Kevin Drum

More Bailout

| Tue Feb. 10, 2009 5:43 PM EST | Scheduled to publish Tue Feb. 10, 2009 1:54 PM EST

MORE BAILOUT....According to the fact sheet accompanying the new bailout plan, all banks with assets over $100 billion will be required to undergo a "comprehensive stress test" to make sure they're solvent enough to continue lending even in the face of future losses. This applies to about the 20 biggest banks in the country. So what happens then?

While banks will be encouraged to access private markets to raise any additional capital needed to establish this buffer, a financial institution that has undergone a comprehensive “stress test” will have access to a Treasury provided “capital buffer” to help absorb losses and serve as a bridge to receiving increased private capital.

....Firms will receive a preferred security investment from Treasury in convertible securities that they can convert into common equity if needed to preserve lending in a worse-than-expected economic environment. This convertible preferred security will carry a dividend to be specified later and a conversion price set at a modest discount from the prevailing level of the institution’s stock price as of February 9, 2009.

Well, that's clear as mud, isn't it? After a thorough investigation that will supposedly force banks to face up to their losses (but not in an "overly conservative" way), they'll then be available for government bailout money. Who qualifies? Apparently everyone. What are the terms? We'll make that up on a case-by-case basis. How long will banks continue to be bailed out? No telling. What restrictions will be placed on bailed-out banks? None, apparently.

I'll wait for smarter people than me to explain this stuff further, but at first glance it sure looks an awful lot like "trust us." But we'll see. A big part of the Geithner plan is a promise to "improve public disclosure by banks," which will "include measures to improve the disclosure of the exposures on bank balance sheets." If that's done honestly, there are likely to be quite a few banks that need more than just a "preferred security investment" from the Treasury. Stay tuned.

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Press Conference

| Tue Feb. 10, 2009 5:40 PM EST | Scheduled to publish Tue Feb. 10, 2009 1:19 PM EST
PRESS CONFERENCE....Longtime reporter Walter Shapiro was decidedly unimpressed with President Obama's press conference last night:

Through most of his inaugural primetime press conference, Barack Obama seemed like he was channeling a particularly loquacious combination of Joe Biden, Bill Clinton, and the ghost of Hubert Humphrey. The president's response to the first question from the Associated Press about the risks of sounding too apocalyptic about the economy ran (or, to be more accurate, crawled) for nearly 1,200 words.

....What Obama was decidedly not Monday night was Kennedy-esque. When JFK unveiled the live presidential primetime press conference 48 years ago, he answered 37 questions in the space of 40 minutes; Obama only half-responded to 13 questions in the space of an hour....As a result, the reporters and their questions were little more than potted palms as President Obama declaimed from the East Room.

I confess that this was my initial reaction too: Obama seemed to ramble and hesitate endlessly last night. But I wonder if that's a reaction unique to someone who pays a lot of attention to politics and has heard all this stuff before? In the same way that Beltway types never liked Bill Clinton's longwinded State of the Union addresses, but ordinary voters did, I wonder if ordinary voters appreciated Obama's long, serious answers more than guys like Shapiro and me? I can't say for sure, but it wouldn't surprise me.

Earnings

| Tue Feb. 10, 2009 5:27 PM EST | Scheduled to publish Tue Feb. 10, 2009 12:50 PM EST

EARNINGS....Via Ezra, Rick Hertzberg asks a question:

Why is that a manual worker gets paid wages and a middle manager or cop or teacher earns a salary, but a corporate boss condescends to accept “compensation”?

This really isn't so hard. "Wages" refers to hourly earnings. "Salary" is typically a fixed yearly amount for exempt employees. "Compensation" is used for corporate honchos because you need a word that encompasses the fact that a big part of their earnings are in stock, deferred salary, capital gains, pension payments, and various perks. There's really nothing very sinister about all this.

