obama pledged to fight for jobs.

“So long as I have some breath in me, so long as I have the privilege of serving as your president, I will not stop fighting for you,” Mr. Obama said. “I will take my lumps. But I won’t stop fighting to bring back jobs here.”

The president’s appearance here comes one day after he picked an especially big fight, with Wall Street, by calling for new limits on banks that would prevent them from becoming too big to fail. He sounded as if he would relish it.

“It’s going to be a fight,” the president said, warming up to the crowd. “You watch. I guarantee you, when we start on financial regulatory reform, trying to change the rules to prevent what has caused so much heartache all across the country, there are people who are going to say, ‘Why is he meddling in government’ or ‘Why is he meddling in the financial industry? It’s another example of Obama being big government.’ No, I just want to have some rules in place so that when these guys make dumb decisions, you don’t end up having to foot the bill. That’s pretty straightforward. I don’t mind having a fight.”

Mr. Obama’s bellicose rhetoric carried echoes of his tone in the 2008 campaign. He is now trying to strike a more populist tone to tap into anger many Americans feel about bailouts on Wall Street while Main Street is suffering. At the same time, the White House is trying to frame the midterm elections on terms favorable to Mr. Obama, by casting him as someone who will stand with the little guy, even if those fighting words contrast with his image as a politician who cares about bringing people together.

“There will be a fulsome debate about who is fighting for Main Street and who is siding with the special interests,” said Dan Pfeiffer, Mr. Obama’s communications director, adding, “There is nothing inconsistent between trying to bring people together to solve problems and standing up to the insurers and the lobbyists.”

Mr. Obama’s shift in tone actually began last week, before Tuesday’s bruising loss in Massachusetts, when the president appeared before the House Democrats and warned that if Republicans want to “stand up for the status quo” and block his health care bill, “that is a fight I want to have.” He used a version of that language at the White House on Thursday in announcing his plan for restrictions on banks.

While here, Mr. Obama made a plea for the health care bill ... Conceding that the plan had “hit a little bit of a buzz saw this week,” Mr. Obama acknowledged that the process “has been less than pretty” and that the measure was so big and unwieldy it looked like “a monstrosity,” creating fear and anxiety among ordinary Americans. But he made the case that passing the measure was an imperative ...

Mr. Obama rode to office on the strength of his cool temperament, but in recent weeks, even some Democrats have questioned whether he appears too distant from voters. Earlier this week, in an interview with ABC, the president acknowledged that many Americans have a sense of “remoteness and detachment” from policy makers in Washington.

On Friday, Mr. Obama alluded to it again, saying it was “pretty easy to get a warped view of things” in Washington. With all the problems he faces in the capital, he sounded especially happy to be let loose for a few hours.

Obama's Town Hall In Elyria Ohio (video)

Watch (read NY Times analysis):

"Obama bank plan wins tentative support in Europe"

Reuters:

France, Britain and Germany offered support on Friday for U.S. President Barack Obama's plan to limit banks' size and trading activities but fell short of pledging to follow suit on the proposal that has stunned world markets.

Obama's dramatic proposals could rewrite the world financial order but experts said they were light on detail and could cloud the global approach fostered by the Group of 20 nations.

Obama made his proposals on Thursday, saying he was ready to fight resistance from Wall Street banks he blamed for helping cause the global financial crisis.

The plan would prevent banks from investing in, owning or sponsoring a hedge fund or private equity fund.

It would set a new limit on banks' size in relation to the overall financial sector and, perhaps most dramatically, could also bar institutions from proprietary trading operations, which are unrelated to serving customers, for their own profit.

Proprietary trading involves firms making bets on markets with their own money and has been the source of much of banks' bumper profits before and after the financial crisis.

French Economy Minister Christine Lagarde welcomed the proposal, saying it was a "very, very good step forward."

"They see that regulation, which was a taboo word that was difficult to use in financial circles in the United States, is vital to contain ... banking excesses," she said.

UK Treasury Minister Paul Myners said Britain had already acted to address problems in its banking industry.

"He's developing a solution to what he sees as the American issues, we've already taken the necessary action in the UK," Myners said in an interview with Reuters Insider TV.

But Britain's opposition Conservatives, tipped by polls to win an election to be held by June, offered more solid support.

"President Obama has created a lot of space for the rest of the world to come up with what I think would be a sensible system of international rules," Conservative finance spokesman George Osborne told BBC Radio.

"I have said consistently that we should look at separating retail banking from activities like large-scale propriety trading and that this was best done internationally."

Doubts remain as to whether Obama's scheme can be enacted unchanged, not least since his party lost a key Senate seat this week, depriving it of a "super majority" in that house.

But it will strike a popular chord.

Banks' return to paying massive bonuses has prompted public and media outrage in the United States and Europe after taxpayer money was used to bail many of them out.

Wall Street sold off on Thursday and the threat that other countries will follow Obama's lead rattled European lenders.

Banker Cluelessness (cartoon)

 

Weekly Radio Address: Getting Our Money Back from Wall Street

WhiteHouse.gov:

As the President continues to work on immediate job creation, he discusses his proposal for a new fee on the largest financial institutions to ensure that every cent of taxpayer assistance gets paid back. Saying that, "we're not going to let Wall Street take the money and run," he then to discusses the ongoing push to make sure banks can never put our economy at risk again.

Obama Proposes Financial Crisis Responsibility Tax

President Obama explains the proposed Financial Crisis Responsibility Fee that will ensure that the largest financial firms meet their obligations to repay American taxpayers for the assistance provided to Wall Street. January 14, 2010.

The NY Times Argues Bankers Should Pay A One-Off Windfall Tax On Bonuses

This NY Times editorial agrees with Let's Put To Bed The Tarp Repayer's Number One Rationale Against A Tax, and proposing addsinga new, one time tax to the mix:

... House Democrats on Thursday proposed imposing a 50 percent windfall tax on bankers’ bonuses. And it is unlikely to satisfy taxpayers. It shouldn’t.

For the sake of fairness, Congress should pass a one-off windfall tax on bonuses. After all, what profits the banks had in 2009 were largely underwritten by taxpayers, who pumped in billions of dollars of capital, covered losses from the collapse of the American International Group and guaranteed the debts of Fannie Mae and Freddie Mac. The Federal Reserve lent hundreds of billions against shoddy collateral that no one else would touch and the Federal Deposit Insurance Corporation guaranteed loans worth hundreds of billions more.

And for the sake of long-term financial stability, Congress should also pass President Obama’s proposed big bank fee — intended to recover, over 12 years, the $117 billion that the administration estimates it will spend on financial bailouts. That should discourage banks that are already too big from getting even bigger and posing a larger threat to the overall economy.

Let's Put To Bed The Tarp Repayer's Number One Rationale Against A Tax

Over the last few days, I've heard again and again how taxing the firms who received TARP funds, and have already paid it back with interest, is unfair. After all these folks say, the interest was the "fee" the government assessed Wall Street for the "service" it provided so assessing some new, additional fee is unfair. Plus, the government has made a record return on their repaid TARP "investments".

Unfortunately for these apologists, they're forgetting two very important facts:

1. The largest slug of TARP money by far has gone to AIG to cover the stupid "insurance" policies it wrote with Wall Street. These policies were covered when there was NO loss and at full face value (when any reasonable business assessment would have dramatically reduced their value) directly benefiting AIG's Wall Street counterparties. This massive subsidy is in large part responsible for the rapid and dramatic rise in these company's stock prices because, while it's hard for most folks on Main Street to understand what occurred, Wall Street understands what's really going on.
2. TARP is not the Feds' biggest source of largesse to financial firms, the FDIC's bond-guarantee program is. And that program is still running, and benefiting, Wall Street.

So it is not the case that Wall Street has paid back the government for its help; in fact they're still receiving massive amounts of help. So paying for that ongoing help is totally fair and not just populist anger.

