ALERT: GDP PLUMMETS in 4Q
Reuters reports: “The economy shrank at its fastest pace in nearly 27 years in the fourth quarter, government data showed, sinking deeper into recession as consumers and business cut spending. The Commerce Department on Friday said gross domestic product, which measures total goods and services output within U.S. borders, plummeted at a 3.8% annual rate, the lowest pace since the first quarter of 1982, when output contracted at a 6.4% annual rate.”
W. Post piles on: “…bad news rolled in from across the economy and the world. Sales of new homes in December plummeted, corporations announced plans to cut 13,000 more U.S. jobs, unemployment claims jumped, and a troubled icon of U.S. manufacturing, Ford Motor, yesterday announced a massive loss. Early this morning, the Japanese government announced that factory output had fallen 9.6 percent and that joblessness in the world’s second-largest economy jumped to 4.4 percent, in the largest increase in 41 years … Many analysts now think the economy will not improve until later this year, provided a government stimulus plan kicks in. The best many are hoping for is that things don’t get much worse.”
The need for quick and bold action cannot be more clear or urgent. Call 1-866-544-7573 and tell the Senate: Pass Econ Recovery NOW!
Who Knows the Economy: Obama or Rush?
Politico’s Ben Smith links to new Americans United for Change ads, targeting key GOP senators, framing the choice between the “Obama jobs plan” and Rush “I hope he fails” Limbaugh.
The Agonist’s Stirling Newberry: OK Senators. Pass. The Damn. Bill. “One could improve this bill in a hundred ways, but we don’t have a hundred days to pass this one bill.”
AP lists everything that conservatives consider to be pork in the $819B House bill. Most, if not all, are clearly not pork. But even by their standards, the list amounts to $8.6B. In other words, 1% of the overall bill.
W. Post reports GOP aides (who have said they want to sow Dem intra-party dissension) believe Obama will push for more biz tax cuts: “Obama also gave [House] Republicans incentive to oppose his bill, according to GOP aides who requested anonymity in order to speak candidly about internal party deliberations. In his private appearance with House Republicans on Tuesday, the new president acknowledged that the House version of the bill contained too much spending and indicated he was open to more tax breaks for small businesses. Obama suggested that fixes would be made in the Senate and during a House-Senate conference to work out differences between versions of the bill. Aides said Obama’s signal that the final version would be more to their liking provided an incentive for wavering Republicans to vote against the bill, thereby winning kudos from conservatives while leaving them the option of voting for the final product.”
NYT’s David Brooks picks up the conservative lie that the econ recovery bill violates the principles Obama aide Larry Summers laid out for stimulus in January 2008, “timely, targeted, temporary. In fact, as the Breakfast served earlier, Summers changed his view in November because the situation has deteriorated very substantially” and now a “speedy, substantial and sustained [plan] over a several-year interval” is necessary.
Here’s Your Bipartisanship
WSJ: “Maine Sen. Olympia Snowe, who holds a Republican seat on the tax-writing Finance Committee, is emerging as a strong supporter. ‘We must simply begin to restore confidence among the American people in the future of our economy,’ she said in a statement issued after she voted this week for the tax-relief package during Finance Committee action. After Sen. Snowe, congressional aides suggest four to six other Republican senators could be potential supporters.”
“Sen. Nelson, a conservative Democrat from Nebraska, said he isn’t yet committed to vote for the package. He wants more spending for job-creating infrastructure, but also voiced concern about several spending line-items, including research for the National Institutes of Health.”
Bad “Bad Bank”?
Krugman worries about reports of a government “bad bank” to buy up toxic assets: “…the Obama administration apparently prepares to launch Hankie Pankie II — buying troubled assets from banks at prices higher than they will fetch on the open market…”
At issue: How to value the assets that are sold to the bad bank in a way that isn’t so low that the financial firms selling the toxic assets aren’t declared insolvent once they shed the securities and write down losses. On the other hand, government officials feel they can’t simply buy the assets at levels significantly above what the market is valuing the securities, because taxpayers would be subsidizing Wall Street’s excesses.
One senior Wall Street executive says he explained the problem to government officials the other day this way: “What I told them is that our model may be valuing this stuff at 50 cents on the dollar, but the market values it at 22 cents. If we sell for 22 cents, we get creamed. But does the government want to pay us the difference?”
