All Hail the Corporatist in Chief

Any one who thinks the Democratic Party or the Democratic President represent the interests of the little guy in this country can’t be reading any newspapers. I’ve always thought that the Republican Party overly favored big business and was out to set up monopolies for all its cronies. It’s hard to believe anyone aligning themselves with liberal interests  or even a real conservative could support the continuing infusion of cash, tax cuts, and legal breaks to industries that are squeezing the profits out of both workers and businesses that actually make something or do something. The middlemen are now running the country and snatching its wealth.

First, there’s this Politico Story where even the headline offends my sensibilities of justice and fairplay: Dem officials set stage for corporate-backed health care campaign. The President’s undisclosed meetings are reminding me more and more of the Dubya/Cheney years.

At a meeting last April with corporate lobbyists, aides to President Barack Obama and Sen. Max Baucus (D-Mont.) helped set in motion a multimillion-dollar advertising campaign, primarily financed by industry groups, that has played a key role in bolstering public support for health care reform.

The role Baucus’s chief of staff, Jon Selib, and deputy White House chief of staff Jim Messina played in launching the groups was part of a successful effort by Democrats to enlist traditional enemies of health care reform to their side. No quid pro quo was involved, they insist, as do the lobbyists themselves.

The result has been a somewhat unlikely alliance between an administration that came into power criticizing George W. Bush for his closeness to Big Business and groups such as the Pharmaceutical Research and Manufacturers of America and the American Medical Association.

The previously undisclosed meeting April 15 at the offices of the Democratic Senatorial Campaign Committee led to the creation of two groups — Americans for Stable Quality Care and a now-defunct predecessor group called Healthy Economy Now — that have spent tens of millions of dollars on TV advertising supporting health reform efforts.

No sooner had I read that then I went to WaPo and found this one: Bailed-Out Banks Raking In Big Profits.

The nation’s largest banks, preserved from failure by federal aid and romping in markets revived by federal aid, are racking up vast profits even as the broader economy struggles to emerge from recession.

While loan losses continue to mount, the banks are making it up on Wall Street, trading in stocks, bonds and other financial instruments, and collecting fees for services such as helping companies raise money.

Goldman Sachs and Citigroup reported third-quarter profits Thursday, joining J.P. Morgan Chase in outstripping the expectations of financial analysts and solidifying their places as among the banks that have benefited most from the government’s massive rescue of the financial industry.

Of course, I’ve been advocating for better control of the shadow banking system for as long as I can remember. These guys are now  out in the day light and acting like the financial crisis never even happened. They’re in better market position than they have ever been and are now using it to sell portfolios back and forth to run up paper profits. Not only that, the so-called defenders of the little guy are not only doing nothing, they’re doing worse than nothing. HelenK brought my attention to this one from the NY Times: Bill Shields Most Banks From Review. Just when you thought their loanshark-like lending practices which contributed so heavily to the bad economy and so many job losses would be exposed, Barney the Congressman (not the Dinosaur) shows where his bread is buttered.

Bowing to political pressure from community bankers, the House Financial Services Committee approved an exemption on Thursday for more than 98 percent of the nation’s banks from oversight by a new agency created to protect consumers from abusive or deceptive credit cards, mortgages and other loans, The New York Times’s Stephen Labaton reported.

The carve-out in legislation overhauling the regulatory system would prevent the new consumer financial protection agency from conducting annual examinations of the lending practices at more than 8,000 of the nation’s 8,200 banks, leaving only the largest banks and other lenders subject to the agency’s examiners.

Earlier in the day, the committee completed its work on a different contentious provision of the legislation when, on a nearly straight party-line vote of 43 to 26, it approved tougher regulations over the derivatives market. That provision, too, contained exemptions for many businesses.

The exemption for the banks was endorsed by the chairman, Representative Barney Frank of Massachusetts, who saw it as necessary to win support for the overall bill from the committee’s moderate and conservative Democrats. Their support is particularly important because the Republicans are unified against the legislation.