"White House's Tax Proposal Targets Big Banks' Risks"

Wall St Journal:

President Barack Obama plans Thursday to propose taxing large banks based on their exposure to risk as a way to recover taxpayer losses from the 2008 bailout of the financial sector, people familiar with the matter said.

The plan marks the latest in a slew of proposed fees, penalties and constraints the White House envisions slapping on Wall Street during the clean-up of the financial crisis.

If approved by Congress, the new tax—which the White House calls a "financial crisis responsibility fee "—would force more than 25 banks to collectively pay the federal government roughly $100 billion over 10 years.

The numbers could change as the final tally of losses from the $700 billion Troubled Asset Relief Program is calculated. The top five Wall Street banks earned profits of about $30 billion through the third quarter last year. The proposal will also help the administration tackle the U.S.'s giant budget deficit.

Companies that benefited from the government's debt-guarantee program would also be taxed, a decision that would affect GE Capital, the finance arm of General Electric Co.

The banking industry has already objected to initial reports of the proposal, which Mr. Obama is expected to detail at the White House on Thursday ...

The proposal would not require small banks to pay the fees, the people familiar with the matter said, the latest sign that Washington's post-crisis clean-up is hitting large financial institutions most heavily.

The administration hasn't disclosed the exact equation it will use to determine what each bank owes, but the rough contours suggest that J.P. Morgan, Citigroup Inc. and Bank of America Corp. will top the list of banks with the largest exposure.

Banks that lean heavily on funding sources other than customer deposits, meanwhile, could pay proportionally higher taxes. That means that Goldman Sachs Group Inc. and Morgan Stanley could get penalized. Another big loser could be Citigroup, whose main U.S. banking unit's insured deposits represent a relatively small slice of the company's liabilities.

The 2008 law creating TARP required the White House to come up with a proposal to recoup any losses. The latest government report estimates losses to be about $120 billion. A large portion of those losses are expected to be from government investments in the automotive industry, a burden Mr. Dimon said Wednesday that banks shouldn't be required to shoulder.

Bank CEO's Grilled By Congress: “It sounds to me a little bit like selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars”

NY Times:

The 10 members of the panel, brows furrowed and some furiously taking notes, squared off against the Wall Street chiefs in Washington over the billions in bonuses, and who was really to blame for bringing the financial system to its knees.

But the hearing shifted to new ground when Phil Angelides, chairman of the group, the Financial Crisis Inquiry Commission, bore in on Lloyd C. Blankfein, Goldman Sachs’s chairman.

He asked Mr. Blankfein to explain how his firm could have sold bundles of troubled mortgages at the same time it placed bets with Goldman’s own money that their value would fall.

Mr. Blankfein tried a variation of the tagline used by the Syms clothing chain: “An educated consumer is our best customer.” He said that Goldman’s clients knew what they were buying and that his firm was simply providing a customer service.

“These are professional investors who want this exposure,” Mr. Blankfein said.

But Mr. Angelides had his comeback: “It sounds to me a little bit like selling a car with faulty brakes and then buying an insurance policy on the buyer of those cars.”

The exchange was particularly revealing because it laid bare an essential truth about the Wall Street ethos: if there’s a buyer — no matter how sophisticated — there’s always a seller.

Maybe that’s fine within the confines of Wall Street. But it didn’t work so well when people wanted to buy homes they clearly could not afford and banks were quick to provide them with mortgages.

And it didn’t work so well when companies sought to finance enormous takeovers by leveraging their balance sheets to dizzying heights and banks were happy to provide them with the debt.

Mr. Angelides also dismissed Mr. Blankfein’s line about “professional investors” by saying that those same investors represented the savings of teachers and police officers.

After the hearing, Mr. Angelides said he was frustrated with Mr. Blankfein’s answer. “Mr. Blankfein himself never admitted that there was any responsibility of Goldman Sachs to make sure the products themselves were good products,” he said. “That’s very troublesome.”

Mr. Blankfein took the brunt of other lines of questioning, and when the hearing shifted to more predictable exchanges, he was clearly more comfortable. The executives, for the most part, had figured out how to avoid directly apologizing, despite the commission’s best efforts to pry some admission of guilt out of them.

“Whatever we did, it didn’t work out well,” Mr. Blankfein said. “We regret the consequence that people have lost money.” (John J. Mack, Morgan Stanley’s chairman, who has been the most outspoken about the need for regulation, had apologized at a Congressional hearing last year.)

All of them suggested that reform was necessary, including detailed explanations of how they might put into effect changes to compensation plans and making the sale of derivatives more transparent.

But it was unclear whether it was just lip service. “If the leaders of Wall Street believe regulation is needed, as they stated today before the Financial Crisis Inquiry Commission, then they should tell their lobbyists because they are fighting every serious regulatory change and improvement being considered by Congress,” John Taylor, president of the National Community Reinvestment Coalition, said in a statement after the hearing.

Mr. Taylor also said the banks should be held more accountable for what they sell.

“If the leaders of Wall Street did not consider the possibility of housing prices dropping in their own stress tests and due diligence,” he added, “if they did not know that the F.B.I. had been raising red flags about mortgage fraud since 2004, and if they did not know that high-cost, no-doc, interest-only loans were being made right and left to anyone, then their spirited defense of their employees falls flat.”

“Based on what we heard today,” he added, “they should be firing people, not giving them bonuses.”

Bank Fee Cartoons

Govt Stimulus Added 2% To GDP, Saved 2M Jobs In 4Q09

NY Times:

The Obama administration, in its latest progress report on the $787 billion stimulus program, said both the overall economy and employment continued to be in better shape at the end of 2009 than they would have been without the government’s help.

But as expected, the program’s impact on economic growth in the fourth quarter was less than in two previous quarters, according to President Obama’s Council of Economic Advisers.

The council’s report, the second of the quarterly assessments mandated by Congress, said that in the fourth quarter the stimulus plan’s tax cuts and spending added about 2 percentage points to the gross domestic product, which is the size of the economy as measured by the total goods and services produced.

Though unemployment reached 10 percent at year’s end—two percentage points higher than the peak that the council forecast when the administration proposed the stimulus package to Congress nearly a year ago—the number of jobs was between 1.5 million to 2 million greater in the fourth quarter than it would have been without the recovery plan, the council said ...

The council estimated that the stimulus provisions boosted economic growth in the fourth quarter by less than in the second and third quarters. But the council chairman, Christina Romer, has said that such a leveling off is typical of stimulus measures, which have their biggest economic bang at the outset.

Mr. Obama signed the recovery plan into law late in the first quarter of 2009, when the economy shrank by 6.4 percent. It shrank by a much smaller 0.7 percent in the second quarter before growing 2.2 percent in the third.

Private forecasters project that the economy grew about 4 percent in the year’s final quarter. If so, the council said, that would be the first time that the economy grew by an amount greater than the boost attributed to the stimulus plan. “Even so,” the council added, “growth would have been considerably more anemic without the fiscal stimulus.”

The report acknowledged the difficulty of accurately gauging the stimulus program’s economic impact when it is impossible to know what would have happened without such action. But to buttress its own conclusions, the council included in its report comparable estimates from five private-sector analysts at economic forecasting firms and big banks.

The administration figures, however, consistently are on the more optimistic side. Even so, the public and private estimates together suggest “that the Recovery Act has played a key role in the turnaround of the economy that has been occurring over the past three quarters,” the report said.

Obama Considering Tax On Big Banks

NY Times (also see Federal Reserve Earned Record $45 Billion In 2009; More Than Bank of America, Goldman Sachs & J.P. Morgan Chase Combined):

President Obama will try to recoup for taxpayers as much as $120 billion of the money spent to bail out the financial system, most likely through a tax on large banks, administration and Congressional officials said Monday.

