"No, the affordable housing push didn’t cause the subprime crisis"

Once more - Suzy Khimm at Wonkblog:

It’s one of the biggest misconceptions about the housing crisis: the belief that the government’s policies to promote affordable housing — particularly through Fannie Mae and Freddie Mac — fanned the flames of the subprime mortgage market, ultimately bringing down the entire economy.

In fact, a growing body of independent research confirms that it wasn’t the affordable housing mandate that led to the proliferation of risky mortgages. And the most recent evidence comes from the St. Louis Federal Reserve Bank.

Over the past few decades, the federal government has tried to promote affordable housing in two major ways. First, the Community Reinvestment Act encouraged banks to lend to low-income communities. Second, Congress mandated that Fannie and Freddie hit certain targets for lending to low-income and minority communities.

Researchers from the St. Louis Fed analyzed whether such policies “influenced origination or affected prices of subprime mortgages.” While they confirmed that Fannie and Freddie did make widespread purchases of risky, mortgage-backed securities, they conclude that such moves were not, in fact, the result of these affordable housing mandate.

Will the Supremes' ruling on "Obamacare" be pure politics?

David Leonhardt at New York Times:

Many legal scholars, including some conservatives, have been predicting that the Supreme Court will uphold the 2010 health care overhaul. But after Tuesday’s arguments, when several justices asked skeptical questions about the heart of the law, a political lens seemed relevant, too. 

When Congress passed the law, 9 out of 10 Democrats voted for it, while not a single Republican, in either the House or the Senate, did so. In the lower courts, judges appointed by Democratic presidents voted mostly — but not entirely — to uphold the law. And judges appointed by Republican presidents voted mostly — but not entirely — to overturn at least part of it. 

It is obviously too early to know what the Supreme Court will do, despite the rush of commentary after Tuesday’s much-watched hearing. But skeptical questions from the bench are often an indicator of how justices will ultimately vote — and many court experts expressed surprise at the apparent agreement among the conservatives, including Justice Anthony M. Kennedy, the likeliest swing vote.

Rick Santorum's Horrific Vision

It's hard to imagine a worse path for campaigning to become President of the United States than pushing near-pathological paranoia via a cheap horror movie trailer.

But then, there's Rick Santorum:

Income inequality grows as the economy recovers

Steven Rattner at NYT:

In 2010, as the nation continued to recover from the recession, a dizzying 93 percent of the additional income created in the country that year, compared to 2009 — $288 billion — went to the top 1 percent of taxpayers, those with at least $352,000 in income. That delivered an average single-year pay increase of 11.6 percent to each of these households. 

Still more astonishing was the extent to which the super rich got rich faster than the merely rich. In 2010, 37 percent of these additional earnings went to just the top 0.01 percent, a teaspoon-size collection of about 15,000 households with average incomes of $23.8 million. These fortunate few saw their incomes rise by 21.5 percent. 

The bottom 99 percent received a microscopic $80 increase in pay per person in 2010, after adjusting for inflation. The top 1 percent, whose average income is $1,019,089, had an 11.6 percent increase in income. 

This new data, derived by the French economists Thomas Piketty and Emmanuel Saez from American tax returns, also suggests that those at the top were more likely to earn than inherit their riches. That’s not completely surprising: the rapid growth of new American industries — from technology to financial services — has increased the need for highly educated and skilled workers. At the same time, old industries like manufacturing are employing fewer blue-collar workers. 

The result? Pay for college graduates has risen by 15.7 percent over the past 32 years (after adjustment for inflation) while the income of a worker without a high school diploma has plummeted by 25.7 percent over the same period. 

Government has also played a role, particularly the George W. Bush tax cuts, which, among other things, gave the wealthy a 15 percent tax on capital gains and dividends. That’s the provision that caused Warren E. Buffett’s secretary to have a higher tax rate than he does. 

As a result, the top 1 percent has done progressively better in each economic recovery of the past two decades. In the Clinton era expansion, 45 percent of the total income gains went to the top 1 percent; in the Bush recovery, the figure was 65 percent; now it is 93 percent.

Willard "Mitt" Romney - "Sketchy" at best

Lying Mittster can't help himself.  Lucia Graves at Huffington Post has the latest, wherein his own economic advisors won't back up his dishonest assertions:

WASHINGTON -- Mitt Romney on the campaign trail has chided President Barack Obama for failing to curb prices at the pump, even as prominent economists have debunked those talking points, saying there's little the president can do to lower prices in the short term. Now the latest twist: No one from Romney's economic team will step forward to defend him.

