Obama Housing Plan To Be Announced Today
…the key to understanding that plan will be remembering that there are two different groups of homeowners who are at risk of foreclosure.
The first group is made up of people who cannot afford their mortgages and have fallen behind on their monthly payments. Many took out loans they were never going to be able to afford, while others have since lost their jobs. About three million households — and rising — fall into this category. Without help, they will lose their homes.
The second group is far larger. It is made up of the more than 10 million households that can afford their monthly payments but whose houses are worth less than what is owed on their mortgages. In real estate parlance, they are underwater. If they want to stay in their homes, they will have no trouble doing so. But some may choose to walk away voluntarily, rather than continue to make payments on an investment that may never pay off…
…Mr. Obama has evidently decided to focus on the first group, based on the previews of his speech that aides have offered. In coming weeks, his administration will begin spending $50 billion to entice banks to reduce the monthly payments of people who otherwise couldn’t afford to stay in their houses. In effect, the government will split the losses on these mortgages with banks…
… There are some big advantages to this approach. Bailing out all underwater homeowners would be tremendously expensive. All told, about $500 billion in mortgage debt is already underwater, and it’s impossible to know in advance who is likely to walk away. So the government would have to spend hundreds of billions of dollars to help millions of people who don’t need help staying in their homes.
But the Obama approach also brings risks. The administration is betting that few of those 10 million underwater homeowners will walk away … If they begin to abandon their homes in large numbers, however, they will aggravate the housing bust and the financial crisis — and probably force the administration to come up with a new, much larger housing bailout down the road.
Beat The Press’ Dean Baker reacts: “David Leonhardt’s discussion of housing bailout plans never seems to consider the possibility that we would just let large numbers of foreclosures occur and let the banks eat their losses. Yes, many, if not most, of the banks will go under. So what? … We can protect homeowners by simply giving them the right to stay in their home as renters following foreclosure. It’s a simple, costless and bureaucracy-free solution, but it screws the banks. So, the folks in Washington and the media apparently are not interested.”
Banks have joined two prior voluntary efforts during the Bush administration — Hope for Homeowners and the Federal Housing Administration’s FHA Secure — but these efforts have resulted in relatively few mortgage modifications.
Now they’ll have a stick waved at them if they don’t comply with the subsidy plan. It’ll come in the form of Obama’s support for legislation pending in Congress that would allow bankruptcy court judges to modify the terms of a mortgage.
That’s forbidden right now, and banks and other lending institutions fiercely oppose what they call “cram down” legislation, warning that it’ll bring uncertainty for lenders, who’ll respond by restricting mortgage lending.
Banks may soon have to choose between the lesser of two evils. They could either modify loans — with a subsidy — to provide lower lending rates, and lose what they might’ve made from the higher lending rate over the life of the loan. Or they can do nothing and run the risk that a homeowner could file for bankruptcy and then have a judge order new loan terms that allow the borrower to stay in the home — and pay the lender less money.
LA Times reminds: “One way of forcing lenders to reduce principal is by changing bankruptcy law. Currently, bankruptcy law permits judges to lower the principal for any consumer loan except a mortgage.”
Wonk Room: “Banking Industry Lobbying Against Mortgage Cram-Downs ‘Right Now, As We Speak’”
OurFuture.org’s Susan Ozawa: “In sum, it’s encouraging that Obama is taking this plan to the people and that it will entail restructuring household mortgage debt. Its true test will be the plan’s ability to stop foreclosures if not encourage a reflation of the [mortgage-backed securities] market.”
Forbes’ Maurna Desmond is skeptical: “Nice try, but that’s not going to deal with 2009′s housing issue: rising unemployment. [But u]nder the Boston Fed plan, taxpayers would cover between a quarter and a half of mortgages for homeowners who lose their jobs.”
NYT on new ACORN foreclosure resistance effort: “Through phone trees, Web pages and text-messaging networks, the effort will connect families facing eviction with volunteers who will stand at their side as officers arrive, even if it means risking arrest.”
Conservative attack line from Riehl World View: “Obama is on course to steal another $50 billion from taxpayers who use good judgment and pay their bills to prop up irresponsible borrowing.”