The president has yet to settle on the details, and his senior economic advisers are weighing a number of options as they finish the budget proposal Mr. Obama will release next month.

The general idea is to devise a levy that would help reduce the budget deficit, which is now at a level not seen since World War II, and would also discourage the kinds of excessive risk-taking among financial institutions that led to a near collapse of Wall Street in 2008, the officials said.

But the president also has a political purpose — to respond to the anger building across the country as big banks, having been rescued by the taxpayers, report record profits and begin paying out huge bonuses while millions of Americans remain out of work.

The administration previously rejected two ideas that have received much attention in recent months: a transaction tax on financial trades and a special tax on executives’ bonuses. The most likely alternatives would be a tax based on the size and riskiness of an institution’s loans and other financial holdings, or a tax on profits.

Lobbyists for bankers, taken by surprise, immediately objected to any new tax ...  But the industry’s objections carry less weight at a time when Mr. Obama is under intense pressure to crack down on Wall Street. In coming days, big banks are expected to begin announcing huge bonuses for their top executives and traders. A bipartisan commission charged with reporting on the causes of the financial crisis will begin a two-day hearing on Wednesday with testimony from the heads of four big banks: Goldman Sachs, JPMorgan Chase, Morgan Stanley and Bank of America. Meanwhile, industry opposition continues to stymie the president’s initiative in Congress to tighten regulations.

“The president has talked on a number of occasions about ensuring that the money that taxpayers put up to rescue our financial system is paid back in full,” Robert Gibbs, the White House spokesman, said.

So has the Treasury secretary, Timothy F. Geithner, who has drawn criticism from both the left and the right as not being tough enough on Wall Street.

Representative Barney Frank of Massachusetts, the Democrat who is chairman of the House banking committee, said the president was required to seek recovery of any losses under the law that created the $700 billion financial rescue fund, known as the Troubled Asset Relief Program, in October 2008. The law did not spell out how to do so.

“I did know they were thinking about doing this and I encouraged them,” Mr. Frank said.

Mr. Frank and others in Congress said they did not know any details, and administration officials say no decisions have been made beyond the fact that a proposal will be in the budget. Mr. Obama has been meeting with Mr. Geithner and with Lawrence H. Summers, his senior White House economic adviser, to discuss options from the Treasury department. News of the decision to propose some kind of tax was first reported by Politico.

Federal Reserve Earned Record $45 Billion In 2009; More Than Bank of America, Goldman Sachs & J.P. Morgan Chase Combined

So much for the Republican criticism that saving the economy was going to be a money loser ... From the Wash Post (also see Obama Considering Tax On Big Banks):

Wall Street firms aren't the only banks that had a banner year. The Federal Reserve made record profits in 2009, as its unconventional efforts to prop up the economy created a windfall for the government.

The Fed will return about $45 billion to the U.S. Treasury for 2009, according to calculations by The Washington Post based on public documents. That reflects the highest earnings in the 96-year history of the central bank. The Fed, unlike most government agencies, funds itself from its own operations and returns its profits to the Treasury.

The numbers are good news for the federal budget and a sign that the Fed has been successful, at least so far, in protecting taxpayers as it intervenes in the economy -- though there remains a risk of significant losses in the future if the Fed sells some of its investments or loses money on its stakes in bailed-out firms.

This turn of events comes as the banks that benefited from the Fed's actions are under the microscope. Starting at the end of the week, major banks are expected to announce significant earnings and employee bonuses. Anger in Washington is at such a high boil that the Obama administration will probably propose a fee on financial firms to recoup the cost of their bailout, officials confirmed Monday.

As it happens, the Fed's earnings for the year will dwarf those of the large banks, easily topping the expected profits of Bank of America, Goldman Sachs and J.P. Morgan Chase combined.

Much of the higher earnings came about because of the Fed's aggressive program of buying bonds, aiming to push interest rates down across the economy and thus stimulate growth. By the end of 2009, the Fed owned $1.8 trillion in U.S. government debt and mortgage-related securities, up from $497 billion a year earlier. The interest income on those investments was a major source of Fed profits -- though that income comes with risks, as the central bank could lose money if it later sells those securities to reduce the money supply.

The Fed also made money on its emergency loans to banks and other firms and on special programs to prop up lending, such as one that supports credit cards, auto loans, and other consumer and business lending. Those programs impose interest and fees on participants, with the aim of ensuring that the Fed does not lose money.

And while the central bank in its most recent financial report had recorded a $3.8 billion decline in the value of loans it made in bailing out the investment bank Bear Stearns and the insurer American International Group, the Fed also logged $4.7 billion in interest payments from those loans. Further losses -- or gains -- on the two bailouts are possible as time goes by. The Fed also charges fees for operating the plumbing of the financial system, such as clearing checks and electronic payments between banks.

From its revenue, the Fed deducts operating expenses, such as employee salaries, then returns to the Treasury almost all of the earnings that remain. The largest previous refund to the Treasury was $34.6 billion, in 2007.

"This shows that central banking is a great business to be in, especially in a crisis," said Vincent Reinhart, a resident scholar at the American Enterprise Institute and a former Fed official. "You buy assets that have a nice yield, and your cost of funds is very low. The difference is profit."...

In effect, the unprecedented range of actions taken to address the crisis has made the Fed's balance sheet more like that of a private bank.

The Aughts Were The Worst Economic Decade In 70 Years

Wash Post:

The past decade was the worst for the U.S. economy in modern times, a sharp reversal from a long period of prosperity that is leading economists and policymakers to fundamentally rethink the underpinnings of the nation's growth.

It was, according to a wide range of data, a lost decade for American workers. The decade began in a moment of triumphalism -- there was a current of thought among economists in 1999 that recessions were a thing of the past. By the end, there were two, bookends to a debt-driven expansion that was neither robust nor sustainable.

There has been zero net job creation since December 1999. No previous decade going back to the 1940s had job growth of less than 20 percent. Economic output rose at its slowest rate of any decade since the 1930s as well.

Middle-income households made less in 2008, when adjusted for inflation, than they did in 1999 -- and the number is sure to have declined further during a difficult 2009. The Aughts were the first decade of falling median incomes since figures were first compiled in the 1960s.

And the net worth of American households -- the value of their houses, retirement funds and other assets minus debts -- has also declined when adjusted for inflation, compared with sharp gains in every previous decade since data were initially collected in the 1950s.

"This was the first business cycle where a working-age household ended up worse at the end of it than the beginning, and this in spite of substantial growth in productivity, which should have been able to improve everyone's well-being," said Lawrence Mishel, president of the Economic Policy Institute, a liberal think tank.

The miserable economic track record is, in part, a quirk of timing. The 1990s ended near the top of a stock market and investment bubble. Three months after champagne corks popped to celebrate the dawn of the year 2000, the market turned south, a recession soon following. The decade finished near the trough of a severe recession.

But beyond these dramatic ups and downs lies an even more sobering reality: long-term economic stagnation. The trillions of dollars that poured into housing investment and consumer spending in the first part of the decade distorted economic activity.

Capital was funneled to build mini-mansions in Sun Belt suburbs, many of which now sit empty, rather than toward industrial machines or other business investment that might generate economic output and jobs for years to come.

"The problem is that we mismanaged the macroeconomy, and that got us in big trouble," said Nariman Behravesh, chief economist at IHS Global Insight. "The big bad thing that happened was that, in the U.S. and parts of Europe, we let housing bubbles get out of control. That came back to haunt us big-time."

The housing bubble both caused, and was enabled by, a boom in indebtedness. Total household debt rose 117 percent from 1999 to its peak in early 2008, according to Federal Reserve data, as Americans borrowed to buy ever more expensive homes and to support consumption more generally.