How much longer can our national wealth and legislative process support people that basically do nothing for a living but act as cost inducing middle men in markets? Insurance companies and Investment bankers have very little value added. They just run up costs between the real customers and the real producers of the goods and services. Why are they being protected and why is their profit grabbing ability being enhanced by the democrats in Washington?

Just so you know where the real damage lies, take a look at the USA today headline: Wages tumble toward 18-year low.

Average weekly wages have fallen 1.4% this year for private-sector workers through September, after adjusting for inflation, to $616.11, a USA TODAY analysis of Bureau of Labor Statistics data found. If that trend holds, it will mark the biggest annual decline in real wages since 1991.

The bureau’s data cover 82% of private-sector workers but exclude managers and some higher-paid professionals.

“Wages are usually the last thing to deteriorate in a recession,” says economist Heidi Shierholz of the liberal Economic Policy Institute. “But it’s happening now, and wages are probably going to be held down for a long time.”

Insurance companies and financial middle men do nothing but stand between the consumer and the producer. They add tremendous levels of cost and confusion to those markets and have no gone from helping businesses manage risk to creating more of it. They are anomalies or so-called frictions in a market economy. We does our President and our Congress keep feeding the Sharks and the Vampire Squids?

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Who Holds Wall Street Accountable?

If your answer included any of number regulators or congress with its oversight duties or the traditional media with its watchdog of the public duties sorta answer, that would be a wrong answer. There were so many articles today about past and present Wall Street tomfoolery that I almost forgot to check the Wall Street Journal or The Hill. Instead, I”m relying on my subscriptions to things I’m supposed to be reading in the bath tub with Chopin playing in the background and a glass of Pinot Grigio nearby. Today, the best read came from Vanity Fare and was written by Andrew Ross Sorkin. (My Vanity Fare showed up today along with my latest copy of The Economist with the cover shouting “After the Storm: How to make the best of the Recovery.” ) My bottom line is still that Wall Street caused this and they are not only NOT cleaning it up, they are not being cleaned up.

I’m also checking out Matt Taibbi and TaibBlog now that his infamous vampire squid article in July’s Rolling Stone defined the shadowy world of Goldman Sachs better than just about any thing I’ve recently read. Matt’s blog today takes on naked selling or ‘naked swindling’ in the succinct framing of the Wall Street Deal that I now consider better jargon than that of the derivatives blah blah blah that I was taught in any of my PhD level corporate finance or investment classes. I may be able to do the proof for the Black Scholes formula but I will never be able to prove its social usefulness.

Actually, this takes me back to the Grey Lady and my first read of the day about the now bankrupt Simmons Bedding company that was the cash cow purposely inflicted with mad cow disease. Now days, it’s still more about the arbitrage deal and the leveraged deal that produces dividends than it is about what a company produces and the lives of the workers and long time managers who produce valuable stuff. It’s no longer build it and they will come. It’s leverage it to the hilt, take your dividends now, and find the next sucker with the next model that can hyperactivate the milking machine. It’s another real life example of Gordan Gekko and the greed is good speech. Spend some time with the Simmons story before you hit Taibblog and definitely the Sorkin article in Vanity Fare. It’ll put you in the right frame of mind.

Some times being Right doesn’t always make you Feel Good

You may remember back in January that I was not happy and very outspoken about the size of the Obama Stimulus plan. I was not impressed by the content or with the mix between tax cuts and direct government spending. You may recall that the Blue Dogs interminable resistance to do anything that might wake their sleeping Republican voters and the desire on the part of POTUS to appease the unappeasable remnants of the Republican party led to a very watered down plan. At the time, all that I could hope was that it might be enough to get the ball rolling. However, I felt that the historical multiplier –especially for taxes– was not going to kick in the way it had in the past.

The release of the miserable unemployment data yesterday (not all that unexpected as you’ll recall) as well as an estimate of our output gap now clearly squares with my earlier view as well as the earlier views of Brad deLong, Paul Krugman, Mark Thoma and Joseph Stiglitz among others. The stimulus was clearly not the blue pill the economy needed. (That last link is from me saying this same thing in July.)