Economic Recovery: We’re Not Done
NYT reports White House opens door for additional public investment to stimulate the economy: “The president said he would not pretend ‘that today marks the end of our economic problems.’ ‘Nor does it constitute all of what we have to do to turn our economy around,’ Mr. Obama said at the signing ceremony in the Denver Museum of Nature and Science. ‘But today does mark the beginning of the end, the beginning of what we need to do to create jobs for Americans scrambling in the way of layoffs.’ Mr. Gibbs, speaking to reporters aboard Air Force One on the way to Denver, said, ‘I think the president is going to do what’s necessary to grow this economy.’ While ‘there are no particular plans at this point for a second stimulus package,’ he added, ‘I wouldn’t foreclose it.’”
One area to strengthen? Health care. LA Times reports: “in the scramble to pass a bill, lawmakers made changes that left out millions of middle-class Americans who have lost their jobs and are struggling to fill a prescription or pay for a visit to the doctor.”
OpenLeft’s Chris Bowers: “President Obama will unveil his budget proposal next Thursday on February 26th … If the the stimulus is the downpayment, the budget is the mortgage. This is where President Obama can begin to restructure the economy. I am a little surprised it will start so soon, but at least we won’t be without excitement for very long.”
Stan Collender: “I was told yesterday that the [budget] summary will include 10-year projections … it will allow the administration to say (accurately) that it is being as transparent as possible and not trying to hide the long-term effects of its policies…”
Christian Science Monitor on the first sign of stimulus, our paychecks: “For many Americans, the first sign of the Great Stimulus of 2009 will be a few extra dollars in their paychecks this May or June, due to a new tax credit to be doled out throughout the year. The weekly bump won’t be much – about $13 on average – but the hope is that millions of people will feel just enough richer to splurge on something they might not otherwise have bought.”
McClatchy on the “Buy American” provisions: “The beleaguered textile industry on Tuesday applauded a new ‘buy American’ law sponsored by freshman Rep. Larry Kissell, though it remains unclear how many jobs will be shifted to the United States because of it. Some of the nation’s leading producers of yarn and other textiles say the new government business will help stabilize their companies, provide more confidence in future federal work and help them invest in the future.”
Open Congress: “…seven of the ten districts projected to gain the most jobs under the bill are represented by Republicans in the House … all of whom nonetheless voted against the bill.”
Brilliant At Breakfast flags a right-wing hit piece from NBC’s Lisa Myers: “she focuses her attention only on the attacks by Republicans and conservative economists on the stimulus package.”
Matt Yglesias and Grist’s Tom Laskawy debunk conservative claims that Sen. Reid earmarked a high-speed rail line from LA to Vegas.
The Plum Line: “AFSCME and the labor-backed Americans United for Change … have just launched [a new ad] touting the benefits of the stimulus package … The ad will air on national and D.C. cable through Friday, which suggests the audience is an insider one, but an official involved with the buy says that the ad is likely to run in places where Obama travels to promote the stim bill.”
Ambinder: “The goal, I think, is to condition elites, and then the American people, to see the economic recovery act as one of several significant, expensive, complicated … steps that the government needs to take in order to right the economy.”
Automakers Turn In Their Homework
General Motors Corp. asked the U.S. for as much as $16.6 billion in new loans, more than doubling the aid to date, and said it needs some of the cash next month to survive as it sheds brands and cuts 47,000 more jobs worldwide. Chrysler LLC, propped up like GM with federal assistance, said it’s seeking $5 billion more from the government and will shed 3,000 more positions…
…U.S. Treasury Secretary Timothy Geithner said he will start reviewing the plans later this week when he and Lawrence Summers, director of the White House National Economic Council, convene an autos task force for President Barack Obama.
Dan Becker and James Gerstenzang criticize plans in LA Times oped: “at a time when boldness is demanded, the plans lack innovation. They call for laying off more workers, cutting pay and benefits, and reducing the number of models that are manufactured. And GM even had the chutzpah to cut its projected fuel economy by 10% from what it promised in the survival plan it submitted to Congress in December … Congress should require that in exchange for any new bailout, automakers raise their average fuel economy to 42 mpg by 2020, rather than the 35-mpg standard now set as a minimum for that year. Detroit’s survival depends on a change in mind-set.”