Consumers weren't the only ones. The same turn to debt played out in commercial real estate and at financial firms. It resulted in a corporate buyout boom that often produced little of lasting value. It is a truism of finance that for businesses, relying heavily on borrowed money makes the good times better but the bad times far worse. The same thing, as it turns out, could be said of the nation as a whole.

The first decade of the new century was an experiment in what happens when an economy comes to rely heavily on borrowed money.

"A big part of what happened this decade was that people engaged in excessively risky behavior without realizing the risks associated," said Karen Dynan, co-director of economic studies at the Brookings Institution. "It's true not just among consumers but among regulators, financial institutions, lenders, everyone."

The experiment has ended badly. While the stock market bubble that popped in 2000 caused only a mild recession, the housing and credit bubble has had a much greater punch -- driving the unemployment rate to a high, so far, of 10.2 percent, compared with a peak of 6.3 percent following the last such downturn.

Feds Invests More $, Now Majority Owner Of GMAC

Wash Post:

The federal government said Wednesday that it will take majority control of troubled auto lender GMAC and provide an additional $3.8 billion in aid to the company, which has been unable to raise from private investors the money it needs to staunch its losses.

The Treasury Department has said for months that GMAC would need more federal money, but the decision to increase the government's ownership stake came as a surprise, cutting against the grain of the Obama administration's recent efforts to wind down its bailout of large banks.

What initially appeared to be a closing act now looks more like year-end portfolio rebalancing, with companies including Citigroup and Bank of America allowed to repay aid even as the government deepens its involvement in mortgage financiers Fannie Mae and Freddie Mac -- and now, GMAC.

The government now owns majority ownership stakes in those three firms, General Motors and insurance giant American International Group. It also holds large stakes in Citigroup and Chrysler.

The additional aid for GMAC underscores both its struggles and its importance to the administration's efforts to revive the auto industry. GMAC, which already has taken $12.5 billion in direct federal aid along with other forms of government support, is the largest lender to General Motors and Chrysler dealerships and to their customers.

Treasury said that it will increase its stake in GMAC to 56 percent from 35 percent. The government also will hold about $14 billion in what amounts to loans that GMAC may eventually repay. The government plans to appoint four of the company's nine directors.

Wednesday's announcement is a coda to the stress test of 19 large banks conducted earlier this year. GMAC, which was required to add $9.1 billion to its capital reserves against unexpected losses, was the only bank unable to satisfy regulators by finding private investors.

"We said, if you do not go raise capital from the private markets, if you are unable to, we will put capital into you because it is important to the stability of the system," Treasury Secretary Timothy F. Geithner told the Congressional Oversight Panel earlier this month. "It was never going to be possible for GMAC. They are in a unique and difficult situation."

Congressional Republicans criticized the action Wednesday.

"The government should be releasing its grip on financial institutions, not buying more of them," said Rep. Tom Price (R-Ga.), chairman of the Republican study committee, a conservative House caucus.

GMAC was created to finance GM auto sales, but during the housing boom it focused on mortgage lending. The company, no longer owned by GM, lost $13 billion in the last three years as borrowers defaulted on those loans.

The federal aid will help GMAC sop up those losses and return to its roots.

The Apocalypse The Right-Wing Fears With Stupifying Consistency Has Not Come To Pass

The New Republic:

Conservatives have lined up in near-unanimous opposition to any progressive legislation introduced during President Obama’s first year in office. Whether they’ve been railing against health care reform, a climate bill, or financial regulation, their ire has stemmed less from legislative specifics than from a generalized prophecy of doom: Obama’s proposals will move the country toward socialism, bankrupt entire industries and small businesses, and deny Americans their basic freedoms.

These arguments, however, aren’t new. Conservatives—not just Republicans, but various politicians and groups who’ve resisted major social changes—recycled them throughout the twentieth century. They used them to oppose numerous progressive measures that Americans now take for granted, from women’s suffrage to child-labor laws to Medicare. [See "The Republican Party ... [has not and] cannot come to grips with the very nature of the problems of modern American politics"]. Here we’ve collected a few choice predictions about disaster that never came. Conservatives today might prefer they be forgotten.

“It may be impracticable that our distinctively American experiment of individual freedom should go on.”

—Senator David Hill (D-NY), in 1894, bemoaning the creation of a federal income tax

“Woman suffrage would give to the wives and daughters of the poor a new opportunity to gratify their envy and mistrust of the rich. Meantime these new voters would become either the purchased or cajoled victims of plausible political manipulators, or the intimidated and helpless voting vassals of imperious employers.”

—Former President Grover Cleveland, in 1905, on why women shouldn’t be able to vote

“[T]he child will become a very dominant factor in the household and might refuse perhaps to do chores before six a.m. or after seven p.m. or to perform any labor.”

—Senator Weldon Heyburn (R-ID), in 1908, on why child labor should remain unregulated

“I fear it may end the progress of a great country and bring its people to the level of the average European. It will furnish delicious food and add great strength to the political demagogue. It will assist in driving worthy and courageous men from public life. It will discourage and defeat the American trait of thrift. It will go a long way toward destroying American initiative and courage.”

—Senator Daniel O. Hastings (R-DE), in 1935, listing the evils of Social Security

“[I]t would make it practically impossible for any publisher in the United States to accept any food, drug, or cosmetic advertising without facing squarely into the doors of a jail.”

—Federal Trade Commission Chair Ewin L. Davis, in 1935, on the dangers of empowering the Food and Drug Administration to regulate the food, drug, and cosmetic industries ...

“[The Act represents] a step in the direction of Communism, bolshevism, fascism, and Nazism.”

—The National Association of Manufacturers, in 1938, condemning a national minimum wage and guaranteed overtime pay

“It is destroying the amicable relations between the white and Negro races that have been created through 90 years of patient effort by the good people of both races. It has planted hatred and suspicion where there has been heretofore friendship and understanding.”

—Senator Strom Thurmond (D-SC), Senator Richard Russell (D-GA), and other Southern legislators, in 1956, describing the perils of integrating public schools

“It is socialism. It moves the country in a direction which is not good for anyone, whether they be young or old. It charts a course from which there will be no turning back.”

—Senator Carl Curtis (R-NE), in 1965, opposing Medicare

“[T]his bill could prevent continued production of automobiles . . . [and] is a threat to the entire American economy and to every person in America.”

—Lee Iacocca, executive vice president of Ford Motor Company, in 1970, on why the government shouldn’t regulate airborne contaminants that are hazardous to human health

“The effects include serious long-term losses in domestic output and employment, heavy cost burdens on manufacturing industries, and a resultant gradual contraction of the entire industrial base. The irony of this bleak scenario is that these economic hardships are borne with no real assurance they would be balanced by a cleaner, healthier environment.”

—The National Association of Manufacturers, in 1987, on the perils of an emissions reduction program to combat acid rain

“The doctor begins to lose freedoms; it’s like telling a lie, and one leads to another. First you decide that the doctor can have so many patients. They are equally divided among the various doctors by the government. But then the doctors aren’t equally divided geographically, so a doctor decides he wants to practice in one town and the government has to say to him you can’t live in that town, they already have enough doctors. You have to go someplace else. And from here it is only a short step to dictating where he will go.”

—Ronald Reagan, in 1961, arguing against the creation of Medicare

The Unemployment Line After Xmas (cartoon)

 

Financial Reform, Unlike Health Care Reform, Seems To Be On A Bipartisan Senate Track

Wash Post:

... Wednesday's announcement by the two senators, who serve as chairman and ranking member of the banking committee, that they have resolved key differences and hope to complete a compromise by the end of the Senate's winter vacation.

While both sides cautioned that a deal remained far from certain, political analysts said they were not surprised that Dodd and Shelby had returned to the bargaining table, even amid the partisan rancor of the simultaneous debate over health-care reform.

"There is a political imperative on both sides of the aisle to get a financial reform bill done before the election" in the fall, said Jaret Seiberg of Washington Research Group. "This is about incumbents being able to tell their constituents that they are not going to allow another financial crisis."