The answer coming from government officials is no, and that’s why the plan is currently in limbo. According to people close to the discussions, the plan may morph into some hybrid of the various alternatives to the bad bank. The government may buy some of the bad assets, while other assets may be covered by insurance or some other guarantee.
WSJ: “Under the concept being discussed, the government ‘bad bank,’ possibly run by the FDIC, would buy only assets banks have already marked down heavily. This could avoid crushing the value of other assets held by banks. It could also potentially sidestep the pricing dilemma because banks have already recognized the low value of the assets being purchased.”
Sen. Charles E. Schumer … said the cost of a government-run “bad bank” that would purchase souring loan assets from struggling banks would run between $1 trillion and $4 trillion.
How much the new “bad bank” program will cost depends on how many banks participate and how much the government pays for the deteriorating loan assets, among other factors. Bank losses from bad loans – mostly defaulting subprime and exotic mortgages – are estimated at between $2 trillion and $4 trillion, and have been growing with each day the recession deepens.
“Various experts say a full ‘bad bank’ ends up being about $3 trillion,” Mr. Schumer said, an amount considered too great by either the administration or Congress to seriously consider. That is why lawmakers are looking at more limited solutions that would address only the problems of money-center banks considered too big to fail.
“A ‘bad bank’ is one solution, but every time you look at the solution from 10,000 feet, they’re appealing,” Mr. Schumer said. “Then when you look at the details, they’re very difficult to work out. There is no easy solution here given how large this mess is.”
“They have to do a bad bank,” Harvard Economics Professor Ken Rogoff said. But “if that’s all they do then it’s idiotic.”
Institutions like Citi and Bank of America will have to go, boards will have to be fired and equity stakeholders will be wiped out, Rogoff said. The plan could mirror the one Sweden implemented, where all troubled banks were nationalized, their balance sheets were cleaned up and the good parts of the businesses were sold to the private sector. That solution was “much cleaner,” he said.
Greedy Execs on Notice
W. Post reports Dodd will haul CEOs with fat bonuses to the Senate: “Whether it was used directly or indirectly, this infuriates the American people and rightly so,” said Sen. Christopher J. Dodd (D-Conn.). “So I say to anyone else who does it: If you do it, I’m going to bring you before the committee.”
On MSNBC’s Countdown, Jonathan Alter pressed for “clawback provisions” to get the $18B in bonus money back: “it can go towards more infrastructure, that’s what the Republicans seem to want … [CEOs] might have to dig into their savings like other Americans”
NYT reports clawbacks may happen: “During his confirmation hearings, [Treasury Secretary] Geithner said the administration is preparing rules that would require executives at companies receiving taxpayer money to agree that any compensation above a certain amount — he did not specify how much — be “paid in restricted stock or similar form” that could not be liquidated or sold until the government had been repaid. Some lawmakers, meanwhile, have said they are considering so-called ‘clawback’ provisions that could be invoked by the government to take back bonuses and executive pay from officials at companies that encountered problems.”
OpenLeft’s Chris Bowers is unimpressed with Obama’s outrage: “OK, We’ll Give You $250 Billion, But We’ll Be Real Surly When We Do It”
AFL-CIO Blog: Bailout Oversight Panel Recommends Eight Changes to Avoid Future Crises
Will Senate Econ Bill Pander to Anti-Immigrant Minority?
WSJ: “Sens. Ben Nelson (D., Neb.) and Jeff Sessions (R., Ala.) want to mandate that businesses benefiting from the stimulus verify the citizenship of workers, under a government program that is currently voluntary”
DMI Blog: “The E-Verify program is deeply flawed. The United States Government Accountability Office and other independent organizations have found that this program is unable to accurately identify U.S citizen and documented immigrant workers. In addition, the program fails to include a way to monitor and prevent unscrupulous employers from misusing the system.”
Senate Greener Than House?
Grist’s Kate Sheppard reports on green investment in the Senate bill: “Dan Weiss and Alexandra Kougentakis at the Center for American Progress take a look at the Senate’s version of the stimulus plan and conclude that, on the whole, it’s better in terms of clean energy investments and incentives than the House version. While several not-so-green programs would get funding in the Senate plan — including $50 billion in loan guarantees for the nuclear industry and $4.6 billion for the coal industry — green projects overall would get approximately $7 billion more in spending.”