The Washington Monthly says the decision to appease centrists and Republicans looks even worse in retrospect. Now, the media gets it. Color me completely unsurprised because I told you so back then that it wasn’t going to be enough. I even mentioned it recently when it appeared the stimulus plans of German, France, and Japan had already lifted those economies from the worst of it last spring. These countries emphasized direct government spending. We mostly shuffled a few funds as stop gaps and the created a bunch of tax cuts that no one really needs right now.

In February, when the debate over the economic stimulus package was at its height, a handful of “centrist” Senate Republicans said they’d block a vote on recovery efforts unless the majority agreed to slash over $100 billion from the bill.

The group, which didn’t have any specific policy goals in mind and simply liked the idea of a small bill, specifically targeted $40 billion in proposed aid to states. Helping rescue states, Sen. Collins & Co. said, does not stimulate the economy, and as such doesn’t belong in the legislation. Democratic leaders reluctantly went along — they weren’t given a choice since Republicans refused to give the bill an up-or-down vote — and the $40 billion in state aid was eliminated.

At the time, it seemed like a very bad idea. That’s because it was a very bad idea.

In the past, government hiring had managed to somewhat offset losses in the private sector, but government jobs declined by 53,000, with the biggest number of cuts on the local and state levels. Even the Postal Service, which is included in the public-sector job statistics, dropped 5,300 jobs.

“The major surprise came from the public sector, where every level of government cut back,” Naroff said. “The budget crises at the state and local levels have caused an awful lot of belt-tightening.”

Losing Ground

Whatever AxelRahm and POTUS are doing, it’s not working. CNN reports that the majority of registered independents in the country now disapprove of how President Obama is doing his job.

A majority of independent voters disapprove of how Barack Obama’s handling his job as president, according to a new national poll.

Fifty-three percent of independents questioned in a CNN/Opinion Research Corporation survey released Tuesday say they disapprove of how Obama’s handling his duties in the White House, with 43 percent in approval. That result marks the first time in a CNN poll that a majority of independents give the president’s performance a thumbs-down.

The issues that appear to be responsible for the downward momentum include health care, the economy, the budget deficit, and taxes. Majority support is still holding for national security (terrorism) and foreign affairs which are being managed by the still popular SOS Hillary Clinton. It would seem the most obvious downer numbers should come from the health care fight, but other issues also weigh in.

Is the fight over health care responsible for the downturn in Obama’s numbers?

“Yes, in part, but his standing on some other issues has taken an even bigger tumble,” adds Holland. “Among all Americans, his rating on health care has dropped 13 points since March. Compare that to his 16 point drop on the deficit and 17 point dip on taxes and it looks like there is growing discontent with Obama’s overall domestic agenda — not just his health care policy.”

According to the poll, Obama’s approval rating on how he is handling the war in Afghanistan also fell 18 points since March.

Another interesting poll was released by Rasmussen today where Republican Voters Say their GOP Reps in Congress are still out of touch. However, it appears out of touch means too liberal for their tastes.

Seventy-four percent (74%) of Republican voters say their party’s representatives in Congress have lost touch with GOP voters nationwide over the past several years. The latest Rasmussen Reports national telephone survey finds that just 18% of GOP voters believe their elected officials have done a good job representing the base.

Most Republican voters (55%) say that the average Republican in Congress is more liberal than the average Republican voter. Twenty-four percent (24%) say the average Republican in Congress holds views about the same as the average Republican voter while just 17% think the Congressional Republicans are more conservative than GOP voters.

The Administration shouldn’t expect Republican voters to cooperate much as eighty-four percent (84%) of them believe it is more important to stand for what their party believes in rather than trying to work with President Barack Obama. Only 14% favor bipartisan cooperation with the President.

Meanwhile Rasmussen continues to show a decrease in Obama’s approval rate in their daily Presidential Tracking poll.

Overall, 45% of voters say they at least somewhat approve of the President’s performance. That’s down a point from yesterday and the lowest level of total approval yet measured for Obama. Fifty-three percent (53%) now disapprove. See recent demographic highlights from the tracking polls.

