Mojo - February 2009

The Senator from Blago-land

| Sat Feb. 21, 2009 5:11 PM EST
Senator Roland Burris, Blago's pick to fill Barack Obama's Senate seat, did not have a good week. He's under investigation for making contradictory statements about his fundraising connections to the disgraced ex-Governor Rod Blagojevich; new Illinois Governor Pat Quinn and a coalition of black ministers have called on him to resign; the White House has urged him to think about his future; an Illinois newspaper discovered he did not reveal all his lobbying clients (including mortgage bankers and the tobacco industry); and his key Capitol Hill staffers have fled his office. The question is, can he hold on and resist the calls for him to pack it in? On Friday night, I pondered the Burris matter on Hardball:

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Phil Gramm's Culpability, Acknowledged

| Fri Feb. 20, 2009 5:25 PM EST

Phil Gramm won't be able to wash this stink off of him.

Time magazine has published a list called "25 People to Blame for the Financial Crisis" and second on the list is our buddy Phil, the man who headed the Senate Banking Committee during the federal government's deregulatory bonanza in the late '90s. Gramm passed or affected two key pieces of legislation that eventually helped create the financial meltdown we are experiencing today. The first of the two was the 1999 Gramm-Leach-Bliley Financial Services Modernization Act, which repealed the Depression-era Glass-Steagall Act and allowed financial institutions to merge like crazy and ignore longtime regulations and limitations. The second was something that Mother Jones uncovered in summer 2008. Here's Time:

[Gramm] also inserted a key provision into the 2000 Commodity Futures Modernization Act that exempted over-the-counter derivatives like credit-default swaps from regulation by the Commodity Futures Trading Commission. Credit-default swaps took down AIG, which has cost the U.S. $150 billion thus far.

Right. As David Corn reported for Mother Jones, Gramm's sly move gave rise to an entire industry of financial products, like credit default swaps, that acted like insurance for the toxic mortgage-backed securities that got passed around Wall Street. Investors who thought they were protected made more and more and worse and worse financial bets, all away from regulatory oversight. Eventually, it caught up with them.

The result is the mess we're in today. And it appears the public is able to trace culpability all the way back to Gramm, because in voting on Time's website, Gramm has been fingered by readers as the most guilty party in this disaster. To read more about credit default swaps and how "Foreclosure Phil" created our crisis, see David's article here.

Legalizing Marijuana Now More Popular than the Republican Party

| Fri Feb. 20, 2009 3:25 PM EST
It's true. Percentage of Americans who believe marijuana ought to be legalized: 41 percent. Percentage of Americans who approve of the Republican Party: 31 percent.

Other things that are less popular than legalizing weed, according to Open Left: Congress, the war in Iraq, privatizing Social Security, and John Boehner.

Eric Holder Thinks Barack Obama Is Kidding Himself

| Fri Feb. 20, 2009 2:45 PM EST

I'm glad Dayo Olopade wrote about Eric Holder's speech to his staff at the Department of Justice. Holder tackles race in America in a remarkably straight-forward and clear-eyed way. Dayo calls it "confrontational," and indeed, it's hard to read sentences like these -- "in things racial we have always been and continue to be, in too many ways, essentially a nation of cowards" -- without thinking that perhaps Eric Holder has been holding something inside that he's wanted to yell at the top of his lungs for a long time.

These lines from Holder --

"On Saturdays and Sundays, America in the year 2009 does not, in some ways, differ significantly from the country that existed some 50 years ago."

"The history of the United States in the nineteenth century revolves around a resolution of the question of how America was going to deal with its black inhabitants."

"This nation has still not come to grips with its racial past nor has it been willing to contemplate, in a truly meaningful way, the diverse future it is fated to have..."

-- are so clearly at odds with Obama's re-telling of American history as a shared journey and his vision of America's future as one of shared sacrifice (and a resulting shared success) that it almost feels as though Holder is very slyly calling his boss a liar.

But we always knew that Obama's vision of race in this country, and his implied suggestion that different races could come together because of his election, was a bit too fanciful, didn't we? I think a lot of liberals knew that Eric Holder's America is the real America, but chose to believe instead in Barack Obama's America. And maybe that's not a politician using the self-deception of millions of Americans for his own gain. Maybe that's a leader inspiring people to see a better and more just alternative.

Is Obama's "Fiscal Responsibility Summit" a Sneak Attack?

| Fri Feb. 20, 2009 1:28 PM EST

Liberals are worried that next Monday's "fiscal responsibility summit," hosted by the Obama Administration, will be two things they don't like: (1) yet another sop to conservatives, and (2) the beginning of a rightward shift on entitlement reform. Will the Obama team embrace the center-right consensus that Social Security is in crisis and that the only way to fix it is to cut benefits?