And not for want of opportunity.

After Romney insisted that more drilling in Mexico and in the Arctic National Wildlife Refuge could bring down the cost of gas, The Huffington Post contacted members of Romney's economic team -- two revolving-door lobbyists and two former chairmen of the Council of Economic Advisers under President George W. Bush -- to ask if they would vouch for the claim.

"I will pass. Sorry," prominent macroeconomist Gregory Mankiw, a Romney advisor, replied when contacted by HuffPost about an interview. Other queries were similarly denied or unreturned.

Consider the argument: "The best thing we can do to get the price of gas to be more moderate and not have to be dependent upon the cartel is: drill in the gulf, drill in the outer continent shelf, drill in ANWR, drill in North Dakota, South Dakota, drill in Oklahoma and Texas," Romney said on "Fox and Friends" on March 16.

Other economists haven't been shy about debunking the claim, explaining that U.S. energy policy has very little effect either on oil prices or on overall U.S. employment. Recent studies have backed them up. The Associated Press' statistical analysis of 36 years of monthly, inflation-adjusted gasoline prices and U.S. domestic oil production found no statistical correlation between gas prices and how much oil comes out of U.S. wells.

"The truth is that we're already having a hydrocarbon boom," Paul Krugman explained in a recent article, "with U.S. oil and gas production rising and U.S. fuel imports dropping. If there were any truth to drill-here-drill-now, this boom should have yielded substantially lower gasoline prices and lots of new jobs. Predictably, however, it has done neither."

The case for principal reduction to stem the tide of foreclosures

Jessie Eisinger, ProPublica and Chris Arnold, NPR @ Huffington Post:

New analyses by mortgage giants Freddie Mac and Fannie Mae have added an explosive new dimension to one of the most politically charged debates about the housing crisis: Whether to reduce the amount of money beleaguered homeowners owe on their mortgages.

Their conclusion: Such loan forgiveness wouldn't just help keep hundreds of thousands of families in their homes, it would also save Freddie and Fannie money. That, in turn, would help taxpayers, who bailed out the companies at a cost of more than $150 billion and are still on the hook for future losses.

The analyses, which have not been made public, were recently presented to the agency that controls the companies, the Federal Housing Finance Agency, according to two people familiar with the matter. Freddie Mac's meeting with the FHFA took place last week.

Can stimulus pay for itself and help shrink deficits?

Larry Summers and Brad DeLong argue, yes.  When the economic picture is really, really bad. Here's the (wonky) argument that we're in such a deep long-term unemployment trough that stimulus is key to keeping folks in the labor force and generating future tax revenues :

WHEN he was at the Treasury nearly 20 years ago Larry Summers would counsel President Bill Clinton on the merits of “stimulative austerity”: cut deficits, and interest rates will fall by enough to produce stronger economic growth. Now Mr Summers is making the opposite case: stimulate growth through a bigger deficit, and the long-term debt may shrink.

In a new paper* written with Brad DeLong of the University of California, Berkeley, Mr Summers, now at Harvard after a stint as Barack Obama’s chief economic adviser, says that in the odd circumstances America faces today temporary stimulus “may actually be self-financing”.

This sort of argument is not new. Advisers to John Kennedy and Lyndon Johnson thought their 1964 tax cut might stimulate so much new spending it would pay for itself. In the early 1980s, supply-side economists argued something similar about Ronald Reagan’s tax cuts. Neither claim stood the test of time.

The Ryan-GOP Budget: "An Immoral Dsaster"

Think Progress:

Paul Ryan's "Supply-Side Jesus"

When House Budget Committee Chairman Paul Ryan (R-WI) released his Medicare-ending, safety net-gutting 2012 budget plan last year, he was slammed by faith leaders who denounced his cuts to programs that aid the poor and middle class. Ryan released the 2013 version of that budget yesterday, and he is again facing criticism from a diverse group of faith leaders. 

Ryan often says it is “morally wrong” not to address America’s debt, but faith leaders like Bishop Gene Robinson said the budget Ryan crafted fails basic moral tests. “The Ryan budget robs the poor, the marginalized and the vulnerable of the safety net so integral to their survival,” Robinson said. “By any measure of civility and regard for one’s neighbor, it is an immoral disaster.”