In addition to our daily tracking, Rasmussen Reports has released a month-by-month review of the President’s Approval ratings. This allows a longer-term look at trends. In August, President Obama’s full-month ratings fell below 50% for the first time.

I wouldn’t want to be an incumbent in this atmosphere. These are some ugly, ugly numbers. I’m guessing the Dems are on their way to losing the senate and possibly the house if this keeps up.

You can talk about this or consider this an open thread. Have a good evening!

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Borrowing a turn of Phrase …

Paul Krugman’s Saturday blog post takes a defensive tone with Marc Ambinder who once called Krugman and a group of other liberal thinkers “reflexively anti-Bush”. Krugman expected a better apology from Ambinder after it was confirmed by former Bush Homeland Security Secretary Tom Ridge that the White House did, in fact, play politics with the Code Orange terrorist warnings. Evidently, there was an email between the two and Krugman felt the exchange wanting. Here’s his rationale.

But I’d like to return to one point: even after retracting his statement about people who correctly surmised that terror warnings were political being motivated by “gut hatred” of Bush, he left in the bit about being “reflexively anti-Bush”. I continue to find it really sad that people still say things like this.

Bear in mind that by the time the terror alert controversy arose in 2004, we had already seen two tax cuts sold on massively, easily documented false pretenses; a war launched with constant innuendo about a Saddam-Osama link that was clearly false, and with claims about WMDs that were clearly shaky from the beginning and had proved to be entirely without foundation. We’d also seen vast, well-documented dishonesty and politicization on environmental policy. Oh, and Abu Ghraib was already public knowledge.

Given all that, it made complete sense to distrust anything the Bush administration said. That wasn’t reflexive, it was rational.

I’d like to borrow the example and phrase because some of us around here are perpetually called “reflexively anti-Obama” or, of course, called racist because it’s a much more pejorative and personally damaging label. This is simply because we see similar patterns of behavior in Barrack Obama and his administration. Notice that Krugman has a laundry list right there in that second paragraph of things that made him rationally distrust anything the Bush administration said. I personally have my own laundry list of things that makes me rationally distrust anything the Obama administration says. It starts (but does not end) with the pledge to vote against FISA.

I’m with him …

I have to say, I’m with my neighbor James Carville on this one … put a decent health care reform out there and let the Republicans kill it. I’ve said over and over that without a vital public option, it’s neither about the health care or the reform. It’s about the lobbyists and an administration win and I don’t think we should go for it. Carville thinks it would send a good signal to the country about how little Republicans are willing to come to the table in the name of what’s good for American and bi-partisanship if they fight health care reform vehemently. Let them show themselves as obstructionists while we trot out people bankrupted by underinsurance, folks who lost relatives to insurance companies who ration health care, and people who can’t even access the basics enough to be treated for the most treatable of diseases. Let them all be seen on TV saying no well baby care and prenatal care to their fetus fetishists.

On CNN’s “State of the Union,” Democratic strategist James Carville became the first leading Democrat to suggest publicly that there might be political advantage in letting Republicans “kill” health care.

“Put a bill out there, make them filibuster it, make them be what they are, the party of no,” Carville said. “Let them kill it. Let them kill it with the interest group money, then run against them. That’s what we ought to do.”

This weekend’s comments by White House officials simply acknowledged the long-obvious reality that the idea of a government-run insurance plan was partly a bargaining chip.

Bargaining chip? WTF? What exactly do we get if the public option is off the table?

Krugman says the public option may be a signal on Obama’s trustworthiness that not every one is seeing. Okay, finance/economics lesson time again. Signaling theory is based on the idea that that market reacts rationally to publicly available information. So, for example, if I want to signal that my company is worth more than the average company, I want to find a way to signal that to the market I’m superior so they’ll run up my stock price to recognize me as a superior company. Then I can rake in bonuses and capital gains. I could borrow money in the commercial market, for example, that gives me a Aaa rating. This signals raters who are assumed to be in the know find my company to be a good bet compared to others that they rate lower. This signal should push up my stock price.