Bailout 2.0

| Tue Feb. 10, 2009 5:22 PM EST | Scheduled to publish Tue Feb. 10, 2009 12:31 PM EST

BAILOUT 2.0....I've been avoiding comment on Tim Geithner's new bank bailout program because the rumors of what's in it have been changing on practically an hourly basis. So why not just wait and see what he announces? Today he did, and here's the New York Times summary of his four point program:

  • A new program, jointly run by the Treasury and the Federal Reserve, with financing from private investors, to buy up hard-to-sell assets that have bogged down banks and financial institutions for the past year. The program, often described as a “bad bank,” is expected to spend $250 billion to $500 billion.
  • Direct capital injections into banks, which would come out of the remaining $350 billion in the Treasury’s rescue program.
  • A vast expansion of lending program that the Treasury and Federal Reserve had already announced, which is aimed at financing consumer loans. The two agencies had originally announced their intention to finance as much as $200 billion in loans for student loans, car loans and credit card debt. Instead the program will be expanded to as much as $1 trillion.
  • A separate $50 billion initiative to enable millions of homeowners facing imminent foreclosure to renegotiate the terms of their mortgages is to be announced next week.

I'm not sure the "bad bank" is really a bad bank, but I guess that depends on the details of how it's going to work. More later.

State Secrets

| Tue Feb. 10, 2009 5:19 PM EST | Scheduled to publish Tue Feb. 10, 2009 2:30 AM EST

STATE SECRETS....In the pre-Bush era — from 1953 to 2000, including the entire period of the Cold War — the government invoked the state secrets privilege about once a year. Since that time, its use has been massively increased, with the government invoking it more than six times per year in the post-9/11 era.

By itself, this is bad enough. But it's not the worst part of the Bush administration's use of the privilege. Before 2001, the state secrets privilege was mostly used to object to specific pieces of evidence being introduced in court, something that nearly everyone agrees is at least occasionally necessary. But the Bush administration changed all that. In their typical expansive way, they decided to apply the privilege not just to individual pieces of evidence, but to get entire cases thrown out of court. What's more, they did this not merely when a state secret was incidental to some unrelated complaint, but when the government itself was the target of the suit.

Now Barack Obama is president, and unfortunately he's decided to continue the Bush administration's expansive reading of the privilege. The case involved the rendition and torture of Binyam Mohamed and four other detainees:

In a closely watched case involving rendition and torture, a lawyer for the Obama administration seemed to surprise a panel of federal appeals judges on Monday by pressing ahead with an argument for preserving state secrets originally developed by the Bush administration.

....A government lawyer, Douglas N. Letter, made the same state-secrets argument on Monday, startling several judges on the United States Court of Appeals for the Ninth Circuit.

“Is there anything material that has happened” that might have caused the Justice Department to shift its views, asked Judge Mary M. Schroeder, an appointee of President Jimmy Carter, coyly referring to the recent election.

“No, your honor,” Mr. Letter replied.

Judge Schroeder asked, “The change in administration has no bearing?”

Once more, he said, “No, Your Honor.” The position he was taking in court on behalf of the government had been “thoroughly vetted with the appropriate officials within the new administration,” and “these are the authorized positions,” he said.

So Obama is adopting the same expansive interpretation of the privilege as the Bush/Cheney administration, and using it in order to cover up American involvement in torture and rendition programs that have been in the public record already for years and can hardly even be said to be secrets, let alone state secrets that are vital to U.S. national security. This is decidedly not change we can believe in. Greenwald has more.

Asia

| Tue Feb. 10, 2009 3:24 PM EST | Scheduled to publish Mon Feb. 9, 2009 9:38 PM EST

ASIA....You think our economy is in trouble? Things look even worse in Asia.

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The Size of the Stimulus

| Tue Feb. 10, 2009 3:22 PM EST | Scheduled to publish Mon Feb. 9, 2009 7:51 PM EST

THE SIZE OF THE STIMULUS....This is apropos of nothing in particular, but all the sound and fury surrounding the Nelson/Collins $100 billion cut in the stimulus bill makes me think that maybe it ought to be put into perspective. So here's some perspective.

The original bill totaled about $800 billion, and according to CBO estimates the amount of stimulus (spending + tax cuts) provided by the bill over the next two-and-a-half fiscal years would have been about $700 billion. This, we're told, would help create about 3 million jobs. The bigger Senate bill would have added $100 billion to that, and the current Nelson/Collins bill gets us roughly back to the original amount.

