TODAY: After filibuster squelched in Senate, final econ recovery vote NOON ET, House-Senate conf follows. Treasury announcement on financial bailout 11 AM ET. Presidential town hall in Florida NOON ET.
TOMORROW: Thinking Big Conference featuring Paul Krugman, more below.
Bloomberg on House-Senate econ recovery negotiations: “‘I’m confident that we can get it done by Friday,’ said Senate Majority Leader Harry Reid…”
Depsite moderate posturing, Senate bill has larger price tag than $819B House bill. W. Post: “A report from the Congressional Budget Office, issued as the Senate was voting last evening, produced a new cost estimate for that chamber’s legislation, increasing it from $827 billion to $838 billion. Almost all of the increase was due to an amendment, offered by Sen. Christopher J. Dodd (D-Conn.) and accepted unanimously last week, that limits bonuses to the top 25 executives at firms and corporations that receive assistance from the $700 billion financial plan. The Dodd provision means that the Treasury will take in less tax revenue because of the slashed bonus structures, according to the CBO.”
USAction/TrueMajority launches new web ad campaign knocking obstructionist conservatives: WhileRomeBurns.org.
Bloomberg: “Economists who support legislation to stimulate growth say the version passed in the House of Representatives would create at least half a million more jobs than the bill the Senate votes on today.”
Economist James Galbraith interviewed by Air America’s Ron Reagan Jr., says Senate moderates “took a pretty good bill [from the House] and made it substantially worse.”
Juan Cole slaps NBC’s Chuck Todd for, in his question to the President, blaming the recession on consumer spending.
Governors Rally For State Aid To Prevent Devastating Cuts
Matt Yglesias: Are State Aid-Hating “Centrists” Trying to Sabotage Their Governors?
OurFuture.org’s Isaiah Poole: When Moderates Cause Extreme Damage
Facing rapidly declining revenues and mounting cuts to state services, governors around the nation scrambled Monday to influence senators to change their positions on the Senate’s economic stimulus bill, which is less generous to state governments than the one approved by the House…
…Some Republican governors have also found themselves at odds with members of their own Congressional delegations, and members of their own party as they sought to keep the pressure on…
…“Sometimes I believe there is a disconnect between what is understood on the Senate side and what is actually happening in the real world,” [OH Gov. Ted] Strickland said…
…State governments, pounded by foreclosures and the loss of property taxes, as well as the rapidly falling collection of other taxes, are facing budget gaps unlike any they have known in modern times. More than 40 states now have budget shortfalls. And over 20 states have unemployment rates above 7 percent, which has led to a rise in Medicaid costs and the depletion of unemployment insurance funds, as well as widespread service cuts and some tax increases
As a result, states have high hopes for a stimulus plan that will provide Medicaid relief, money for infrastructure and education, and other support.
OurFuture.org’s Bill Scher: Obama Attacks Education Cuts, [Sen.] Nelson Unable To Defend
On MSNBC last night, Sen. Nelson incoherently claims federal government shouldn’t fund school construction because federal government hasn’t properly funded state education in the past:
USA Today’s DeWayne Wickham defends investments in higher education:
In many communities, higher education institutions are a major source of employment and business activity. But 62% of private colleges and 48% of public colleges surveyed last month by the Chronicle of Higher Education said they expected to lose students this semester in the wake of the recession. An increase in the Pell Grant could help stave off more dropouts in the fall semester — and possibly get some of the students who left to return.
That would be a quick economic stimulus that could have an immediate ripple effect, as schools might then hire more adjunct faculty while increasing the purchases of supplies and services from area businesses.
The long-term effect would be even more significant for this country’s economic health. The percentage of Americans ages 25-29 with college degrees is less than that for those ages 60-64, according to the Census Bureau. This nation won’t experience long-term economic success if it doesn’t reverse those numbers.
A Doable Deal
Both the House version, which passed nearly two weeks ago, and the version in the Senate that is expected to pass on Tuesday, provide adequate increases in unemployment benefits and food stamps — generally the two most-effective forms of stimulus. Those items must not change appreciably.