Economic Populist’s Robert Oak: “It’s clear they are going after U.S. workers, Canadian and European workers and simply slowing down their offshore outsourcing operations in Asia and they mention nothing about Brazil. It’s clear they are not shutting down the India plant, no mention of expanded R&D in China and scuttling that, some mention of two plants in Thailand not be feasible and a strong focus on every single country which pays it’s workers a living wage.”
TNR’s Susan Helper: “what’s missing in both proposals is an honest, humble appraisal of why more consumers haven’t wanted to buy their cars at a similar price point to their competitors–and a demonstration of how they intend to fix this situation.”
Wonk Room: “GM Pushes UAW To Accept More Health Care Concessions”
bjkeefe: “Hi, everybody! It’s us again! Give us lots more money and we promise to lay off lots more workers! It’s a win-win!”
Bank Nationalization Picks Up Steam
TPMCafe’s John Taplin: “This is what is known as ‘Political Cover’ for the Obama Administration. Larry Summers and Tim Geithner were so worried about being tagged ‘Socialists’ by our new McCarthyites led by Rush Limbaugh–that they couldn’t say what the obvious answer was–one that even Greenspan can talk about. Thank you Alan, even if you are responsible for both the tech and the housing bubbles.”
Second Financial Times piece, “Bank nationalisation gains ground with Republicans,” forewarns a day of reckoning: “The time for biting the bullet may also be fast approaching. In early April, big institutions will publish their first-quarter results. If the intervening Treasury stress tests have not by then revealed the true state of their balance sheets, then their first-quarter results may do so. ‘The first week in April – that’s when the children’s party is over,’ says Chris Whalen, co-founder of Institutional Risk Analytics. ‘That is when the obvious will become apparent.’”
TNR’s Noam Scheiber: ” Is the GOP Outflanking the Administration on Banks?”
Beat The Press’ Dean Baker, “NPR Misrepresents Bank ‘Nationalization’ Yet Again”: “NPR presented an expert asserting that the taxpayers would be liable for all bank debt when it takes over bankrupt banks. This is not true. The government has no legal liability for the bad debt of bankrupt banks. It has generally honored not only the deposits but also the bonds of banks that were taken over by the FDIC, but it has no obligation to do so. If the current crisis leaves such a large volume of bad bank debt, it would be under no legal obligation to repay all of this debt at 100 cents on the dollar (presumably it would make owners of subordinated debt take the first hit).”
…for all the criticism, Treasury Secretary Tim Geithner’s plan — call it Bailout 2.0 — does have a silver lining. It stops the madness.
Yes, Bailout 2.0 lacks details, but it is clear it won’t propose more bank freebies — no new loan guarantee programs or backstops of losses on their bad assets, or government capital infusions in the form of underpriced preferred shares. Now the banks will have to prove themselves via a “stress test” on their solvency to access new capital. It won’t be a pretty picture.
And by the way, if banks want Uncle Sam to buy all those “toxic” assets, the government is now going to do it alongside private capital. These investors aren’t going to overpay, so that game is up as well.
Since Mr. Geithner’s plan has been unveiled, the stock prices of the financial sector are off about 19%. This is not necessarily a bad thing. The banks were expecting another handout.
While it was not his intention, the reality is that Mr. Geithner is going to confirm the insolvency of the financial system. Once we face this truth, there really isn’t much left to do but nationalize.
W. Post: “The largest U.S. banks reduced the availability of money for consumers and businesses during the final months of 2008 even as the government invested tens of billions of dollars to help them make new loans, according to data released yesterday by the Treasury Department. The banks that got the most government money, Bank of America and Citigroup, led the retreat. Mortgage loan originations by the two companies in December fell $3.6 billion, or 15 percent, compared with October. New lending commitments to commercial and industrial customers dropped by $2.4 billion, or 11 percent. And the companies reduced the collective spending limit of their credit card holders by $45 billion, about 2 percent.”