President Obama declared financial reform one of his major legislative priorities this summer as he unveiled a package of proposals that would effect the greatest increase in federal oversight of the financial industry since the Great Depression. His administration pushed Congress to take action by the end of the year, and the House passed a bill containing most of the president's proposals earlier this month.

Dodd, who is guiding reform legislation through the Senate, initially said he also planned to produce a bill this year. But Dodd and other Democrats decided not to adopt the administration's proposals on key issues, and they entered into time-consuming negotiations with Republicans. The House bill was passed without any support from the minority party, but that is a more difficult battle in the Senate,

Aides to both parties say that senators would prefer to find common ground. The poisoned atmosphere of the final health-care debates even prompted Dodd to recently seek out Minority Leader Mitch McConnell (R-Ky.) on the Senate floor to emphasize that he was serious about working across party lines on financial reform.

"Our country needs financial regulatory reform and we are committed to working together on legislation to create a sound regulatory structure," Dodd and Shelby said in a joint statement issued Wednesday.

That commitment to bipartisanship appeared to break down in November when Dodd and Shelby suspended talks over Shelby's opposition to creating a new agency devoted to protecting consumers from abuse by lenders. Dodd views the agency as a key reform, while Shelby believes that keeping consumers safe and banks healthy should be handled by the same agency so that the two priorities remain in balance.

Dodd circulated draft legislation among Democrats, but not even his own party was lined up behind him. At the hearing at which Shelby aired his opposition, several moderate Democrats also expressed concerns about the powers of the new consumer agency, along with other elements of the bill.

Dodd and Shelby decided to resume talks, splitting the major issues among four bipartisan pairs of senators. The two men kept for themselves the questions of how to safeguard consumers and banks.

Obama Assesses His First Year & Rejects Criticism Of Health-Care Bill

Wash Post:

President Obama outlined Tuesday a first-year legislative record that he said rescued the economy and placed it on a path of long-term growth, even as he acknowledged that some unfinished items would probably be more difficult to achieve heading into a midterm election year.

In an Oval Office interview with The Washington Post, Obama rejected criticism that he has compromised too much to secure health-care reform or turned over too much authority to congressional leaders in pursuing his broad legislative agenda.

But some of Obama's signature initiatives, including cap-and-trade legislation and financial regulatory reform, remain unfulfilled heading into an election year likely to be shaped by what he achieved in Congress this year. Obama personally made the case for his legislative record at a time when his approval ratings are among the lowest of his presidency and as even some of his most ardent supporters are questioning the results of his congressional strategy.

"Overall, if you had a checklist of promises made, a lot of those promises have been kept," Obama said. "When those things are complete, and I think they will be, we will have achieved a fundamental shift in health care, energy, education and our financial regulatory system that will put this economy on a firmer footing to grow over the long term."

As the Senate prepares to pass its version of health-care reform legislation, Obama's advisers have portrayed a highly successful year pushing important bills through Congress, comparing his record to those of Franklin D. Roosevelt and Lyndon B. Johnson. Presidential scholars offer a more cautious appraisal, even as they note that Obama is operating in a more partisan time in Washington than those Democratic predecessors had.

Obama's legislative record includes the $787 billion stimulus bill passed in February, a mix of tax cuts, infrastructure spending and aid to state and local governments that was the largest of its kind. It also includes a variety of bills addressing issues of particular interest to his political base that had been languishing for years.

Although Obama noted in the interview that "the most important thing we did this year was to ensure that the financial system did not collapse," health-care reform dominated his agenda and will stand as at least one pillar of the legacy he leaves behind. He has come under sharp criticism for the size and shape of the legislation, including from former Democratic Party chairman Howard Dean ...

In the interview, Obama vigorously defended the legislation, saying he is "not just grudgingly supporting the bill. I am very enthusiastic about what we have achieved."

"Nowhere has there been a bigger gap between the perceptions of compromise and the realities of compromise than in the health-care bill," Obama said. "Every single criteria for reform I put forward is in this bill."

In listing those priorities, he cited the 30 million uninsured Americans projected to receive coverage, estimated savings of more than $1 trillion over the next two decades, a "patients' bill of rights on steroids," and tax breaks to help small businesses pay for employee coverage.

On Climate Change & Health Reform, Obama Is Willing To Take What He Can Get

NY Times:

President Obama’s chief of staff, Rahm Emanuel, likes to say that the only thing that is not negotiable is success. The last 48 hours offered a case study in how the president applies that maxim to governing.

After weeks of frustrating delays and falling poll numbers, Mr. Obama decided to take what he could get, declare victory and claim momentum on some of the administration’s biggest priorities, even if the details did not always match the lofty vision that underlined them.

From Copenhagen to Capitol Hill, the president determined the outer limits of what he could accomplish on climate change and health care and decided that was enough, at least for now. He brokered a nonbinding agreement with other world powers to fight global warming, averting the collapse of an international summit meeting. And he blessed a compromise on health care to guarantee the votes needed to pass the Senate.

Neither deal represented a final victory, and in fact some on the left in his own party argued that both of them amounted to sellouts on principle in favor of expediency. But both agreements served the purpose of keeping the process moving forward, inching ever closer toward Mr. Obama’s goals and providing a jolt of adrenaline for a White House eager to validate its first year in office.

Mr. Obama seemed encouraged by the progress ... After landing in a Washington-area snowstorm and retiring for a few hours of rest, Mr. Obama appeared in the Diplomatic Reception Room of the White House on a snowy Saturday. He called the health care deal “a major step forward” and the climate change agreement an “important breakthrough.”

Still, he acknowledged that neither was exactly what he had set out to achieve. On climate change, he said that the Copenhagen pact “is not enough” and that “we have a long way to go.” On health care, he noted that “as with any legislation, compromise is part of the process.”

In an interview, Mr. Emanuel said the developments showed that Mr. Obama “sets out the North Stars for us” in terms of broad and ambitious goals, but is willing to let his staff and allies haggle over the specifics. “He doesn’t negotiate the ends,” Mr. Emanuel said. “He’s very open to discussing alternative routes.”

Critics cautioned against making too much of the agreements. “They are pyrrhic victories,” said John Feehery, a Republican strategist and former Capitol Hill aide. “Neither deal will necessarily improve his poll ratings with swing voters, nor will they energize his base. And neither take the necessary steps to put the American economy back on track, which should be the only thing he is thinking about right now.”

The climate deal in particular may seem more than it is. With the Copenhagen conference unable to agree on binding limits on greenhouse gases linked to climate change, Mr. Obama settled for a three-page agreement with no short or midterm goals but a long-term commitment to prevent world temperatures from rising by more than two degrees by midcentury.

The health care legislation is much further along, and while it compromised on abortion and abandoned a government-run health plan, it still includes many changes long favored by Democrats. If it passes the Senate this week as now appears probable, it stands a much better chance of actually becoming law, culminating decades of largely failed efforts to revamp the nation’s health care system.

Mr. Obama has put a high value on process and keeping things moving, recognizing that history generally does not remember the to and fro, only the big sweep of presidential accomplishments. He may not get the health care plan he envisioned but, if the legislation passes, he will insure 30 million more people, stop insurers from denying coverage for pre-existing conditions and at least try to rein in costs. He will not end climate change in his presidency, and may not get the market-based emission caps he wants, but he may move the country, and the world, toward meaningful action.

Of course, to many on both sides of the aisle, there is a less sympathetic narrative.

Wall St Back Together Again (cartoon)

 

High-Speed Rail Stimulus Money Wont Be Going To Northeast Corridor

Boston Globe:

The railroad tracks from Boston to Washington - the busiest rail artery in the nation, and one that also carries America’s only high-speed train, the Acela - have been virtually shut out of $8 billion worth of federal stimulus money set aside for high-speed rail projects because of a strict environmental review required by the Obama administration.