So what kind of signal do we have here? Well, Krugman argues that the public option is one of the ways Obama can ’signal’ that he’s still a progressive democrat and he’s signaling that he’s a sell out without realizing it. He points out that the public option debate has turn into a signal on who should buy stock in what Obama says. Signals are based on the market knowing what actions can be trusted, however. You have to trust that some one who gives a company the Aaa rating really has some inside proprietary information and believe they are a reliable, trustworthy source of rating. Krugman says the Obama administration is sending out bad signals and doesn’t even realize it.

If progressives had real trust in Obama’s commitment to doing the right thing, the administration would have broad leeway to do deals. But the president doesn’t command that kind of trust.

Partly it’s a matter of style — as many people have noted, he has been weirdly reluctant to make the moral case for universal care, weirdly unable to show passion on the issue, weirdly diffident even about the blatant lies from the right. Partly it’s a spillover from his other policies: by appointing an economic team that’s Rubin redux, by taking such a kindly attitude to the banks, he has squandered a lot of progressive enthusiasm.

Add in the dealmaking as part of the health care process itself, and progressives can be forgiven for having the impression that Obama (a) takes them for granted (b) is way too easily rolled by the other side.

So progressives have their backs up over one provision in health care reform that’s easy to monitor. The public option has become not so much a symbol as a signal, a test of whether Obama is really the progressive activists thought they were backing.

And the bizarre thing is that the administration doesn’t seem to get that.

So, who’s signals should we trust? Carville? Krugman? Obama?

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Enough is Enough!

Left Blogistan is alive with the sounds of open dissent. I can only say, it’s about time. Here’s a good example from TheHill.com aptly headed Obama picks fight with left on Health Reform. The news, however, is this fact. A public option is not a liberal option. It’s the option that every advanced economy in the world has chosen in some form. We already have a public option for seniors. We’re the majority, in every sense of the word, on this issue. This fight is not with the Left. This fight is with our babies who die in bigger numbers than most countries, our families bankrupted by inadequate insurance, and the many many ill people who are simply numbers on a spreadsheet that provide a mark-up of 30 percent or more for a industry based on always saying no!

Even in the real Socialized medicine haven of the. U.K., former Prime Minister Maggie Thatcher knew she had an unassailable object because it makes peoples lives much improved and they wouldn’t give it up once they had it. Here in the U.S., we’re not even talking socialized medicine despite the bleating of the right wing media machine. We’re talking about extending something we already have–Medicare– reformatting it so it benefits doctors, hospitals and patients rather than a superfluous, bonus paying, extraordinary profit making, third party payer. How can you lose the high ground on an issue that’s been so easily solved in nearly every other country that’s not an economic or political basket case? How can you lose momentum on an issue that polls showed people supported until you botched the policy so badly?

Liberal Democrats have insisted a public insurance option is necessary to ensure competition for private insurers. Just this week, former Democratic National Committee Chairman Howard Dean predicted there could be Democratic primary challenges if a healthcare bill without a public option is approved by Congress.

Dean also told liberal bloggers gathered last week at the “Netroots Nation” convention that the only piece of reform left in the House bill that is worth doing is the public option.

The left wing of the Democratic party already has been irritated by concessions its leaders have made on healthcare to centrists in the House and Senate.

Rep. Eddie Bernice Johnson (D-Texas) told CNN on Sunday it would be “very difficult” for her and other liberals to support legislation that does not include a public option.

“The only way we can be sure that very low-income people and persons who work for companies that don’t offer insurance have access to it, is through an option that would give the private insurance companies a little competition,” she said.

The last word in the Sunday TV Spin Zone was given to North Dakota Senator DINO Kent Conrad. This man has fewer folks in his entire state than do most neighborhoods in any major city in America. Why does he get to frame the debate?

In an interview on Sunday, Mr. Obama’s senior adviser, David Axelrod, said the president remained convinced that a public plan was “the best way to go.” But Mr. Axelrod said the nuances of how to develop a nonprofit competitor to private industry had never been “carved in stone.”

