James Pethokoukis

Politics and policy from inside Washington

8 reasons TARP is a bust

Dec 9, 2009 17:26 UTC

The oversight panel led by television funnywoman Elizabeth Warren has concluded that TARP has been asset for the economy. Except for this part (in the panel’s own words):

1) It is apparent that after fourteen months the TARP’s programs have not been able to solve many of the ongoing problems Congress identified. Credit availability, the lifeblood of the economy, remains low.

2) In light of the weak economy, banks are reluctant to lend, while small businesses and consumers are reluctant to borrow.

3) In addition, questions remain about the capitalization of many banks, and whether they are focusing on repairing their balance sheets at the expense of lending.

4) The FDIC, facing red ink for the first time in 17 years, must step in to repay depositors at a growing number of failed banks. This problem may well worsen, as deep-seated problems in the commercial real estate sector are poised to inflict further damage on small and mid-sized banks.

5) Large banks have problems of their own. Some of them, waiting for a rebound in asset values that may still be years away, continue to hold the toxic mortgage-related securities that contributed to the crisis. Consequently, the United States continues to face the prospect of banks too big to fail and too weak to play their role adequately in keeping credit flowing throughout the economy.

6) The foreclosure crisis continues to grow.

7) Furthermore, the market stability that has emerged since last fall’s crisis has been in part the result of an extraordinary mix of government actions, some of which will likely be scaled back relatively soon, and few of which are likely to continue indefinitely. The removal of this support too quickly could undermine the economy’s nascent stability.

8) While strong government action helped prevent a worse crisis, it may have done so at a significant long run cost to the performance of our market economy. Implicit government guarantees pose the most difficult long-term problem to emerge from the crisis. Looking ahead, there is no consensus among experts or policymakers as to how to prevent financial institutions from taking risks that are so large as to threaten the functioning of the nation’s economy. Congress is currently grappling with this issue as it considers how to respond legislatively to the financial crisis. It is clear that a failure to address the moral hazard issue will only lead to more severe crises in the future.

Me: Oh, and then you have the devolution of TARP into a slush fund to bail out AIG, union auto workers and congressional Democrats worried about how the high unemployment rate will hurt their 2010 chances. Thus the new jobs bill. But it did stop the panic, unless you believe John Taylor that it really made the panic worse through uncertainty.

Small business to Washington: Stop confusing us

Dec 9, 2009 14:30 UTC

If you listen to the National Federal of Independent Business, the anemic recovery and weak consumer spending are its biggest concerns. But there is something else:

But the other major concern is the level of uncertainty being created by government, the usually source of uncertainty for the economy. The “turbulence” created when Congress is in session is often debilitating, this year being one of the worst. Themes including “tax more,” “tax the rich even more,” “VAT taxes,” higher energy costs due to Cap and Trade, mandates and taxes for health care, threats of “stimulus II,” incomprehensible deficits, and a huge pool of liquidity created by the Federal Reserve Bank that threatens price stability and higher interest rates. The list goes on and on. There is not much to look forward to here and good reason to “keep your powder dry.” Uncertainly is the enemy of the real economy as well as financial markets. …

But there are still many uncertainties ahead (most in Congress) that need to be resolved and plenty of “income redistribution” yet to come as we continue to clean up our financial system – all which creates major headwinds for the economy.

COMMENT

Government has always been – and always will be – the problem. I cringe when I hear people talk about the gov’mint. Hopefully all those voters who bought into Mr. Obama’s ‘change we can believe in’ will kick some Democratic butt next November, but I’m not holding my breath. Obama is a master of form over substance and there is apparently no lack of willing buyers.

Posted by gotthardbahn | Report as abusive

Why are Democrats pushing cap-and-trade? An explanation

Dec 8, 2009 20:32 UTC

Joel Kotkin thinks he knows:

Today’s environmental movement reflects the values of a large portion of the post-industrial upper class. The big money behind the warming industry includes many powerful corporate interests that would benefit from a super-regulated environment that would all but eliminate potential upstarts.

