Main Street may be about to get its own gigantic bailout. Rumors are running wild from Washington to Wall Street that the Obama administration is about to order government-controlled lenders Fannie Mae and Freddie Mac to forgive a portion of the mortgage debt of millions of Americans who owe more than what their homes are worth. An estimated 15 million U.S. mortgages – one in five – are underwater with negative equity of some $800 billion. Recall that on Christmas Eve 2009, the Treasury Department waived a $400 billion limit on financial assistance to Fannie and Freddie, pledging unlimited help. The actual vehicle for the bailout could be the Bush-era Home Affordable Refinance Program, or HARP, a sister program to Obama’s loan modification effort. HARP was just extended through June 30, 2011.
One of the mysteries of the Great Recession is why unemployment rose so far so fast. The usual rule of thumb, Okun’s Law, called for a much lower rate of joblessness. The White House has been hoping that as the economy turned around, the labor market would outperform just as it underperformed during the downturn. As it turns out, the downturn was deeper than first thought, so the “snapback” scenario is less likely. This from JPMorgan:
This bit of David Brooks’ column today jumped out at me:
Paul Ryan, the most intellectually ambitious Republican in Congress … has been promoting a roadmap to comprehensively reform the nation’s tax and welfare system. On the tax side, he would sweep away most of the special-interest-favoring tax credits and subsidies and give people a chance to join a simple tax system with only two rates.
Mark Zandi and Alan Blinder have launched a maximum defense of all the government interventions in the economy since 2008. Without TARP, stimulus, various Fed actions — the who kit and caboodle – their model estimates the following:
From the Great One, Larry Kudlow:
Then there’s the confidence-threatening war between business and the White House, which is also related to the liberal tax revolt. It’s still a battle royale between the nation’s business leaders and the administration over taxes, spending, regulation, and trade.
Ben Bernanke, the Federal Reserve chairman, doesn’t want tax rates to reset higher at the end of this year, even for the rich. The White House and the Treasury think differently. Here’s how an off-the-record Bernanke might try to talk Tim Geithner, the Treasury secretary, around to his point of view.
OK, let me get this straight: President Obama says he wants to build a New Foundation for the U.S. economy based on savings and investment, not debt. So the government borrows billions to prop up General Motors. And now General Motors uses that money to go out and buy AmeriCredit for $3.5 billion so it can more easily lend money to subprime borrowers.
The U.S. is pushing its G20 counterparts to focus more on growth than deficits right now. Too bad America — or at least Congress — seems to be doing neither. Not only is Uncle Sam on pace to rack up another $10 trillion (at least) in debt over the next decade, but little is being down to boost growth and jobs. The latest: Democrats are now openly talking about extending the middle-class Bush tax for only a couple of years until, you know, when the economy is booming. Of course, we may still have unemployment at 8 percent then. I could see letting the Bush tax cuts expire and then replacing them with a more pro-growth tax policy. But a $3 trillion tax hike? Nothing pro-growth about that.