Because such a review would take years, states along the Northeast rail corridor are not able to pursue stimulus money for a variety of crucial upgrades.

The projects, aimed at increasing speeds, range from bridge replacements in Connecticut to new overhead wires in New Jersey. They would cut the Acela’s travel time from Boston to New York by almost 30 minutes, and from Boston to Washington by a full hour.

When the first grants are announced in January, most of the money - and accompanying jobs - is expected to go to railroad projects in California and the Midwest, which currently have no high-speed trains but are trying to establish service for the first time.

“It’s frustrating,’’ said Yoav Hagler, a planner at the Regional Plan Association in New York, a nonprofit regional planning group in New York. “We have a thriving intercity passenger market between our major cities and we need major investment in the corridor, so it’s a little strange to put that need in the same category as these new programs that are just applying and trying to build a market now,’’ he said.

Northeastern states are seeking some stimulus money for separate rail projects within their borders, such as the Massachusetts proposal to add commuter rail from Fall River and New Bedford to Boston. But travelers on the Acela will miss out on the promise of a faster train and will have to continue waiting for the day when the Northeast route matches the performance of European and Japanese lines.

The obstacle was a decision this year by the Federal Railroad Administration that, before any major upgrades could proceed, a comprehensive environmental review would have to be conducted on the entire 457-mile railroad ...

The FRA itself would be in charge of conducting the review. Although there is no timetable for completing it, similar studies in the past have taken years ...

Amtrak has identified $11.8 billion in upgrades to reduce travel times on the corridor. In addition to better overhead electric supplies and stronger bridges, it includes straightening sections of curvy track and upgrading signaling systems. Without the review mandated by FRA, those plans will sit on the shelf for now, although states were able to apply for a few smaller grants under a separate part of the high-speed program.

The Obama administration, which has embraced high-speed rail as a flagship effort in the stimulus and boasts of Vice President Joe Biden’s long history as an Amtrak commuter, has framed the $8 billion as only the first step in the creation of a nationwide network.

Congress voted recently to provide another $2.5 billion for high-speed rail next year, meaning states that miss out in January will have at least one more chance to apply. But it may be difficult to complete a full environmental review of the Northeast railroad corridor in time for that money, either. A spokesman for Amtrak, Cliff Black, said the last such review for the Corridor took about three years in the mid-1990s, and covered only the stretch between New Haven and Boston ...

The bad news for the Northeast is expected to translate to a windfall for other parts of the country. In the past, critics of rail spending have argued that the Northeast corridor soaked up too much federal transportation funding; the Government Accountability Office estimated in March that since 1990, the corridor had received $3.1 billion - about 75 percent of all federal funds for high-speed rail related projects in that period.

Rob McCulloch, a transportation advocate for Environment America, said that ending that imbalance might have the effect of broadening the political constituency for rail, which would ultimately benefit the region.

Banker Rage (cartoon)

 

Jobs AND Environment: Administration To Triple The Clearn Energy Tax Credit Program

NY Times:

The White House is proposing to expand by $5 billion a clean energy tax credit, as part of a push to spur job growth.

The proposal, unveiled Wednesday by the office of Vice President Joseph R. Biden Jr., is the latest Obama administration effort to tackle the high level of joblessness, while also encouraging investment in wind, geothermal and solar projects in the United States.

Senior administration officials said that they expected to move the proposal through Congress quickly. The $5 billion would raise the cap of the present program, enacted last February, to $7.3 billion from $2.3 billion.

Administration officials and their Democratic allies on Capitol Hill said that the expansion was necessary because the initial program was successful. The administration received more than 1,000 applications. Of these, 600 were deemed acceptable, but a smaller number were approved because of the cap on the amount of money available.

The companies receiving the initial $2.3 billion in tax credits will be announced in January, one administration official said.

The credit, which administration officials say could create tens of thousands of manufacturing jobs, would provide tax breaks to manufacturers who invest in clean energy technology. The money for the tax credit would come from $200 billion in savings from the bank bailout fund, which the administration has extended until next year.

“That frees up lots of space both to address the deficit problem and to invest in accelerating job growth,” one administration official said.

Senator Sherrod Brown, Democrat of Ohio and a backer of the program, said that the expansion of the credit would ensure that clean energy jobs were created in the United States.

“While the public and private sectors are creating a demand for new industries like wind, solar, high-speed rail and medical I.T., we need to do more to ensure that we make these products in America,” he said in a statement.

Obama & The Fat Cat Bankers (cartoons)

"Obama Slams 'Fat Cat' Bankers"

The even more overtly conservative Wall St Journal (see Under Murdoch, Tilting Rightward at The Journal) seems to think Obama's stance on the banks is akin to passing out pitch forks to the mob:

President Barack Obama lashed out at Wall Street, calling bankers "fat cats" who don't get it, in an escalation of tensions with the industry.

Mr. Obama, speaking on the eve of Monday's meeting with the heads of major banks at the White House, said he would try to persuade bankers to free up more credit to businesses, with the aim of boosting job growth. But the president also expressed frustration with banks that the government has assisted.

"I did not run for office to be helping out a bunch of fat cat bankers on Wall Street," Mr. Obama said in an interview on CBS's "60 Minutes" program on Sunday.

"They're still puzzled why is it that people are mad at the banks. Well, let's see," he said. "You guys are drawing down $10, $20 million bonuses after America went through the worst economic year that it's gone through in -- in decades, and you guys caused the problem. And we've got 10% unemployment."

Relations between the banking industry and the White House were frosty from the start and have deteriorated in recent weeks, with large banks lobbying against portions of legislation that would toughen financial-market regulations and administration officials angered by some banks' continued payment of high bonuses and their reluctance to lend.

60 Minutes (watch entire interview):

Watch CBS News Videos Online

"Leave Us Banks Alone" (cartoon)

 

Citi To Repay Federal Loans; Government To Also Sell Its Stake ... At 20% Profit

Wash Post:

Citigroup Inc. said Monday it is repaying $20 billion in bailout money it received from the Treasury Department, in an effort to reduce government influence over the banking giant. The government will also sell its stake in the company.

The New York-based bank was among the hardest hit by the credit crisis and rising loan defaults. It has received one of the largest bailouts of any banks during the financial crisis. The government gave it $45 billion in loans and agreed to protect losses on nearly $300 billion in risky investments.

Citi, though, only has to pay back $20 billion because the remaining $25 billion was converted into a 34 percent ownership stake in the bank earlier this year. The government plans to sell that entire stake - which has risen in value by more than 20 percent - during the next year.

The loss-sharing agreement will also end as part of the plan.

Repaying the bailout means Citi will no longer face heavy scrutiny and restrictions from the government, including caps on executive pay and dividends. However, the repayment comes at a heavy cost. Raising the new capital will significantly dilute current shareholders' stake in the company.

Citi shares fell 7 cents to $3.88 in premarket trading Monday.

By approving the repayment, the government is essentially saying Citi is on strong enough financial footing to stand on its own. It's a far cry from concerns at the beginning of the year when some analysts were saying Citi could fail completely and be taken over by the government.

While the government believes in the strength of Citi, the bank is still facing losses and trying to streamline operations to maintain profitability that has been tenuous throughout the year, even as other big banks recovered.

House Approves "the most sweeping overhaul of the nation's financial regulatory system since the Great Depression"

Wash Post:

More than a year after the near-collapse of Wall Street plunged the economy into crisis, a divided House on Friday approved the most sweeping overhaul of the nation's financial regulatory system since the Great Depression.

"We are sending a clear message to Wall Street: The party is over," House Speaker Nancy Pelosi said after the 223 to 202 tally, which failed to attract a single Republican vote.