Father Thomas Kelly, a Catholic priest and constituent of Ryan’s, felt similarly:

“As a constituent of Congressman Ryan and a Catholic priest, I’m disappointed by his cruel budget plan and outraged that he defends it on moral grounds. Ryan is Catholic, and he knows that justice for the poor and economic fairness are core elements of our church’s social teaching. It’s shameful that he disregarded these principles in his budget.”

That the GOP cuts vital programs like Medicare, Medicaid, and other safety net programs while giving tax breaks to the richest Americans is “immoral” and “unconscionable,” other leaders said. “The poor are not statistics,” Rabbi Jackie Moline said. “Whatever one thinks of Congressman Ryan’s ideas, it is unimaginable to look into the face of a child who would go hungry without government assistance and say, ‘Sorry — we need to reduce the deficit.’”

The Lies of Willard M. Romney

Rachel Maddow "goes there":
 
 

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He's Baaack!

Congressman Paul Ryan is back putting the GOP's tax-cut and austerity strategy on the table. Ezra Klein at the Washington Post comments on what he sees an as inevitable gutting of the social safety net given the tax-cuts-for-millionaires ideology, coupled with a clamor for short term deficit reduction, at the core of every GOP economic proposal:

Ryan's budget asks for enormous sacrifice from, say, disabled Medicaid beneficiaries even as it appears to provide enormous tax benefits to wealthier Americans. The same is true for Romney's budget, and, in even more exaggerated ways, for the fiscal promises made by Newt Gingrich and Rick Santorum. The Republican Party has backed itself into a fiscal strategy in which this kind of concentrated sacrifice on the part of the poor is the only possible path forward.

Jonathan Cohn at New Republic takes apart the new Paul Ryan GOP budget plan:

Imagine a politician held a press conference in order to boast about a plan that would take health insurance away from tens of millions of people, while effectively eliminating the federal government except for entitlements and defense spending. You probably can’t, because no politician would ever do that.

Except Paul Ryan just did.

No, he didn’t put it in quite those terms. Instead, Ryan on Tuesday unveiled the latest version of his proposal for the federal budget, which he calls the “Path to Prosperity.” He vowed that it would reduce deficits, promote economic growth, and strengthen the safety net. The first two claims are dubious, at best. The third is just dishonest—and, if taken literally, morally bankrupt.

From afar and even up close, the new Ryan budget actually looks a lot like the old Ryan budget. It calls for a reduction in taxes that, if implemented, would likely give a disproportionate share of benefits to the wealthy. It calls for radically reducing discretionary spending, so that it is less than 4 percent of gross domestic product by 2050. And it calls for transforming Medicare into a voucher system.

Officially, the end result would be lower deficits, lower even than the deficits that President Obama’s latest budget proposal would produce. And that’s a major selling point for Ryan and the Republicans. But the numbers seem more than a little fanciful.

For one thing, Ryan envisions a reduction in non-defense discretionary spending to levels this country hasn’t had since just after World War II. According to the Center on Budget and Policy Priorities, by 2050 “most of the federal government aside from Social Security, health care, and defense would cease to exist.” That’s everything from air traffic control to medical research to food inspections to Pell Grants, by the way. If the Ryan budget somehow became reality then you might have to give up on college and avoid air travel—assuming you survived the food poisoning and killer diseases.

 Read the rest of Cohn HERE.

And more HERE from Jon Chait on the "GOP's Plan to Save America From the Poor"

Big Lies and Inconvenient Truths

We hear this all the time: "President Obama is a big spender." Or, from the growing Krazy Korner of the GOP (which includes the rhetoric of every one of their current Presidential aspirants), some sort of "socialist" who is enmeshed in a European-style Big Government pattern that takes us far afield from the fiscal restraint of...say...that all-purpose conservative icon, St. Ronald Reagan (The Imagined.)

Here's a graph from Mark Thoma that shows growth in real government spending per capita under Presidents from Nixon to Obama (annualized.)

So the only President in recent history who has shown more fiscal restraint than President Obama is...Bill Clinton?  The GOP partisans - up to and including the "moderate" Willard M. Romney - need to stop following those FOX News crazy-talk scripts and cut out the lying.

The Tax Cut Delusion

Economist Christina Romer on "supply side" tax-cut theories:

Since World War II, the top rate has ranged from less than 30 percent (at the end of the Reagan presidency) to more than 90 percent (throughout the Eisenhower years). The 1964 Kennedy-Johnson tax cut significantly reduced the typical marginal rate paid by American families, but rates rose greatly over the next 15 years as inflation pushed people into higher tax brackets. Rates fell sharply under President Reagan, rose under President Bill Clinton and fell again under President George W. Bush.

