James Pethokoukis

Politics and policy from inside Washington

Why Obama’s polls are slipping …

Jun 24, 2009 16:00 UTC

Matthew Cooper posits this theory:

Obama’s poll numbers have been going down, although they remain high. Why are they going down? A lot of it seems to have to do with spending and government intervention in the economy, which has roused fears of independents. 70 percent of respondents in the NBC News/Wall Street Journal poll said that they were concerned “a great deal” or “quite a bit” about the GM takeover.

I have a slightly different spin on this, which is that it’s the spending and the modest success it seems to have brought in stopping the total collapse of the banking and financial system. If the economy felt like it was in the same free fall that it was a few months ago, he’d be doing better because there’d be less questioning of government spending and more calls to pour everything on the fire. But with the respite in the fall comes the freedom to question spending. Or, to put it another way: The firemen saved your house but now you’re pissed off about all the water damage in the den.

My spin: That is one theory. How about this one: unemployment is going through the roof! While people are less worried about economic collapse, they are plenty worried about their job. Plus, their home is still falling pis e. It is not “all that spending” so much as the perception  that “all that spending” does not seem to be helping much.


There also appears to be a lot of grass roots demonstrations going on out there that are getting zero coverage in the press. What gives?

Housing bottoming?

Jun 24, 2009 15:41 UTC

From RDQ Economics:

New and existing home sales, housing starts, building permits, and homebuilder sentiment all appear consistent with the picture of a bottoming out in housing activity, albeit at very low levels.  It seems likely that the drag from housing on GDP growth in the second half of the year will be significantly smaller than the average subtraction of 1.0% point per quarter over the last three years.

Me: Less of a drag on GDP, sure. But no rising home prices …


Hey, I appreciate your constant search for the pony in the rooom full of horse poop. Might be a bit premature.

Citigroup’s big pay hikes

Jun 24, 2009 15:26 UTC

Instead of big bonsuses, Citigroup is moving toward bigger salaries. Here is what the company should be doing:

What sort of compensation might work better to align executive compensation with long-term shareholder interests? A group of academics — Alex Edmans of Wharton, Xavier Gabaix and Tomasz Sadzik of New York University and Yuliy Sannikov of Princeton — have devised an approach based on what they call “dynamic incentive accounts.”

Unlike bonus clawbacks, this system doesn’t try to recoup money already sent out the door.

Here is how it works, according to their new study: Executive pay is escrowed into an account, a fraction of which is invested in the firm’s stock and the remainder in cash. The account would be rebalanced each month according to company guidelines — rules would certainly also vary by industry — and by how close the executive is to retirement.

The gradual vesting of the account — cash from a sold stock cannot quickly withdrawn — even after retirement, “allows the CEO to consume while simultaneously deterring myopic actions.”

In other words, the goal is to promote long-term thinking over short-term manipulation.

For instance: If company’s stock soared, the executive could sell, though the proceeds would say in the account. If the stock then dropped, that money would have to be used to buy more stock. He couldn’t just take the money and run.

Is this the best system out there?. Maybe, maybe not. Or maybe for some firms or sectors and not for others. But that is why you don’t want a one-size-fits-all plan devised in Washington, particularly one with political rather than economic goals. That is a pothole that Barack Obama and Timothy Geithner have so far avoided.

Rasmussen poll: more skepticism about financial regulation

Jun 24, 2009 13:55 UTC

From Rasmussen:

Forty-seven percent (47%) of Americans oppose more government regulation of the U.S. financial system, while 33% disagree and say more regulation is a good idea, according to a new Rasmussen Reports national telephone survey.

But just 23% of adults favor giving the Federal Reserve Board more regulatory control. Fifty-one percent (51%) oppose expanding the Fed’s regulatory powers.

Americans are closely divided over President Obama’s plan to create a new government agency to regulate what banks, mortgage lenders and credit cardcompanies offer Americans. Thirty-nine percent (39%) support the creation of such an agency, but 44% are opposed to establishing another federal regulatory body.

Fifty-seven percent (57%) of Americans said in late April that there is a need for more government oversight of the credit card industry.

Obama and a second stimulus package

Jun 23, 2009 18:15 UTC

Actually, it would the third stimulus, counting the one from Bush. The president at his new conference this afternoon:

QUESTION: Do you think you need a second stimulus package?

MR. OBAMA: Well, not yet, because I think it’s important to see how the economy evolves and how effective the first stimulus is. I think it’s fair to say that, keep in mind the stimulus package was the first thing we did, and we did it a couple of weeks after inauguration.

At that point, nobody understood what the depths of this recession were going to look like. If you recall, it was only significantly later that we suddenly get a report that the economy had tanked. And so it’s not surprising, then, that we missed the mark in terms of our estimates of where unemployment would go.

I think it’s pretty clear now that unemployment will end up going over 10 percent, if you just look at the pattern, because of the fact that even after employers and businesses start investing again and start hiring again, typically it takes a while for that employment number to catch up with economic recovery. And we’re still not at actual recovery yet.

So I anticipate that this is going to be a — a difficult — difficult year, a difficult period.

QUESTION: What’s the high-water mark, then, for unemployment?

MR. OBAMA: I — I am not suggesting that I have a crystal ball, since I — since you just threw back at us our last prognosis, let’s not — let’s not engage in another one.


MR. OBAMA: But — but — but what I am saying is that here are some things I know for certain: In the absence of the stimulus, I think our recession would be much worse. It would have declined. Without the Recovery Act, we know for a fact that states, for example, would have laid off a lot more teachers, a lot more police officers. and a lot more firefighters.

Every single one of those individuals whose jobs were saved as a consequence, they are still making their mortgage payments. They are still shopping.

So we know that the Recovery Act has had an impact.