The bill's passage marks a milestone in the Obama administration's efforts to rein in the abuses that contributed to the crisis and to prevent similar failures in the future. President Obama has called financial reform one of his top priorities, alongside health care and climate change. In a statement Friday, he said the legislation "brings us another important step closer to necessary, comprehensive financial reform," and he urged the Senate to act as quickly as possible.

The 1,279-page House bill would create a new federal agency dedicated to consumer protection, establish a council of regulators to police the financial landscape for systemic risks, initiate oversight of the vast derivatives market and give the government power to wind down large, troubled firms whose collapse could endanger the entire financial system. The legislation also would give shareholders an advisory say on executive compensation, increase transparency of credit-ratings agencies and set aside billions of dollars to aid unemployed homeowners.

Rep. Barney Frank (D-Mass.), who guided the bill through the House Financial Services Committee, compared the legislation to efforts in previous generations to expand the government's oversight of private enterprise ...

House Republicans were unanimous in their opposition, saying that the bill would amount to an egregious overreach of government powers and leave unresolved many of the problems that led to the recent crisis. They argue that it would create unnecessary new layers of bureaucracy and stifle financial innovation ...

Despite Friday's victory for administration officials, the elation won't last long. An uncertain road lies ahead in the Senate, where success requires a three-fifths majority and where support from key Democrats is far from certain.

Weekly Radio Address: "The President ... blasts Republican Leaders and financial industry lobbyists for their joint 'pep rally' to defeat" Finanical Reform

WhiteHouse.gov:

The President explains that while he continues to focus on jobs, it is also profoundly important to address the problems that created this economic mess in the first place. He commends the House of Representatives for passing reforms to our financial system, including a new Consumer Financial Protection Agency, and blasts Republican Leaders and financial industry lobbyists for their joint "pep rally" to defeat it.

Goldman Acquiesces & Changes Its Pay Practices

Apparently, the pressure from the public, government and especially, shareholders (Wall Street Pay Practices Under Pressure; Now From Shareholders Too) has had an impact. From the NY Times:

With France joining Britain in proposing a steep tax on bank bonuses, Goldman Sachs moved on Thursday to quell the uproar over its resurgent profits and pay.

Bowing to calls for restraint in tough economic times, Goldman said that its most senior executives would forgo cash bonuses this year. Instead, the 30 executives will be paid in the form of long-term stock — an arrangement that means they will not get big year-end paydays, but one that could turn out to be enormously lucrative if Goldman’s share price rises over time.

The move is meant to address concerns that bankers and traders in the past benefited from short-term performance. The shift at Goldman locks up the executives’ rewards for five years and enables Goldman to claw back the bonuses in the event the bank’s business sours.

Goldman did not say how much it would pay the executives, suggesting the bank would continue a practice — widely followed in investment banking — of allocating roughly half its annual revenue for compensation. While their bonuses will be paid in long-term stock, the payouts are likely to be worth many millions of dollars.

It is uncertain if the move, which applies only to a small number of Goldman employees, will be enough to placate critics of Wall Street, including some policy makers in Washington, where Kenneth R. Feinberg, the special master of compensation, will release new pay rulings on Friday.

“We’re starting to see some firms adopt compensation structures and policies that are in the direction of the principles that the president and Feinberg have been articulating, but we have a long way to go,” said Neal Wolin, deputy secretary of the Treasury ...

Pearlstein: "What I like about President Obama's Stimulus 2.0 is ... its restraint and its willingness to embrace seemingly contradictory ideas"

Steven Pearlstein:

What I like about President Obama's Stimulus 2.0 is what all the partisans and ideologues hate about it -- its restraint and its willingness to embrace seemingly contradictory ideas.

The restraint comes in acknowledging that there is only so much the government can do to help a market economy rebalance itself so it can grow again. With a hole of 10 million jobs to fill, if the government could provide 3 million, it would be a singular accomplishment, and Obama has approached this challenge recognizing those limits.

The seeming contradiction relates to his approach to budget deficits. The best idea for reducing them, he argues, is to take steps to shorten a recession -- but only if they don't significantly raise long-term borrowing costs. After all, when you're $9 trillion in the hole, every extra percentage point you add to interest rates translates into an extra $90 billion in interest payments, much of it to foreigners.

What the deficit scolds fail to realize is that government debt isn't the only type of debt that we're passing on to our grandchildren. We also pass on household debt and corporate debt, which are no less onerous but which have been shrinking fast -- so fast, in fact, that they have caused a deep recession. The increase in government debt, while hardly trivial, has to be viewed in that larger context.

On the other hand, what the Keynesian cheerleaders can't quite admit is that a heavily indebted country in a globalized economy can't simply borrow and spend its way out of a deep recession. At some point the old bills must be paid, the imbalances corrected. The purpose of stimulus is to spread the reckoning out over time, so that the economy doesn't get caught into the vicious and self-reinforcing downward spiral that Keynes understood so well.

As the president explained Tuesday in his speech at the Brookings Institution, there is nothing irreconcilable about paying down the deficit and investing in economic growth. The choice between them is a false one, but figuring out the right balance is as much art as science.

It is the unfortunate reality of any recession that the burden of right-sizing the economy and industries is borne disproportionately by those who lose their jobs, often through no fault of their own, while others suffer very little. Stimulus 2.0 recognizes that it is the government's role to compensate the losers by extending unemployment benefits to those who qualify -- and provide health insurance and food stamps even to those who don't qualify for jobless benefits.

The new proposal also restores tens of billions of dollars in infrastructure spending that was cut from the first stimulus bill to make room for across-the-board tax cuts that, as some of us predicted, didn't pack much of an economic punch. The president talked a good game Tuesday about making sure that the best projects with the highest payoff will get the money. To walk the walk, however, he'll need to supplement that with a clear veto threat at the first sign of the kind of political earmarking that he's accepted in the past.

If saving jobs is the goal, there's nothing more effective than sending another big slug of money to the states, which claim to face a collective shortfall of more than $140 billion next year. I'd feel a whole lot better, however, if I knew the money weren't being used to fund pay raises or pension-benefit increases. Some states have already imposed pay and benefit freezes. Requiring that of the rest is a reasonable sacrifice to ask from public employees who claim to care about preserving their colleagues' jobs and maintaining vital services.

Those are the big-money items in the president's proposal, and the ones likely to create and save the most jobs in the shortest amount of time.

Elizabeth Warren's Oversight Committee: TARP “can be credited with stopping an economic panic”

NY Times:

The independent panel that oversees the government’s financial bailout program concluded in a year-end review that, despite flaws and lingering problems, the program “can be credited with stopping an economic panic.”

The Congressional Oversight Panel, which issued the report, was created in October 2008 by the same law that established the $700 billion Troubled Asset Relief Program. The panel has often been critical of the Treasury Department’s management of the bailout operation, especially at its start in the Bush administration but also under the Obama administration.

In the latest monthly report released on Wednesday, the panel again criticized the Treasury Department under Secretary Timothy F. Geithner for “failure to articulate clear goals or to provide specific measures of success for the program” as it has morphed over time from rescuing financial institutions to propping up securitization markets, auto manufacturers and home mortgages in danger of default. The panel also described the program’s foreclosure mitigation efforts as inadequate.

Its assessment coincides with the Obama administration’s expansion of TARP yet again, to extend credit to small businesses that cannot get loans from still-skittish banks. President Obama highlighted the new mandate in his economic speech on Tuesday, saying that the bailout program should now work for Main Street as well as Wall Street.

The Treasury’s lack of clarity about the program’s goals, the oversight panel said, made it hard to assess its overall effectiveness. Mr. Geithner is scheduled to testify on Thursday in his quarterly appearance before the five-member panel.

Also making it difficult to gauge the program’s impact, the panel said, is that other forces have helped rescue the financial system and the overall economy, including actions of the Federal Reserve and Federal Deposit Insurance Corp., the $787 billion stimulus program of spending and tax cuts that Mr. Obama and Congress enacted, and similar stimulus efforts by foreign governments.