On Capitol Hill, the Senate Finance Committee is expected to produce a bill that features a nonprofit co-op. The author of the idea, Senator Kent Conrad, Democrat of North Dakota and chairman of the Budget Committee, predicted Sunday that Mr. Obama would have no choice but to drop the public option.

“The fact of the matter is, there are not the votes in the United States Senate for the public option,” Mr. Conrad said on “Fox News Sunday.” “There never have been. So to continue to chase that rabbit, I think, is just a wasted effort.”

So, that’s it. The high rate of infant mortality we have here in the U.S. (worse than many developing nations), the appalling number of personal bankruptcies due to folks with either no insurance or underinsurance, and the number of people that have no access to even the most basic services other than the emergency rooms are simply Axelrovian ‘nuances’. TheHill.com continues to describe the back pedal, the sell-out, the cave-in, or what ever pejorative metaphor for the big Obama cop-out.

We need a New Brain Trust

While the U.S. economy sputters, France and Germany appear to have exited their recessions and returned to modest growth during the spring. There’s been a distinctly different approach to macroeconomic policy taken by Chancellor Angela Merkel and President Nicolas Sarkozy and their respective finance ministers that deserve elucidation.

The French and German economies both grew by 0.3% between April and June, bringing to an end year-long recessions in Europe’s largest economies.

Stronger exports and consumer spending, as well as government stimulus packages, contributed to the growth.

Germany is a manufacturer and exporter. Yes, that’s right. Germany has trade unions, good vacation packages, excellent schools, universal health care, lots of solar power and tough environmental regulations and they still have a manufacturing economy and they export. Their form of government is basically a type of democratic socialism. All the things we are taught to view with suspicion. Still, Germany manages to manufacture things and export to China the country to whom the U.S. has practically sold their collective soul so we can massively import junk on a rapidly decreasing credit line.

The latest figures showed German exports had grown at their fastest pace for nearly three years at 7%, with particularly strong growth in demand from rapidly-growing economies such as China.

The country’s Federal Statistics Office said that household and government expenditure had also boosted growth.

It added that imports had declined “far more sharply than exports, which had a positive effect on GDP growth”.

“These [GDP] figures should encourage us,” said Germany’s Economy Minister Karl-Theodor zu Guttenberg. “They show that the strongest decline in economic performance likely lies behind us.”

It’s the same story with France. Household consumption and export markets are improving. I don’t know if you’ve ever listened to Finance Minister Christine Lagarde but she’s undoubtedly one of the best in the world. Compare her to our Secretary of Treasury Timothy Geithner and you’ll see who comes up quite short. First, she’s a noted anti trust lawyer as compared to a noted monopoly enabler.

Ms Lagarde said that consumer spending and strong exports had helped to pull France out of recession.

“What we see is that consumption is holding up,” she said.

Official figures showed that household consumption rose by 0.4% in the second quarter.

She said government incentive schemes for trading in old cars, together with falling prices, were helping consumers.

Foreign trade contributed 0.9% to the GDP figure – a “very strong impact”, said Ms Lagarde.

We are daily fed this propaganda that other countries come up short when compared to the United States and our economic machine. We are told that countries with high union participation, with universal health care, with high standards for the work environment and tough regulations for business and standards for the environment come up short when compared to the U.S. These countries both undertook solid fiscal stimulus. Here is some information on the French package passed in February. The Obama stimulus package passed during February also.

France’s economic stimulus package encompasses a three-pronged plan: €11 billion ($14.5 billion) each to go to direct state investment and to inject capital into private-sector enterprises, plus €4 billion ($5.24 billion) for state-run companies to be applied toward improvements for the national postal service, energy supplies and the rail network. Of that amount, some €1.3 billion ($1.7 billion) is to go into refurbishment of higher educational institutions, prisons, monuments and court.

Here’s some information on the German package also passed in February.

Germany has approved a 50bn euro ($63bn, £44bn) stimulus plan aimed at boosting Europe’s largest economy.