Aid to states is excellent stimulus because the money is funneled quickly to public employees, private contractors and beneficiaries of public programs. The Senate bill falls far short. It provides $40 billion less to the states than the House’s version — money that is mainly targeted at education budgets. It shortsightedly fails to include a $10 billion provision that would allow states to temporarily offer Medicaid coverage to uninsured people who are unemployed.
Negotiators should also salvage the child tax credit, worth up to $1,000 per child. The House wants to make the credit available to all working families. The Senate would make it available only to families with wages of at least $8,100. Negotiators should split the difference. The credit is robust stimulus because the recipients are likely to spend it quickly.
There are obvious compromises that could pay for these must-haves.
Nearly $70 billion of the Senate bill is spent on providing a one-year reprieve from the alternative minimum tax. The relief is needed. It also is a measure that passes easily each year on its own. A fair deal would be to take A.M.T. relief out of the package — contingent on a promise from Mr. Obama to champion a separate relief bill as soon as possible. Or leave it in but add it on top of — not in place of — the package’s other spending increases and tax cuts.
Tax cuts aren’t the best stimulus. But the House bill’s $3 billion to improve a first-time homebuyer’s tax credit already on the books is a reasonable attempt to spur demand. The Senate’s $39 billion in tax credits for anyone and everyone who wants to buy a house goes way too far, especially since the bulk of the credit would go to people who would buy a new house anyway.
CBPP says home-buyer tax credit poor stimulus
A Healthy Bill?
The Treatment’s Anthony Wright: “…group coverage through COBRA is the last hope to ensure that many who lose their job don’t lose their coverage, but it only will really work if it can subsidized to a point to be affordable. For some, a Medicaid expansion would be more affordable and make more sense, which is why the House version includes that option as well. Both are needed to be included in the final package. And then we need to move on to overall health reform to end the practice of allowing insurers in the individual market to play Russian Roulette with consumers’ coverage.”
The economic recovery package that the House passed on January 28 would establish a temporary option for states to provide Medicaid coverage to certain workers (and their families) who have become unemployed during this recession. This provision, which is not in the Senate package, would help address a problem many parents face when they become unemployed. In most states, Medicaid’s income eligibility limits for jobless parents are extremely low; a family’s income must sink well below the poverty line — to less than half the poverty line in 29 states — before a parent can qualify. The House measure would help address this problem on a temporary basis through 2010.
The House and Senate packages also would reduce the cost of COBRA health coverage for unemployed workers. While that measure would help some workers, it is no substitute for the House Medicaid provision, since most low-income workers are not eligible for COBRA and many who are eligible could not afford it even with the assistance in the House and Senate bills.
Newt Gingrich co-authors oped attacking Medicaid “bailout.”
Wonk Room’s Igor Volsky: The Latest On The Nelson-Collins Health Care Cuts
WSJ: Drug companies profiting off of inefficiency fighting House provision funding research into cost-effective treatments.
Health Care Blog’s Michael Milleson sees the White House taking grassroots ideas on health care reform: “Jeanne Lambrew, the deputy health care reform czar without anyone to be a deputy to, told an AcademyHealth meeting last week in Washington that 9,000 health reform discussion guides had been downloaded and 4,500 had been turned in. Each and every one was read by a member of a team of twenty to thirty volunteers, yielding ‘great ideas,’ according to Lambrew. More surprisingly, two experienced health services researchers are now preparing ‘a real analysis to present to the president.’”
Obama Got Skills, Conservatives Got Politics
Reality-Based Community’s Andrew Sabl praises Obama’s political skills: “…say the House bargains hard in conference; the conferees as a result put back in a lot of the good spending while taking out some of the ridiculous tax cuts that subsidize people who already intended to buy houses and cars; and the resulting conference report is passed easily by the House. The self-styled Senate moderates will then be free to huff and puff. … But will they seriously .. consider voting nay? Let’s start considering the possibility that our president knows how to play this game.”
TNR’s Noam Scheiber concurs: Obama has completely defined the stimulus narrative on his own terms. To the average voter, Obama has been earnest and conciliatory while the Republicans have been cynical, self-serving, and puerile. Which, if the past is any guide, is precisely the moment he’ll start playing hardball.”