Now, what we also know is this was the worst recession since the Great Depression. And — and people are going through a very tough time right now. And I don’t expect them to be satisfied.

I mean, one thing that — you know, as I sometimes glance at the various news outlets represented here, I know that, you know, there is sometimes reporting of, “Oh, the administration’s worried out this,” or “their poll numbers are going down there,” or this is.

Look, the American people have a right to feel like this is a tough time right now. What’s incredible to me is how resilient the American people have been and how they are still more optimistic than — than the facts alone would justify. Because this is a tough, tough period.

And I don’t feel satisfied with the progress that we’ve made. We’ve got to get our Recovery Act money out faster. We’ve got to make sure that the programs that we put in place are working the way they’re supposed to.

I think, for example, our mortgage program has actually helped to modify mortgages for a lot of people, but it hasn’t been keeping pace with all the foreclosures that are taking place.

I get letters every day from people who say, “You know, I appreciate that you put out this mortgage program, but the bank is still not letting me modify my mortgage, and I’m about to lose my home.”

And then I’ve got to call my staff and team and find out, you know, why isn’t it working for these folks and can we adjust it, can we tweak it, can we make it more aggressive?

This is — this is a very, very difficult process. And what I’ve got to do is to make sure that we’re focused both on the short term — how can we provide families immediate relief and jump-start the economy as quickly as possible — and I’ve got to keep my eye on the long term.

And the long term is making sure that by reforming our health care system, by passing serious energy legislation that makes us a clean-energy economy, by revamping our education system, by finally getting the financial regulatory reforms in place that are necessary for the 21st century, by doing all those things we’ve got a foundation for long-term economic growth and we don’t end up having to juice up the economy artificially through the kinds of bubble strategies that helped to get us in the situation that we’re in today.


1930s New Deal policies did not work then and won’t work now. High fixed wages and price controls in conjunction with rationing during World War II allowed for vast savings to be accrued in the U.S.. After the war people could by cars with cash and in some cases homes.

I am not advocating another war. However a massive works project producing solar panels, electric generators, natural gas conversion kits for automobiles would be a start. Getting people off the grid would translate into reduced power grid improvement. At the same time a public works project developing Geo thermal power generation is paramount. Once an excess energy infrastructure and personal savings by the middle class has been built, economic restrictions can be lifted.

There is every reason to believe a free market economy can prosper again. The essential component will be to limit the use and need for credit.

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Yes, there are still some mustard seeds out there …

Jun 23, 2009 17:58 UTC

Mike Darda of MKM Partners spys some of them:

1) The ratio of leading to coincident indicators is up nearly 5% since bottoming in October, a magnitude not seen outside of economic recoveries going back to 1960.

2) Similarly, the most sensitive credit market indicators (interest-rate swap spreads, LIBOR spreads, etc.) have barely budged in recent weeks despite the sagging equity market. Indeed, the TED spread has now fallen below the historical median. At the same time, corporate bond yields continue to fall, a strong recovery signal.

3) As we’ve pointed out before, the corporate bond market was probably the most powerful leading indicator of recession, depression and recovery during the 1930s.

4) What about the plunging money multiplier and collapsing monetary velocity? The credit markets tend to lead changes in measured velocity, and now suggest the worst of that decline is behind us. In any case, money is a leading indicator while nominal GDP (which is the numerator of the velocity equation) is a coincident indicator.

The next Fed chairman will be …

Jun 23, 2009 16:35 UTC

Looking for a short list of replacements for Ben Bernanke for Federal Reserve chairman? You can start with Larry Summers, Alan Blinder, Janet Yellen (with a bullet!), Roger Ferguson, Donald Kohn, Robert Rubin (I am going broad here!), Donald Kohn. And how about tossing in the old Greenspan replacement short list: Glenn Hubbard, Martin Feldstein. Kohn was on that one, too. Any more suggestions???


Larry Kudlow for Fed Chairman!

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Good news, bad news

Jun 23, 2009 16:04 UTC

Hey, this is good:

The quarterly CEO Economic Outlook Index rebounded to 18.5 in the second quarter from a record low of negative 5 in the first quarter.

But this isn’t:

But it was still the third-lowest reading in the survey’s six-year history. A reading below 50 means CEOs expect economic contraction rather than growth.

The CBO takes away, the CBO gives

Jun 23, 2009 14:26 UTC

Just as a Congressional Budget Office estimate of the cost of healthcare reform ($1.6 trillion over ten years) threw a spanner into the works of that effort, a CBO study of cap-and-trade costs ($175 year in 2020) may have given some oomph to the energy plan which is coming to the floor fo the House. Still, the Senate is going to be a quagmire …

White House: 10 percent unemployment ‘within months’

Jun 22, 2009 22:52 UTC

WH spokesman Robert Gibbs echoes what his boss said recently:

The U.S. unemployment rate is likely rise from already high levels to 10 percent in the next couple of months, a White House spokesman said on Monday.

“I think the president has said this, and I would certainly say this, I think you’re likely to see unemployment at 10 percent within the next couple of months,” White House spokesman Robert Gibbs told reporters.

The U.S. unemployment rate already stands at 9.4 percent, the highest level in about 25 years, and many analysts believe it could continue to climb despite the $787 billion economic stimulus package passed early this year by Congress.

Earlier this year, the Obama administration had predicted the unemployment rate would peak at 8 percent before beginning to fall toward the end of 2009.


The closest person to a grown up in the administration is, dare I say it, Hillary Clinton…closeted at State.

Certainly appearing to denigrate freshment everywhere; this entire cabinet {and supporting staff) is analagous to the incoming high school freshman class; a bunch of 15 year old snot nosed louts hanging out with the school bullies, entranched in the belief that ‘they’ are the coolest.

In fact, they are naive apologists with no hopes of discovery.

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