These people generally also do not fear the loss of millions of factory, truck, construction and agriculture-related jobs slated to be “de-developed.” These tasks can shift to China, India or Vietnam–where the net emissions would no doubt be higher–at little immediate cost to tenured professors, nonprofit executives or investment bankers. The endowments and the investment funds can just as happily mint their profits in Chongqing as in Chicago.

So who benefits from this collective ritual seppuku? Hegemony-seeking communist capitalists in China might fancy seeing America and the West decline to the point that they can no longer compete or fund their militaries. A weakened European Union or U.S. also won’t be able provide a model of a more democratic version of capitalism to counter China’s ultra-authoritarian version.

Yet most people in the developing world will not benefit from the suicide of the West. The warmists’ vision is not one of growing prosperity, but of capping wealth at a comparatively low level. De-industrialization means the West falls back while emerging economies grow a bit. The “prosperity gap” may close, but ultimately everyone is left with less prosperity.

COMMENT

Good analysis. These environmentalist types, in my memory, have always been anti-progress. Thirty-eight years ago I recall reading Paul Ehrlich’s Population Bomb and his pleas for a slowing down in economic growth, and now this guy is one of the high priests of the ‘de-development’ movement. Nowadays he’s nice and tenured and likely has a nice fat pension waiting for him when he retires from Stanford. His pal John Holdren (I think that’s right) is an advisor to Barack Obama so watch out!

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Obama’s jobs plan

Dec 8, 2009 20:15 UTC

A few cents from IHS Global:

The President’s speech was short in terms of the details. He did not specify how much of the remaining resources from TARP should be dedicated to deficit reduction versus additional stimulus spending. Nor did he specify any targets for spending under the four areas that were highlighted in his speech. Effectively the President has kicked the ball into Congress’s court in order to work out the details.

The problem right now is that Congress is overwhelmed with a range of high priority legislative measures ranging from health care reform to financial regulation. How soon Congress will be able to consider new stimulus measures is really hard to say, but we would not expect a bill to be proposed until January or February of the New Year.

The bottom-line is that these measures to stimulate small business in particular are critical in order to have any hope at all of getting the job market turned around in 2010.

Congress has a short window here in order to accomplish this, but if the bill is delayed beyond the January/February window then there is little chance of this happening.

Me: I think the timing issue is critical, both from a political and economic standpoint. Timing is running out given the difficulties of passing much in an contentious election year

Obama and jobs, take two

Dec 8, 2009 19:38 UTC

A few thoughts on the Brookings speech:

1) Lots of big ideas from liberal thinks on  how to boost jobs. Obama pretty much took a pass.

2) Obama proposals certainly aren’t game changers

3) To a great extent, Obama will still be relying on the unspent 70 percent of his $787 billion stimulus plan, passed earlier this year, to perk up the flaccid labor market.

4) It’s clear that the deficit is driving policy.The high government debt-to-GDP ratio of the U.S. risks crowding out private investment, reducing the future potential of the economy to grow. And rising deficits increase investors’ fears about the creditworthiness of the U.S. government.

5) Obama needs to keep interest rates as low as possible to boost growth and not worsen interest payments. So no mega-stimulus. This is his version of Clinton’s bond market strategy.

Here is Michael Feroli of JP Morgan:

For now, we’re not pencilling in any major change to our growth forecast for 2010. Many of the proposals — listed below — are business tax cuts which are infra-marginal and will probably have a muted impact on behavior. In addition, there are some one-time tax cuts or bonus payments which are less likely to affect household behavior than more permanent tax cuts. It is possible that accelerated infrastructure investment and some other secondary proposals will be significant enough to lead to a forecast revision.

Proposals:
* One year elimination of capital gains on small business stock
* One year expensing of up to $250,000 of capital investment for small businesses
* One year extension of bonus depreciation expensing
* “A new tax cut for small businesses to encourage hiring in 2010″
* Eliminating SBA fees and increasing guarantees
* More infrastructure spending, including “merit-based” infrastructure
* Incentives for energy efficient home retrofits, including expanding programs from the first stimulus
* Extending unemployment insurance (presumably extending past December 31, not extending past 99 weeks).
* Extending COBRA benefits
* Another $250 one-time bonus payment to social security recipients
* “Taking steps to ensure that state and local governments are not forced to layoff teachers”

The EPA and Obama’s Uncertainty Tax

Dec 8, 2009 11:23 UTC

Here’s the theory about the new U.S. position on greenhouse gases. The official finding by the U.S. Environmental Protection Agency that the emissions endanger human health sets the stage for permit requirements on power plants, factories and automobiles. It also supplies President Barack Obama with more evidence at the Copenhagen summit of a “new normal” in America when it comes to climate policy. And back home, it supposedly gives a nudge to the Senate where cap-and-trade legislation is stuck on the back burner.