Ezra Klein argues that the Obama folks understand that Social Security has little bearing on America's long-term financial solvency, and that they will use the summit to make the case that health care reform is the way to ease our entitlement problems.

That, basically, has been Orszag's project: Talk a lot about the health care crisis and longer-term problems in the budget and get people to stop talking about an illusory crisis in a made-up program called socialsecurityandmedicareandmedicaid. Because what Orszag and Krugman both realize is that Social Security's unfunded liabilities only look like the sort of problem you need to "fix" if you're mixing it in with Medicare's unfunded liabilities. If there's an "entitlements problem" that requires an "entitlements commission" then that will cut Social Security and Medicare and Medicaid. If there's no "entitlements problem" and instead a health reform problem and some small questions about a politically electric program, then what you get is health reform -- which is also a way to slow Medicaid and Medicare growth without resorting to cuts -- and an end to the fear-mongering on Social Security.

Let's hope the Obama team is this savvy. It would be pretty remarkable if they can channel the Social-Security-is-a-crisis! hysteria and turn it into even more energy behind the cause of universal health care.

The First Consequence of the GOP's Stimulus Stonewall

| Fri Feb. 20, 2009 11:03 AM EST
We knew there would repercussions for the GOP's decision to vote against the stimulus bill en masse (provided that the economy improves), but I definitely didn't think it would be this quick. A Republican congressman in Louisiana's 2nd district, which is reliably Democratic, is facing a recall petition because of his No vote.

The kicker? The congressman is Anh "Joseph" Cao, one of a very small group of minority lawmakers in the GOP and a man who's victory in a special election caused House Minority Leader John Boehner to crow "The Future is Cao."

Cao originally promised to vote for the stimulus bill, saying, "I'm voting along what my conscience dictates and the needs of the 2nd Congressional District dictate, even if I were to be the only member of the GOP to vote for the stimulus package." He was goaded into changing his vote by the Republican leadership. Now his failure of conscience may cost him.

Update: Some interesting numbers, in light of this topic: "The [approval rating] for Congressional Democrats is at 49%-45%, while Republicans are at 33%-59%.... Only 30% say Obama hasn't done enough to cooperate with Republicans in Congress -- the GOP base vote, basically -- while 62% say he's doing the right amount and 6% say it's been too much. Flipping it around, only 27% say Republicans have done enough to cooperate with Obama."

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Miserable News for Sen. Burris

| Thu Feb. 19, 2009 3:26 PM EST

I think time is short for Roland. Especially considering these newest revelations:

The names of lobbying clients that Sen. Roland W. Burris declared to a state legislative panel do not match those on records he filed over the last decade with Illinois and Chicago agencies, a CQ analysis of the records has found.

The discovery comes as Burris, an Illinois Democrat, is fending off calls for his resignation for failing to fully explain his dealings with impeached former Gov. Rod Blagojevich, who appointed him to succeed President Obama. The Senate Ethics Committee also is looking into discrepancies in his statements to the Illinois House Impeachment Committee.

...records with the secretary of state show Burris representing the Council of Independent Tobacco Manufacturers of America from 2003 to 2005 and the Illinois Association of Mortgage Brokers in 2007. But those clients don’t appear in his filing with the Impeachment Committee.

Dick Durbin, Burris' fellow senator from Illinois, who happens to be the number two Democrat in the Senate and a close friend of the president's, said that Burris' bumbling answers to the questions about his relationship with Rod Blagojevich raised "serious questions." With new scandals about his lobbying background piled on top of those problems, I'd be stunned if he remains.

Edsall Slams Greenspan

| Thu Feb. 19, 2009 12:41 PM EST

Going after Alan Greenspan, the former Federal Reserve chairman, these days is like shooting dead fish in a drained-out bathtub. But Thomas Edsall spanks the onetime Oracle something awful in HuffPo. The piece opens:

On June 10, 1999, at the height of his power, Alan Greenspan told members of Harvard's graduating class how, in the future, they should assess their lives: "The true measure of a career is to be able to be content, even proud, that you succeeded through your own endeavors without leaving a trail of casualties in your wake."

As Edsall goes on to detail, there's now plenty of bloody mess in Greenspan's wake. He notes that Greenspan had a hand in most of the major regulatory actions (or, put more accurately, non-actions) that led to the current collapse of capitalism as we (and he) know it. These days, the former acolyte of Ayn Rand is advocating the "temporary" nationalization" of "lemon banks" to "facilitate a swift and orderly restructuring." From free-market laissez-faire to corporate socialism, what a long, strange trip it's been. Too bad he took the rest of us on it.