Will the Fiscal Responsibility Summit Be Responsible?
The White House is finishing plans for what it is calling a “fiscal responsibility summit,” a three-hour bipartisan wonk-fest. Invitations are going out this week to 90 people: 30 members of the House, 30 senators and 30 scholars and representatives of advocacy groups such as AARP, according to a person familiar with the plans.
The afternoon session is not expected to yield any policy decisions, but to “underscore how big the problems are” and to air potential solutions, this person said. Administration officials have put out the word that the summit will not be the occasion to announce a task force on keeping Social Security solvent for the long-term, as they had considered, though such a panel may be formed eventually.
After Mr. Obama opens the summit, the assemblage will break into six groups. Each will discuss separate topics that encompass the range of fiscal challenges that would exist even without the current recession and will endure once the economy recovers. The topics include health-care costs, Social Security, tax reform, defense procurement and the federal budget process.
Will President Obama defend Social Security from the folks who want to plunder it? That’s the question Bill Grieder poses in a critically important article in the Nation Magazine.
We’ll get an early indication this Monday when the president convenes a “Fiscal Responsibility Summit,”…
…Progressives, of course, are worried about Obama falling for a trap set by the budget hawks, conservatives in both parties, the beltway establishment and financial elites, personified by Pete Peterson, a billionaire Wall Street baron. Peterson is spending a fortune trying to terrorize Americans about long-term deficits to justify hacking at Social Security and Medicare.
Peterson, who made his fortune on Wall Street, never raised a word about the dangers of hyper leveraged finance houses gambling other people’s money. He never expressed qualms about the leveraged buyout artists who were using debt finance to rip apart companies. He didn’t fund an all out effort to stop Bush from raiding the Social Security surplus to pay for tax cuts for the rich.
But now he wants folks headed into retirement who have already prepaid a surplus of $2.5 trillion to cover their Social Security retirements to take a cut tor work a few years longer to cover the money squandered on bailing out banks, wars of choice abroad, and tax cuts for the few.
Will Obama fall for this ploy? Not likely.
OurFuture.org’s David Sirota: “progressives should welcome a discussion about ‘fiscal responsibility.’ If the Obama administration is as devoted to ‘pragmatism’ as it says it is, then we’re going to be in good shape. Why? Because we’ve got far more pragmatic ways to achieve ‘fiscal responsibility’ than Blue Dog Democrats whose votes have created the fiscal problems we now face.”
O Canada: Obama Trip Thursday
PETER MANSBRIDGE: You mentioned NAFTA. A year ago you were pretty critical of NAFTA. In fact, you even suggested at one point that the U.S. opt out if it couldn’t renegotiate. Do you think that’s the time now to be making that case, or is it something that’s set aside now?
PRESIDENT OBAMA: I think there are a lot of sensitivities right now because of the huge decline in world trade. As I’ve said before, NAFTA, the basic framework of the agreement, has environmental and labour protections as side agreements. My argument has always been that we might as well incorporate them into the full agreement so that they’re fully enforceable.
But what I’ve also said is that Canada is one of our most important trading partners, we rely on them heavily, there’s $1.5 billion worth of trade going back and forth every day between the two countries and that it is not in anybody’s interest to see that trade diminish.
Politico interprets: “on his first foreign trip as president, he’ll leave that populist rhetoric at home.”
Getting To Work on Capping Carbon
The Environmental Protection Agency will reopen the possibility of regulating carbon dioxide emissions from coal-fired power plants, tossing aside a December Bush administration memorandum that declared that the agency would not limit the emissions.
The decision could mark the first step toward placing limits on greenhouse gases emitted by coal plants, an issue that has been hotly contested by the coal industry and environmentalists since April 2007, when the Supreme Court ruled that carbon dioxide should be considered a pollutant under the Clean Air Act.
The industry has vigorously opposed efforts to regulate those emissions, asserting that the policy should be set by Congress. Moreover, technology for capturing carbon dioxide emissions is expensive and virtually untested.