Why Republicans Won’t Support The Stimulus…
…The reason has to do with the timing of the economic recovery. If everything goes as well as possible and the stimulus and next round of bank bailouts work perfectly, a turnaround could begin as early as mid-2010. But even under this rosy scenario, employers wouldn’t start rehiring until late 2010 because they’ll want to be sure the upturn is for real (employment typically lags in a recovery). This means that under the best of circumstances — assuming the stimulus is big enough to jump-start the economy and the next bank bailout big enough to get credit moving — most Americans won’t feel much better than they do now by November, 2010. Unemployment could easily be hovering close to 8 percent; underemployment, close to 14 percent; and many other indicators, still in the doldrums.
That’s if all goes extremely well. But what if the stimulus isn’t big enough? (I fear it won’t be, given the large and growing gap between what the economy can produce at near full-employment and the meager demand coming from consumers and businesses.) And what if the bailout doesn’t quite work? (It may not, given that the banking system is collapsing and many banks are actually insolvent.) The economy in November of 2010 may be worse than it is now, with no turnaround in sight.
Which brings us to the midterm elections of 2010.
The Seminal’s Chris Edelson warns Republicans cynical politics may blow up in their face: “Obama doesn’t have all the answers, but if, as is looking very likely, the stimulus plan passes both Houses and ends up on his desk (after the bills are reconciled in Congress), the 36 Republicans in the Senate who swore their allegiance to a failed approach run an enormous risk. 14 years ago, Bill Clinton had to declare his relevance as president. Republicans who criticize those who would act to address the worst economic crisis in 75 years but offer nothing other than a failed approach may find themselves in a similar position of having to declare, and prove, their relevance.”
OurFuture.org’s Bernie Horn: “Faced with the worst economic downturn since the Great Depression, all but a handful of Republicans worked to block the only solution that can address the problem. They fought to continue the same Bush economics that got us into this worldwide economic crisis. Even worse, they made a cold-blooded decision to excite their right-wing base rather than participate in the effort to save jobs and rescue our economy.”
Next Phase of Financial Bailout Announced Today
The Obama administration’s strategy has three main components: more capital for banks, financing for as much as $1 trillion of consumer and business loans, and public financing for private investors willing to buy distressed assets, people familiar with the plan said…
…gulators plan to subject banks to new tests to determine whether they have enough capital, people familiar with the matter said. The Treasury, Federal Reserve and other supervisors in the President’s Working Group on financial markets will develop guidelines for the examinations.
Banks that don’t have sufficient capital under various scenarios for losses on their assets will be able to get additional taxpayer funds in the form of convertible preferred securities, people familiar with the matter said.
The new capital injections would have tougher conditions than the Treasury’s first round of as much as $250 billion of bank-stake purchases. Participating banks will be subject to lending requirements and restrictions on new acquisitions and dividends.
The administration is also aiming to differentiate the next phase of the financial plan by bringing in private investors. It plans a public-private investment fund to take on older toxic assets. Officials have not yet decided on the specific mechanics of the facility, which will be introduced in lieu of the so- called bad bank of earlier proposals.
The scope of the investment fund is expected to be a range of as much as $500 billion, backed by roughly $50 billion in public funding, people familiar with the matter said.
To kick-start new lending, the Financial Stability Plan will expand a Federal Reserve program for consumer and business loans to as much as $1 trillion from the current $200 billion. The Term Asset-Backed Securities Lending Facility will be backed by as much as $100 billion of Treasury funds in case of losses.
More Bloomberg: “Investors offered mixed signals about their appetite for participating in the effort.”
It intends to call for the creation of a joint Treasury and Federal Reserve program, at an initial cost of $250 billion to $500 billion, to encourage investors to acquire soured mortgage-related assets from banks.
The Fed will use its balance sheet to provide the financing, and the Federal Deposit Insurance Corporation might provide guarantees to investors who participate in the program, which some people might call a “bad bank.”