GOP's 2012 Field Forced to Ante Up

| Thu Feb. 19, 2009 10:37 AM EST

Yesterday I noted that Louisiana Governor and hardline Republican Bobby Jindal is contemplating turning down stimulus funds as a way to burnish his conservative credentials in advance of a 2012 or 2016 presidential run. Now it looks like the rest of the GOP's potential presidential candidates are doing the same. Here's MSNBC's First Read:

A half-dozen Republican governors are considering turning down some money from the federal stimulus package, a move opponents say puts conservative ideology ahead of the needs of constituents struggling with foreclosures and unemployment. Who are these GOP governors? They're a "who's who" of possible presidential candidates in 2012 -- Sanford (SC), Jindal (LA), Palin (AK), Perry (TX), and Barbour (MS).

This is a dangerous game. For the sake of making a ideological stand (and scoring some political PR points), these governors are endangering the livelihoods of their constiuents. There is no serious argument for turning down stimulus funds, after all. Sure, these governors may have (wrongly) thought that tax cuts would serve as a better stimulant of their local economy, but now that the federal money is available, it's not as though it can make things worse. And if we have a national tax increase 15 years from now to pay for all this spending, certain states won't be exempted because of the actions of their governors today.

The Nitty Gritty of Obama's Mortgage Plan

| Wed Feb. 18, 2009 4:11 PM EST

Speaking in Phoenix, Arizona on Wednesday, President Obama said his $75 billion home mortgage rescue plan would "save ourselves the costs of foreclosure tomorrow," but "not help speculators who took risky bets on a rising market." As David Corn highlighted earlier, Obama tempered his appeals to populism and community feeling with a call for responsibility. "Solving this crisis will require more than resources – it will require all of us to take responsibility," Obama said. Great. But how does the plan actually work? Here's a primer.

The first part of the plan is a fairly simple regulatory fix that allows homeowners with Fannie Mae and Freddie Mac mortgages who owe between 80 and 105 percent of what their homes are worth to refinance those mortgages. Previously, only borrowers who had at least 20 percent home equity could refinance. By refinancing at a lower rate, borrowers could save thousands of dollars annually on their mortgage payments.

The second part of the plan focuses on encouraging banks to work with homeowners to modify existing mortgages, which is different from refinancing. The pre-existing "Hope for Homeowners" plan, passed in the closing months of the Bush administration, tried to do this, too, but it didn't work very well. Banks just didn't seem very eager to modify terms to help people stay in their houses. But the new plan, says the Center for American Progress's Andrew Jakabovics, is "light years ahead of anything we saw coming out of the Bush administration."

One big difference with Obama's plan, Jakabovics says, is that it will functionally be "far more compulsory" than the Hope for Homeowners program. Recipients of TARP money will have to participate, and banks will likely be reluctant to turn down government bailout money just so they can avoid modifying terms on home loans. And banks that don't participate might find their loans modified anyway—in the only part of the plan that requires Congressional approval, Obama asks that bankruptcy judges be given the ability to modify loan terms in court. (Judges already have the power to modify terms on people's second and third homes, but not on primary residences).

Just because the plan will be forced on TARP recipients doesn't mean it's a horrible deal for the banks. After the lender reduces interest rates enough so that the borrower’s monthly payment is less than 38 percent of his or her income, the government will split the cost of further payment reductions with the bank, down to a (supposedly sustainable) low of 31 percent. On top of that, lenders will get a cool $1000 for every loan they modify, and further payments if the borrower stays current on the modified loan. And after five years, when the housing market may have recovered, the lenders will be able to start stepping the interest rate back up to the original rate.

What the Obama administration is hoping is that the new payments and government cost-sharing, combined with the threat of bankruptcy court modification and the mandatory participation provisions, will make banks more likely to modify mortgages than they otherwise would be. There's some reason to believe that will be the case, says Jakabovics. "Banks recognize foreclosure is going to be far more costly," he says. The cost of holding properties right now is very high because declining home values, a slow market, and the credit crunch mean foreclosed homes stay on balance sheets for months on end, declining in value and incurring property tax and maintenance costs that banks don't want to pay. Keeping Americans in their homes could be a good deal for banks, too.

The third part of the Obama plan is mostly aimed at keeping interest rates low. The Obama administration will try to do this by having the Treasury Department buy up the dreaded mortgage-backed-securities from Fannie Mae and Freddie Mac, hoping to somewhat reinflate the market for those financial products. Unfortunately, Treasury is probably overpaying for the toxic assets, which have few, if any, other buyers. Economist Dean Baker emails: "The intention is to pay too much. We will take a hit—it's guaranteed... We get whacked on buying Fannie and Freddie MBS at very low rates today." In addition to trying to prop up the MBS market, the Treasury will inject another $200 billion into the two GSE's.