If you can find a consistent relationship between these fluctuations and sustained economic performance, you’re more creative than I am. Growth was indeed slower in the 1970s than in the ’60s, and tax rates were higher in the ’70s. But growth was stronger in the 1990s than in the 2000s, despite noticeably higher rates in the ’90s...

I can’t say marginal rates don’t matter at all... But the strong conclusion from available evidence is that their effects are small. This means policy makers should spend a lot less time worrying about the incentive effects of marginal rates and a lot more worrying about other tax issues.

Most obviously, the federal budget is on a collision course with reality. Reining in the long-run deficit will have to involve slowing the growth rate of spending. But unless we choose to gut Medicare and Medicaid, additional tax revenue will be needed. This essential truth is the No. 1 factor that should be driving tax policy. And anyone who tells you that the way to raise revenue is to cut marginal tax rates is arguing from ideology, not solid evidence.

"Hurray for Health Reform"

Paul Krugman, often a critic of "actually existing health care reform", sings it's praises:

oldamericancentury.org

It’s said that you can judge a man by the quality of his enemies. If the same principle applies to legislation, the Affordable Care Act — which was signed into law two years ago, but for the most part has yet to take effect — sits in a place of high honor.

Now, the act...isn’t easy to love, since it’s very much a compromise, dictated by the perceived political need to change existing coverage and challenge entrenched interests as little as possible. But the perfect is the enemy of the good; for all its imperfections, this reform would do an enormous amount of good. And one indicator of just how good it is comes from the apparent inability of its opponents to make an honest case against it. 

To understand the lies, you first have to understand the truth...

The fact is that individual health insurance, as currently constituted, just doesn’t work. If insurers are left free to deny coverage at will — as they are in, say, California — they offer cheap policies to the young and healthy (and try to yank coverage if you get sick) but refuse to cover anyone likely to need expensive care. Yet simply requiring that insurers cover people with pre-existing conditions, as in New York, doesn’t work either: premiums are sky-high because only the sick buy insurance. 

Discussing the Obama recovery efforts & financial regulation

Some great economic discussion this morning on MSNBC's Up with Chris Hayes, featuring guest host Ezra Klein, Noam Shrieber (author of a new book on the Obama recover strategy in the wake of financial collapse), former administration economist Jared Bernstein, Alexis Goldstein of Occupy SEC and William Cohan, former Wall Streeter and author of a book on Goldman Sachs. Excellent TeeVee:

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

It's the regulation, stupid!

In the wake of disillusioned Goldman Sachs manager Greg Smith's farewell to the "Greed is Good!" culture going viral, Robert Reich reminds us that the greed of self-serving insiders has always been with us.  If we want to keep their perverse incentives under control, it's really about the regulation:

In 1928, Goldman Sachs and Company created the Goldman Sachs Trading Corporation, which promptly went on a speculative binge, luring innocent investors along the way. In the Great Crash of 1929, Goldman’s investors lost their shirts but Goldman kept its hefty fees...

In the late 1920s, National City Bank, which eventually would become Citigroup, repackaged bad Latin American debt as new securities which it then sold to investors no less gullible than Goldman Sachs’s. After the Great Crash of 1929, National City’s top executives helped themselves to the bank’s remaining assets as interest-free loans while their investors and depositors were left with pieces of paper worth a tiny fraction of what they paid for them.

The problem isn’t excessive greed. If you took the greed out of Wall Street all you’d have left is pavement. The problem is endemic abuse of power and trust. When bubbles are forming, all but the most sophisticated investors can be easily duped into thinking they’ll get rich by putting their money into the hands of brand-named investment bankers.

"Fixing What's Wrong With Our Economy"

The AFL-CIO's perspective on what's gone wrong and what we can do about it :

The economic policies that led to the financial crash of 2008 and the subsequent Great Recession should have been permanently discredited by their epic failure. Instead, the Republican presidential candidates are now resurrecting the same failed policies and pretending the crash never happened.

America cannot afford to go down this path again. If we want to fix what is wrong with our economy, we have to learn from our mistakes and avoid repeating them.

The crash of 2008 and the Great Recession were inevitable consequences of three decades of economic policies designed by and for Wall Street and the wealthiest Americans. At the heart of the problem was the hollowing out of American manufacturing, the growing dysfunction of our financial sector and a rapid increase in economic inequality, all of which crippled the growth engine of the U.S. economy.
Starting in the 1980s, corporate America decided to boost profits by shipping U.S. jobs overseas.