A second component of the plan would broadly expand, to $500 billion to $1 trillion, an existing $200 billion program run by the Federal Reserve to try to unfreeze the market for commercial, student, auto and credit card loans. A third component would involve a review of the capital levels of all banks, including projections of future losses, to determine how much additional capital each bank should receive.
The capital injections would come out of the remaining $350 billion in the Troubled Asset Relief Program, or TARP.
A separate $50 billion initiative to enable millions of homeowners facing imminent foreclosure to renegotiate the terms of their mortgages is to be announced next week.
Some of President Obama’s advisers had advocated tighter restrictions on aid recipients, arguing that rising joblessness, populist outrage over Wall Street bonuses and expensive perks, and the poor management of last year’s bailouts could feed a potent political reaction if the administration did not demand enough sacrifices from the companies that receive federal money…But officials said Mr. Geithner worried that the plan would not work– and could become more expensive for taxpayers — if there were too much government involvement in the affairs of the companies. Mr. Geithner also expressed concern that too many government controls would discourage private investors from participating.
More NYT regarding questions about transparency and accountability
LA Times: “What’s unclear is how much this plan might ultimately cost the government, and therefore taxpayers.”
Beat The Press’ Dean Baker: “While regulators are no doubt concerned about the stability of the banking system, it is also possible that they are concerned about protecting the interests of bank shareholders and top executives. There are solutions that would protect the stability and the liquidity of the banking system that would displace most of the top management of insolvent banks. The regulators insistence on secrecy obstruct this path.”
FireDogLake’s Ian Welsh lambastes: “…taxpayer money will be used to prop up banks. The same executives who caused the problems will be allowed to continue paying themselves huge bonuses for destroying the economy and bankrupting their banks and they won’t be forced to use the money to lend to actual consumers. Nor will shareholders be replaced so that taxpayers investing hundreds of billions and taking on trillions in risk can have all the upside instead of all the upside (yes, they’ll probably get some shares. They should get 100% ownership. You should get 100% ownership. It’s your money Geithner’s spending).”
OpenLeft’s David Sirota: Team of Zombies Wins Fight to Protect Bank Executives
Social Security, Medicare Safe or Threatened?
Despite Obama’s rhetorical suggestions that he’s open to Social Security and Medicare cuts to prevent a crisis, he has long opposed anything like the Bush plan.
Instead, during the campaign, Obama suggested the relatively modest step of increasing Social Security’s revenues by raising the cap on Social Security taxes, which would make the income tax system more progressive and bring more money into the program.
At other times, he’s also adopted the liberals’ central talking point: that Social Security needs just minor tweaks and that Medicare’s problems are bound up in the broader woes of the American health care system.
“The president gets it,” said former Democratic Rep. Barbara Kennelly, the president of the National Committee to Preserve Social Security and Medicare. “This is very different from the people who run around beating the drum for entitlement reform — they’re coming from a different place.”
Opponents of Bush-style changes also believe that sleeping liberals will awaken should Obama make a proposal offering significant changes. “Everyone wants to give Obama the benefit of the doubt, but if he were to get out of the gate and say, ‘We’re going to fix entitlements, and that’s going to mean cuts to Medicare and Social Security,’ he’s going to hit a wall real fast,” said Dean Baker, co-director of the left-leaning Center for Economic and Policy Research.
TOMORROW: Thinking Big Conference
The Thinking Big Conference will be convening in Washington, DC tomorrow from 9 AM to 5 PM, featuring keynote speaker Paul Krugman and many more. Click here for registration and live streaming details.
We need to think beyond a one-time stimulus, and to think big to build a durable and broadly shared prosperity … Only sustained public investment can rebuild the social contract destroyed during the past thirty years. These outlays must be deficit-funded until the economy comes out of recession. After the economy gains its footing, we need to pay for them in a fiscally responsible fashion, requiring both new spending priorities and higher taxes on those who can afford to pay.
This transformation will be contested. Already, the new administration is warned not to spend too much. The media is fixated on the size of the deficit, even though the debt-to- GDP ratio is modest and larger deficits are precisely what are needed in a deep recession.
Budget expert Stan Collender lays out the need and the strategy for additional public investment after this bill.