The Seminal doesn’t like those nukes. Washington Monthly’s Mariah Blake on problems in the nuke biz: “a growing body of evidence suggests that new nuclear construction projects are prone to the same setbacks as those undertaken a generation ago”
WSJ on “cash for clunkers“: “Auto-industry officials are in advanced talks with Capitol Hill lawmakers on a proposal that would aim to revive vehicle sales by giving federal tax credits of as much as $4,500 to consumers who replace older gas guzzlers with new, fuel-efficient cars. Executives and lobbyists for domestic and foreign auto makers hope to reach an agreement on what they call a ‘cash for clunkers’ program in the next few days so it can be added to a nearly $900 billion economic-stimulus package the Senate will debate next week.”
USA Today spotlights the smart electric grid funded by the House bill: “Consumers with smart digital meters can better manage their electricity consumption and reduce their monthly bills. And utilities can more nimbly control the electricity that flows over their wires to prevent outages such as the 2003 Northeast blackout … wind and solar farms are planned for remote reaches such as the blustery Plains states and Arizona desert. But there aren’t enough high-voltage lines to zap the power to coastal or Midwest urban centers. That’s a problem: Many states impose renewable energy mandates. Some states, meanwhile, don’t want their residents to pay for lines they believe will spoil their rustic byways while largely benefiting neighboring states.”
Buy American Battle
Eyes on Trade’s Brandon Wu counterspins companies opposing the “Buy America” provision: “…it’s worth noting now that companies like Caterpillar, who are arguing strenuously against these provisions, have moved much production overseas. What’s more, the arguments being made are specious: the Buy America piece of the stimulus package simply extends existing law, rather than being some kind of brand-new nefarious protectionist scheme. The original Buy America Act was part of the 1982 Surface Transportation Assistance Act, and requires that U.S. steel and iron be used for federal and state transportation infrastructure projects.”
Obama to Sign Pro-Union Executive Orders
The first will require federal contractors holding contracts above $100,000 to post a “balanced notice of their employees’ rights” under the National Labor Relations Act.
This measure, which the AFL-CIO lobbied for, would reverse a Bush administration rule that required companies to post a notice informing employees that they had a right not to join a union, one labor official said. Instead, employees would be informed of their pro- and anti-union rights.
The second measure would require that, when a federal agency changes contractors, the new company first offer jobs to the nonsupervisory people who worked for the previous contractor. It would apply to contractors who provide services to federal buildings. This was the rule under President Bill Clinton, but Mr. Bush had voided it.
Finally, Mr. Obama will prevent federal contractors from being reimbursed for money they spend to “support or deter their employees’ exercise of their right to form unions and engage in collective bargaining.”
Meanwhile, LA Times updates on the Solis nomination for Labor Secretary: “Solis’ nomination has been in limbo since Jan. 9, when she failed to impress Republican senators during a confirmation hearing before the Health, Education, Labor and Pensions Committee, chaired by Sen. Edward M. Kennedy (D-Mass). The committee has taken no action on her appointment and has none scheduled. In Solis’ camp, frustration is mounting … The top Republican on the labor committee, Sen. Michael B. Enzi (R-Wyo.), has sent other questions to Solis and is awaiting answers. The White House said Solis had responded to more than 15 sets of written questions from the committee. A Democratic committee aide said Solis’ appointment was being delayed while Republicans reviewed her replies. No date for a committee vote has been set, but an Obama spokesman on Thursday described the nomination as ‘on track.’”
SCHIP Done, Health Care For All Next
W. Post: “The Senate overwhelmingly approved legislation yesterday to provide health insurance to 11 million low-income children, a bill that would for the first time spend federal money to cover children and pregnant women who are legal immigrants.”
Lou Dobbs’ tears taste even better
D-Day: “This is a start on health care reform. It’s still fulfilling only part of the promise of the 2004 Kerry campaign, but it’s a start. Getting 4 million kids health insurance is not trivial. Hopefully we can build on this and get a comprehensive solution that is the only way to bring down costs. Henry Waxman is optimistic.”
Krugman makes the case for “Health Care Now!”