But in practice, the only thing certain about the EPA ruling is more regulatory uncertainty leading to less economic growth and fewer jobs. Bad news, to be sure, for American businesses already flummoxed by the mercurial state of healthcare, financial and tax reform. Call it Obama’s Uncertainty Tax.

While a cap-and-trade bill has already passed the House of Representatives, few Capitol Hill observers expected the Senate to approve one, even by the end of 2010 thanks to the anemic economy and political risks for incumbent Democrats facing midterm elections. What’s more, expectations of a more Republican-leaning congress after 2010 made it seem like economy-wide carbon caps were sliding off the Obama agenda for the foreseeable future.

But now it’s conceivable carbon restrictions would be implemented as early as next year – even though the EPA itself admits its efforts would be more disruptive and less efficient than congressional action. Such an optimistic timetable assumes no legal challenges. But there will be plenty of those. Already, business groups are preparing to file suit against the EPA. It could fall to U.S. courts to determine the future of the nation’s approach to climate policy. This is a nightmare scenario for the private sector when it comes to planning for new expansion or hiring. Note that the big problem with the job market at the moment is not so much job losses and zippo new jobs being created. It will take a year of 4 percent growth adding 250,000 jobs a month to lower the unemployment rate to 9 percent.

Of course, about the only thing worse than regulatory uncertainty would be for the EPA to follow through with its top-down, command-and-control approach to dealing with perceived climate change.

One solution would be for Congress itself to act. GOP strategists would love to disrupt reeling Democrats with another controversial proposal – which is precisely why it won’t happen. Dems in the Senate are well aware of the shellacking their House colleagues have taken on their cap-and-trade vote.

Another option would be for the White House to devise a plan that would generate some bipartisan support. One idea might be a carbon tax whose revenue could be distributed back to citizens as a dividend, or used to offset payroll taxes. Such a refund could be progressive and popular.

But the most likely scenario is no cap-and-trade and no carbon tax, just more government “investment” in clean energy. But for now, workers and business are left to keep paying the Uncertainty Tax.

COMMENT

its been proved that these tax reforms will only bring more pain in the long term

Posted by cainindia | Report as abusive

EPA carbon ruling creates an even bigger ‘uncertainty tax’ for business

Dec 7, 2009 20:41 UTC

Call it the Uncertainty Tax. I mean, it is not enough that the American private sector has to deal with the mercurial state of healthcare, financial and tax reform, now it has to calculate the likelihood and impact of  the Obama administration unilaterally imposing draconian carbon rules? Even the EPA calls such efforts inefficient and economically disruptive. A few other thoughts:

1) Expect loads of litigation.

2) Don’t expect this to nudge Congress into passing cap-and-trade in 2010.

3)  Did I mention loads of litigation?

4)  It this looks likely, Congress would probably strip the EPA of its authority to do so.

5)  If Congress does not act, this could be the beginning of a multi-year effort  to regulate climate emissions. So more uncertainty.