But stimulus isn't restricted to bills labeled "stimulus." Any deficit spending counts, and there's a ton of that already in the budget. Not counting TARP and bailout money (since it doesn't necessarily stimulate consumption), CBO estimates that the federal deficit this year will come to about $800 billion. If we assume the same next year and maybe half as much the year after, that's a total deficit-driven stimulus of about $2 trillion. Presumably this creates jobs at the same rate as spending in the stimulus bill, so that amounts to something in the neighborhood of 9 million jobs.

So: With the cut, total fiscal stimulus over the three years starting last October comes to $2.7 trillion and 12 million jobs. If we had kept spending at its higher level, it would have come to $2.8 trillion and perhaps 12.5 million jobs. That's a difference of about 3%.

Now, the nature of that 3% is hardly defensible. State aid and school construction are way better uses of the money than a lot of stuff that was left in the bill. Still, the fact remains that the total amount of stimulus over three years is $2.7 trillion, not the $800 billion number that dominates the discussion. That's a helluva lot of stimulus, and if it doesn't do the job it's doubtful that $2.8 trillion will do it either.

Chart of the Day - 2.09.2009

| Tue Feb. 10, 2009 3:12 PM EST | Scheduled to publish Mon Feb. 9, 2009 2:33 PM EST

CHART OF THE DAY....Justin Fox presents this chart showing the pace of unemployment during the past six recessions. Unlike a similar chart that's been making the rounds, which showed only the 1991 and 2001 recessions, this one shows employment decline in percentage terms, not as raw job losses. This is a better way of doing it since the population of the U.S. has grown substantially since 1974.

But it still looks plenty bad. Right now we can say that this is the worst recession since 1981, but by summer it's almost certain that we'll be saying it's the worst recession since World War II.

Healthcare Update

| Tue Feb. 10, 2009 2:55 PM EST | Scheduled to publish Mon Feb. 9, 2009 1:40 PM EST

HEALTHCARE UPDATE....Jon Cohn says that despite doubts in liberal circles that Obama will aggressively pursue healthcare reform this year, high-ranking Obamaites have confirmed that it will be a "central focus" of his upcoming budget:

In interviews over the past week, administration officials have said repeatedly that the dobuts about Obama’s commitment are unfounded. They say Obama himself has indicated health care is a top priority, to be pursued shortly after the debate over the economic stimulus package is over.

...."I've been in meetings with him and it's clear this guy is committed to getting health care and getting coverage to everybody," says one high-ranking member of the administration. "There's no question in my mind."

And while these advisers acknowledged that the question of whether to deal with health care in the next budget had been under discussion, another senior official on Sunday indicated a decision had already been made: “Health care reform will be included — and indeed a central focus — of the budget,” this official said, while declining to offer more details.

We should stop being surprised by stuff like this. If there's one thing we should all have figured out about Obama by now, it's the fact that his priorities and his political beliefs are not will-o-the-wisps. The big ticket items he talked about during the campaign are things he's thought hard about and believes deeply in. They weren't just dodges to win a few votes here and there.

From a lefty point of view, there's both upside and downside to this. The upside is obvious: he said he wanted to withdraw from Iraq, pass major healthcare legislation, and take serious action on global warming, and he will. At the same time, he also said he wanted to work cooperatively with the opposition, add troops to Aghanistan, and continue Predator raids into Pakistan. Liberals might not like those promises quite so much, but guess what? He's apparently pretty committed to all that stuff too.

In other words, he's doing what he said he would do. How about that?

Everybody Loves Barack

| Tue Feb. 10, 2009 2:52 PM EST | Scheduled to publish Mon Feb. 9, 2009 1:01 PM EST

EVERYBODY LOVES BARACK....According to Gallup, President Obama is handily winning the stimulus debate: 67% of Americans approve of the way he's handling the stimulus bill compared to only 31% who approve of the way congressional Republicans are handling it. And if anything, these numbers will probably diverge even more as Obama goes on the road this week to sell the bill.

And there's more good news for Obama in this poll. Over 50% of respondents have more confidence than they did two weeks ago in Obama's ability to improve the economy and manage the federal government. And 80% believe that passing the stimulus bill is either important or critically important.

That's some serious wind at his back. The question is: does this mean he never really needed to compromise on the bill in the first place? Or are these poll results partly a result of the fact that he was willing to compromise? I'm pretty skeptical of Obama's efforts to reach across the aisle on this stuff, but I have to admit that the latter seems pretty plausible to me. Compromise might have its benefits after all.