The plan was approved by the upper house of parliament, which represents Germany’s 16 state governments.

It includes infrastructure investments, tax relief, reductions in health care contributions and money for families with children.

The package follows an earlier 23 bn-euro plan that was criticised for being too cautious.

It’s just a little bit of Policy Fail Repeating

When you let lobbyists make public policy, failure is an acceptable outcome. That’s because the point of the policy isn’t the public and isn’t necessarily doing what will work. The point of the policy is to enrich and perpetuate the entrenched interests. Every other possible goal becomes expendable including those that have to do with protecting the public purse and welfare.

Imagine my lack of surprise when I saw that the creation of a “bad bank” policy is back in today’s WaPo headlines. Go take a look at “U.S. Considers Remaking Mortgage Giants:’Bad Bank’ Would Wipe the Slate Clean for Fannie Mae, Freddie Mac by Taking Their Toxic Loans” and weep. This administration will reward bad players as long as there is a political reason for them to exist. So, instead of real reform of Fannie and Freddie, they’re proposing a solution that sweeps past mistakes under the rug and allows these failed institutions to operate in the same irresponsible way that brought them their current fate. There is no such thing as the discipline of the market or the bankruptcy court when you’re big enough to hire K Street impresarios to keep your show running and the federal government enables you.

The Obama administration is considering an overhaul of Fannie Mae and Freddie Mac that would strip the mortgage finance giants of hundreds of billions of dollars in troubled loans and create a new structure to support the home-loan market, government officials said.

The bad debts the firms own would be placed in new government-backed financial institutions — so-called bad banks — that would take responsibility for collecting as much of the outstanding balance as possible. What would be left would be two healthy financial companies with a clean slate.

The moves would represent one of the most dramatic reorderings of the badly shattered housing finance system since District-based Fannie Mae was created by Congress to support mortgage lending during the Great Depression. Both Fannie Mae and Freddie Mac, based in McLean, have government charters to buy home loans from banks, which they then repackage and sell to investors. The banks can then use the proceeds to offer more loans to home buyers.

The leviathans became emblematic of the financial crisis when they were effectively nationalized in September amid a market meltdown that revealed much of their holdings to be troubled. The government has since pledged more than $1.5 trillion, including $85 billion in direct aid, to keep the mortgage market working through Fannie Mae and Freddie Mac.

The proposal, which is preliminary and one of several under discussion, is scheduled to be taken up by the White House’s National Economic Council on Thursday.

What about the Japanese lost decade and all the papers and studies written about the bad bank policy did these folks miss? Well, of course, you do know that the head of the “White House’s National Economic Council ” is La-La Summers, right? Mister, I got mine from Wall Street? Let’s look at the other players who buy into this. I’ll just highlight them so you can see that it’s basically the same players that had some kind of supporting role in the original failure. Why does Washington D.C. continue to reward the very same people and players? It has too be some thing pathological.

Keyboard Cat plays off Okun’s Law

I’ve been teaching Okun’s Law in my principles level Macroeconomics courses since 1980. It’s been the policy rule of thumb since the Kennedy years on how much GDP needs to change to get a movement in the unemployment rate. Here’s the Wiki explanation which is as good as any.

In economics, Okun’s law is an empirically observed relationship relating unemployment to losses in a country’s production. The “gap version” states that for every 1% increase in the unemployment rate, a country’s GDP will be an additional roughly 2% lower than its potential GDP. The “difference version” describes the relationship between quarterly changes in unemployment and quarterly changes in real GDP. The accuracy of the law has been disputed. The name refers economist Arthur Okun who proposed the relationship in 1962 (Prachowny 1993).

I’ve mentioned recently that we’re seeing some fundamental changes in that relationship. This WSJ article talks more about how we’re breaking away from the historical pattern studied by Okun back in the 1960s. This has incredible ramifications for fiscal policy makers. Again, I think the Obama economic advisers appear to be ignoring some really important changes in the fundamentals. We’re much more oriented towards imports, service jobs, and capital than we were back in the Camelot days.