James Pethokoukis is the money and politics columnist/blogger for Reuters Breakingviews. Previously, he was the economics columnist for U.S. News & World Report where he wrote the monthly Capital Commerce magazine column. Pethokoukis was also the managing editor of the magazine’s Money & Business section. He has written for many publications including the New York Times, the American, USA Today, Investor’s Business Daily, and TCS Daily. Pethokoukis is also an official CNBC contributor and appears frequently on that network’s Kudlow & Company, Power Lunch, and The Call shows. In addition, he has appeared numerous times on MSNBC, Fox News Channel, Fox Business Network, CNN, and Nightly Business Report on PBS. A 1989 graduate of Northwestern University where he double majored in Soviet politics and American history and a 1991 graduate of the Medill School of Journalism, Pethokoukis is a 2002 Jeopardy! champion.james.pethokoukis@thomsonreuters.com

COMMENT

The Obama administration is perhaps most remarkable for how it has emboldened the rest of the extreme left. Pelosi and Reid attempt to shove through outrageously dangerous legislation knowing that the anti-American, anti-business president will eagerly sign it. The spokewoman for the EPA could barely mask her glee that this unelected group would soon be forcing draconian regulations on industry and homeowners.

Since the release of the climategate emails the left has confirmed that they are unconcerned with facts or consequences. They march on unashamed with their plan to halt progress and punish success.

Posted by Pat Duggan | Report as abusive

Cost-benefit analysis of jobs stimulus

Dec 7, 2009 17:23 UTC

Hopefully any new plan will have a better ROI than the current stimulus package. Economic analyst  Ed Yardeni runs the numbers:

The Obama Administration is touting that their stimulus program has saved or created 640,329 jobs since it was enacted back in February through the end of October. This number is updated and posted on the Administration’s recovery.gov web site. That amounts to $246,436 per job based on the $157.8bn that has been awarded so far! Total compensation earned by the average payroll employee during October, on an annualized basis, was $59,867. If the government had simply used the funds awarded so far to pay for a year’s worth of labor, that would have paid for 2.6mn jobs!

James Pethokoukis is the money and politics columnist/blogger for Reuters Breakingviews. Previously, he was the economics columnist for U.S. News & World Report where he wrote the monthly Capital Commerce magazine column. Pethokoukis was also the managing editor of the magazine’s Money & Business section. He has written for many publications including the New York Times, the American, USA Today, Investor’s Business Daily, and TCS Daily. Pethokoukis is also an official CNBC contributor and appears frequently on that network’s Kudlow & Company, Power Lunch, and The Call shows. In addition, he has appeared numerous times on MSNBC, Fox News Channel, Fox Business Network, CNN, and Nightly Business Report on PBS. A 1989 graduate of Northwestern University where he double majored in Soviet politics and American history and a 1991 graduate of the Medill School of Journalism, Pethokoukis is a 2002 Jeopardy! champion.james.pethokoukis@thomsonreuters.com

COMMENT

I agree with the above post, and the post above that. I highly doubt that jabs were actually considered with the health care.

Posted by josephmorris90 | Report as abusive

The TARP slush fund gets slushier

Dec 7, 2009 15:25 UTC

The New Normal may be a bummer, but it’s not life-threatening for the economy. The only systemic risk at the moment is the political prospects of Democratic incumbents on Capitol Hill. They dread standing for reelection in 2010 if the unemployment rate remains anywhere near double digits. The forthcoming jobs bill is a product of political panic. And using TARP to pay for it confirms the fears of those back in the fall of 2008 who thought the bank bailout fund would eventually become a political slush fund.

Tea Party fever! This can’t be good for the Republican brand …

Dec 7, 2009 13:52 UTC

From pollster Rasmussen:

Running under the Tea Party brand may be better in congressional races than being a Republican.

In a three-way Generic Ballot test, the latest Rasmussen Reports national telephone survey finds Democrats attracting 36% of the vote. The Tea Party candidate picks up 23%, and Republicans finish third at 18%. Another 22% are undecided.

Among voters not affiliated with either major party, the Tea Party comes out on top. Thirty-three percent (33%) prefer the Tea Party candidate, and 30% are undecided. Twenty-five percent (25%) would vote for a Democrat, and just 12% prefer the GOP.

Among Republican voters, 39% say they’d vote for the GOP candidate, but 33% favor the Tea Party option.

COMMENT

Mr Austria,
Re moneterism I was referring to Peth’s preferences which are heavily oriented towards supply side and Friedman worship,not yours. As for the Austrian school I was suggesting keeping its adherents as far way from actual power and contrained solely in blogs like say Mish Shedlock’s as possible. Austrian school stuff is not irrelevant but small doses preferable to the massive doses some ideologues would like.

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