NAFTA and the admission of China into the World Trade Organization (WTO) accelerated the drive to relocate production to “export platforms” in foreign countries that would ship goods back to the U.S. market. Corporations that sent jobs overseas became forceful proponents of a “strong” (overvalued) dollar, which enhanced the profitability of their overseas operations but at the same time made much of the U.S. manufacturing sector uncompetitive and led to perennial U.S. trade deficits.

Also by the 1980s, the U.S. financial sector was failing to perform its essential function of channeling savings to productive investment in the real economy. Financial firms on Wall Street focused instead on making a quick buck by stripping assets from existing businesses and downsizing their workforces, and on various forms of complex financial engineering that had little economic value. Financial firms also provided critical support for a “strong dollar” policy that diverted productive investment away from the U.S. manufacturing sector toward overseas operations.  By the eve of the crash of 2008, the manufacturing sector had shrunk to half its 1960 size, while the financial sector had doubled in size and accounted for 40 percent of corporate profits.

The deindustrialization of America and the substitution of speculation for productive investment were not accidents, they were not inevitable, and they were not the outcome of natural forces.  They were the predictable results of mistaken policy choices made by politicians of both parties for more than a generation.  These policy choices had victims with first and last names: millions of displaced workers, shuttered factories and hollowed-out communities across the country hobbled by shrinking tax bases that no longer could support vital public services.

The Shame of Wall Street

Bloomberg Business Week on Goldman Sachs:

In his extraordinarily public resignation letter, Greg Smith, who had spent time recruiting the best and the brightest to Goldman Sachs, wrote, “I knew it was time to leave when I realized I could no longer look students in the eye and tell them what a great place this was to work.”

The proper functioning of Wall Street is too vital to the economy to tolerate the duplicitous practices of Goldman and firms like it, especially after what the American people did to rescue these businesses in their darkest hours.

The country’s political class appears to lack the power or will to hold large financial institutions to account.

There is a massive leadership vacuum at the top of Wall Street today; and it’s quite possible that only continued, relentless public shaming will force the leaders of these firms to make the kinds of cultural changes necessary to bring their actions in line with normative behavior.

The obstruction of Ed DeMarco

Peter S. Goodman, Business Editor @ Huffington Post:

The single largest obstacle to meaningful economic recovery is a man who most Americans have probably never heard of, Edward J. DeMarco. 

From his perch as acting director of the Federal Housing Finance Agency, DeMarco oversees Fannie Mae and Freddie Mac, the government-owned mortgage behemoths that collectively control about half of all home loans in the land. What he does shapes both the national housing market and the ability of troubled borrowers to hang on to their homes. What he has been doing lately has been so unhelpful that Democratic lawmakers and grassroots advocacy groups are properly demanding his ouster.

President Obama's Top 50 Accomplishments

Keep the heat on, keep the focus on critical issues that aren't being fully addressed, protest what needs protesting - but let's do it in the context of the reality of this Presidency as having taken important steps forward with the potential for much more. Washington Monthly looks at the glass, not brimming over, but at least half full - which is better than other administration in my memory.  HERE

The Wisdom of George W. Bush (OMFG! I wrote that?)

Jared Bernstein has it:

Steve Rattner’s oped in this AM’s NYT provides a useful reality check of the credit market conditions back during the auto bailout in 2009, attacking Gov Romney’s view that the government should have stayed out of the picture.

In late 2008 and early 2009, when G.M. and Chrysler had exhausted their liquidity, every scrap of private capital had fled to the sidelines…

Without government financing — initiated by President George W. Bush in December 2008 — the two companies would not have been able to pursue Chapter 11 reorganization. Instead they would have been forced to cease production, close their doors and lay off virtually all workers once their coffers ran dry.

Those shutdowns would have reverberated through the entire auto sector, causing innumerable suppliers almost immediately to stop operating too.
Despite the relative health of its balance sheet, even Ford would have been forced to close temporarily, because critical parts would have become unavailable. And service providers — trucking companies, restaurants and more — would have been severely affected.

More than a million jobs would have been lost, at least for a time. Michigan and the entire industrial Midwest would have been devastated.

I was particularly impressed by a recent comment from President George W. Bush about his role in providing the initial lifeline to GM and Chrysler:

“I’d do it again,” Mr. Bush said of the rescue in a recent speech. “Sometimes circumstances get in the way of philosophy.”

We need more conservatives who recognize when pragmatism should trump ideology.