“Even so,” the panel concluded, “there is broad consensus that the TARP was an important part of a broader government strategy that stabilized the U.S. financial system by renewing the flow of credit and averting a more acute crisis.”

It added, “Although the government’s response to the crisis was at first haphazard and uncertain, it eventually proved decisive enough to stop the panic and restore market confidence.”

The panel’s 134-page report noted that after 14 months of the program, problems remain. Banks resist making loans, toxic mortgage-related assets still clog big banks’ balance sheets and smaller banks are vulnerable to troubles in the commercial real estate sector.

Also, while up to 13 million more home foreclosures are projected over the next five years, the panel said, “TARP’s foreclosure mitigation programs have not yet achieved the scope, scale, and permanence necessary to address the crisis.”

The panel is chaired by Elizabeth Warren, a Harvard Law School professor, and includes Richard H. Neiman, New York state’s bank superintendent; Damon Silvers, special counsel for the AFL-CIO; Paul S. Atkins, a former Securities and Exchange Commission member, and Representative Jeb Hensarling, a Republican of Texas. Only Mr. Hensarling, an opponent of the program, voted against the report.

Its conditional good review of TARP coincides with the Treasury Department’s separate report this week that better-than-expected repayments, interest and other returns likely will mean that taxpayers will get back most of the $700 billion used to create TARP.

The bank bailouts are turning a small profit, Treasury said. It anticipated losses through next year of no more than $140 billion—about $200 billion less than forecast just four months ago—on payments extended to auto and insurance companies and for housing programs.

Obama Bemoans Vapid Press Coverage Of His Asian Trip

Apparently, this, Obama's Successful Asian Trip--Though You Wouldn't Know It From The MSM, bothered Barack Obama too. Here's Michael Scherer:

We are past, for the moment, the White House "war" on Fox, such as it was. (Obama did an interview with Fox News' Major Garrett a few weeks back, and General Petraeus is on Fox News Sunday today, with close Obama ally Dick Durbin.) Summer is gone too, and with it the "wee weed up" "silly season" of political coverage that Obama and his aides regularly decried. But President Obama's disdain for certain features of the national media remains alive and well. In a little noticed aside at the end of Thursday's jobs summit, Obama effectively painted the press as an obstacle to not just the much-needed economic recovery, but to America recovering its 20th Century position as an economic powerhouse.

Obama was responding to a comment from Farooq Kathwari, the CEO of furniture maker Ethan Allen. Kathwari had observed that the layoffs at his company that followed the economic collapse have actually provided an opportunity for the company to reinvent itself as something better. Obama agreed with Kathwari's point:

If we can recapture that sense that we're in this thing together and that we are willing to work hard, that America is not great because it's owed to us, but we've been great because previous generations have put in the hard work to get us there, then I'm confident that we're going to get through this tough time and the 21st century is going to be as good for us as the 20th was.

But then Obama made a turn, and went after the press, specifically the group of network correspondents who had interviewed Obama on his trip to Beijing. The full passage follows after the jump. 

But it's not going to come easily and it is going to require a level of cooperation and a willingness to work strategically together that we have not seen over the last several years. And frankly, this town and the way the political dialogue is structured right now is not conducive to what we need to do to be globally competitive. And all of you are leaders in your communities -- in the business sector and the labor sector, in academia, we even have a few pundits here -- it is important to understand what's at stake and that we can't keep on playing games.

I mentioned that I was in Asia on this trip thinking about the economy, when I sat down for a round of interviews.  Not one of them asked me about Asia.  Not one of them asked me about the economy.  I was asked several times about had I read Sarah Palin's book.  (Laughter.)  True.  But it's an indication of how our political debate doesn't match up with what we need to do and where we need to go.

Pretty pointed stuff, and I have little doubt that the president was actually irked by this at the time.  [He also remembers the content of the interviews inaccurately. See update below.] Through both the campaign and his presidency, Obama has made little secret of his disdain for some of the horse-race, tabloid elements of the press corps--though his political and communications staff are not above sometimes exploiting those same tendencies for their own benefit. Obama meets regularly off-the-record and on-the-record meals with columnists who his advisers see as more intellectually substantive (or politically influential). But he has not done the same with beat reporters, whom, as he suggested Thursday, sometimes do a disservice to the country with the journalistic equivalent of ambulance chasing.

Treasury Forecasts Smaller Loss From Government Bailouts: Bank Saving Was Profitable

NY Times:

The Treasury Department expects to recover all but $42 billion of the $370 billion it has lent to ailing companies since the financial crisis began last year, with the portion lent to banks actually showing a slight profit, according to a new Treasury report.

Treasury officials said the government had lost roughly $30 billion to the insurance giant American International Group.

The new assessment of the $700 billion bailout program, provided by two Treasury officials on Sunday ahead of a report to Congress on Monday, is vastly improved from the Obama administration’s estimates last summer of $341 billion in potential losses from the Troubled Asset Relief Program. That figure anticipated more financial troubles requiring intervention.

The officials said the government could ultimately lose $100 billion more from the bailout program in new loans to banks, aid to troubled homeowners and credit to small businesses.

Still, the new estimates would lower the administration’s deficit forecast for this fiscal year, which began in October, to about $1.3 trillion, from $1.5 trillion.

The report could tamp down some of the public anger directed against both parties over the bailouts. Congressional leaders are already planning to use some of the program’s money for economic stimulus and job creation.

Of course, the government’s potential losses extend beyond the Treasury program. The Federal Reserve, for example, still holds a trillion-dollar portfolio of mortgage-backed securities whose market value is unknown.

The improved picture of the Treasury program is the result of higher-than-expected returns on the loans and the fact that, as the financial sector has recovered from its free fall last year, the government has not had to use much more of its $700 billion in lending authority this year, according to the Treasury officials, who declined to be identified as discussing the report before it was presented to Congress.

Positive Jobs Report Shifts Debate: Jobs vs. Deficit

Wall St Journal:

Friday's promising jobs report, an unexpected piece of good economic news for the Obama administration, could shift dynamics on Capitol Hill after weeks of hand-wringing about what the government can do to boost employment.

Both the White House and congressional leaders had been laying the groundwork for a big job-creation bill. President Barack Obama, after hosting a "jobs summit" Thursday, kicked off a multi-city tour Friday.

But the signs of life in the job market -- arguably the best economic news in a couple of years -- inject a new element to the debate. Congressional Democrats used the report to make the case for continued action. Many remain under acute political pressure to pass a big jobs-related bill, facing tough re-election battles next year with the economy and the still-high unemployment rate a top issue.

The White House, meanwhile, is equally concerned about the deficit, and is disinclined to spend big. Administration officials Friday cited the jobs report as they talked about a more moderate "targeted jobs program."

Democrats hope soon to pass legislation, estimated to cost about $100 billion, extending payments for those whose jobless insurance and related health benefits expire in 2010. That money would likely add to the deficit.

The House and Senate are also crafting jobs packages that will include investing in infrastructure, providing aid to state and city governments, and increasing loan guarantees for small business. Lawmakers are eager to pass the package by early next year, as soon as they complete the health overhaul.

For his part, President Barack Obama intends to announce at a Tuesday speech at Washington's Brookings Institution a list of relatively moderate initiatives he plans to send to Congress. He signaled Thursday he backed expanding a program encouraging homeowners to weatherize.

An administration official said Mr. Obama also favored incentives, possibly tax credits, for small-business hiring, some new infrastructure spending and possibly cash for states and localities. The final list of what the president will support in his Tuesday speech is currently in flux, the official said, and won't be exhaustive.

The new jobs report showed losses slowing sharply in November, with the unemployment rate down from 10.2% to 10%. Nonfarm payrolls fell by 11,000, far less than in recent months.