Environmental groups, however, say that building new coal plants with conventional technology locks in additional greenhouse gas emissions for the entire 30-to-40-year lifetimes of the power plants, making it difficult to slow climate change. They have been urging the Obama administration and state governments to use the Supreme Court ruling to block air pollution permits for new coal-fired power plants and to rely on renewable energy and energy-efficiency measures to meet power needs.
Grist’s David Roberts on the political impact: “ultimately, the EPA rulemaking will be a cudgel to force big polluters to play ball on cap-and-trade.”
Watthead; “this announcement signals the end of the days when CO2 is treated as a harmless byproduct of fossil fuel combustion. It also casts continued doubt on the prospects of any proposed coal-fired power plants that are unable to control their emissions, making new coal plants an even poorer investment decision.”
D-Day praises: “The industry is busy doomsaying this decision (Higher prices! Inflexible standards!), but it’s too bad. We simply cannot do what is necessary to control emissions if 30% of the emissions are shielded from reductions. Coal makes people sick and Americans are actively fighting them. If the industry wants to stay in business they can abide by the restrictions.”
ANSBRIDGE: Part of that trade involves the energy sector. A lot of oil and gas comes to the United States from Canada, and even more in the future with oilsands development. Now there are some in your Canada — and Canada, as well — who feel the oilsands is dirty oil because of the extraction process. What do you think? Is it dirty oil?
OBAMA: What we know is that oilsands creates a big carbon footprint. So the dilemma that Canada faces, the United States faces and China and the entire world faces, is how do we obtain the energy that we need to grow our economies in a way that is not rapidly accelerating climate change? …
I think to the extent that Canada and the United States can collaborate on ways that we can sequester carbon, capture greenhouse gases before they’re emitted into the atmosphere, that’s going to be good for everybody. Because if we don’t, then we’re going to have a ceiling at some point in terms of our ability to expand our economies and maintain the standard of living that’s so important, particularly when you’ve got countries like China and India that are obviously interested in catching up.
MANSBRIDGE: So are you drawing a link, then, in terms of the future of tarsands oil coming into the U.S. contingent on a sense of a continental environment policy on cap and trade?
OBAMA: Well, I think what I’m suggesting is, is that no country in isolation is going to be able to solve this problem. So Canada, the United States, China, India, the European Union, all of us are going to have to work together in an effective way to figure out how do we balance the imperatives of economic growth with very real concerns about the effect we’re having on our planet. And ultimately, I think this can be solved by technology.
I think that it is possible for us to create a set of clean energy mechanisms that allow us to use things not just like oilsands, but also coal. The United States is the Saudi Arabia of coal, but we have our own homegrown problems in terms of dealing with a cheap energy source that creates a big carbon footprint.
And so, we’re not going to be able to deal with any of these issues in isolation. The more that we can develop technologies that tap alternative sources of energy but also contain the environmental damage of fossil fuels, the better off we’re going to be.
Health Care Update
The Hill “Several senior Senate Democrats have intensified their push for Howard Dean to become the next secretary of Health and Human Services, but the effort has run into what Dean allies call Democratic ‘family politics.’”
Howard Dean, in HuffPost, rips right-wing smear campaign against health care provisions in the stimulus.
As California Goes…
Paul Krugman: “Everyone should be paying attention to the political/fiscal catastrophe now unfolding in California. Years of neglect, followed by economic disaster — and with all reasonable responses blocked by a fanatical, irrational minority. This could be America next.”
Brilliant at Breakfast: “With Prop. 13 and the 2003 recall election, Californians resorted to the promise of quick fixes and the smooth talk of Republican politicians promising that lower taxes were the answer to all their problems, and here’s where they find themselves now.”
Making Census: Those Who Get Counted Are Those Who Count In The End
USA Today: “The Census Bureau faces a leadership void less than 14 months before the 2010 Census rolls out. The agency is without a director and may not get one until someone is picked and confirmed to run the Commerce Department, which oversees the Census Bureau.”
Family Research Council’s Ken Blackwell gears up right-wing hit: “A Chicago-Style Census … This is a partisan power grab, and Republicans need to stand up against it.”
Terrance Heath contributed to the making of this Breakfast.