Stress Test Results To Go (Sorta, Maybe) Public
The administration has decided to reveal some sensitive details of the stress tests now being completed after concluding that keeping many of the findings secret could send investors fleeing from financial institutions rumored to be weakest.
While all of the banks are expected to pass the tests, some are expected to be graded more highly than others. Officials have deliberately left murky just how much they intend to reveal — or to encourage the banks to reveal — about how well they would weather difficult economic conditions over the next two years…
…The administration’s hand may have been forced in part by the investment firm Goldman Sachs, which successfully sold $5 billion in new stock on Tuesday and declared that it would use the proceeds and other private capital to repay the $10 billion it accepted from the government in October…
…Goldman’s action has put pressure on other financial institutions to do the same or risk being judged in far worse shape by investors. The administration feared that details on healthier banks would inevitably leak out, leaving weaker banks exposed to speculation and damaging market rumors, possibly making any further bailouts more costly.
The Goldman move also puts pressure on the administration to decide what conditions will apply to institutions that return their bailout funds. It is unclear if Goldman, for example, will continue to be allowed to benefit from an indirect subsidy effectively worth billions of dollars from a federal government guarantee on its debt, a program the Federal Deposit Insurance Corporation adopted last fall when the credit markets froze and it was virtually impossible for companies to raise cash.
WSJ: “It isn’t clear precisely what information the government might disclose. It remains possible the data won’t be specific to individual banks. But some within the administration believe a certain amount of information needs to be released in order to provide assurance about the validity and rigor of the assessments. In addition, these people also are concerned that the tests won’t be able to fulfill their basic function of shoring up confidence unless investors are able to see data for themselves.
Politico: “…there’s speculation that Obama will prompt the firing of a bank CEO once the stress test results come in, which will provoke as much of a furor as his termination of GM CEO Rick Wagoner did in March.”
Bloomberg reports Fed considering greater transparency: “Federal Reserve officials are considering steps to provide the public with more information about emergency programs aimed at reviving credit and ending the U.S. recession. The central bank will probably increase disclosure on the collateral it holds against loans to financial firms, while also weighing a full range of options, including possible press conferences, according to people familiar with the matter.”
William Cohan analyzes Goldman Sachs in NYT oped: “Being free of the TARP yoke will give Goldman yet another competitive advantage: the ability to pay its own top talent and new recruits whatever it wants without government scrutiny. This is significant, since it is unlikely any of Goldman’s remaining competitors will be able to make a similar move anytime soon.”
Some senior federal officials counter that company posturing is hiding real problems. They are concerned that some banks are resisting needed help and that others, while strong enough to survive without federal aid, are putting pressure on weaker rivals to the detriment of the broader economy. Other officials have said banks should be allowed to repay the money if they can…
…A number of executives also have expressed concerns about the government’s plans to help investment funds buy troubled assets from banks. The banks fear they will be forced to sell assets at unfair discounts, effectively transferring future profits to the investors. Some banks have argued to regulators that they should be allowed to sell assets directly to investors, without government intermediation, because the firms themselves are motivated to secure the best prices.
Regulators view these arguments with a grain of salt. In addition to the FDIC program used by Goldman Sachs and other banks, which allows them to borrow money at lower interest rates, many firms are benefiting from loan programs operated by the Federal Reserve. None of the banks has talked publicly about repaying these loans.
NYT on FDIC bank program: “Eager to escape the long arm of government, Goldman Sachs is preparing to return $10 billion in taxpayer funds as fast as the ink can dry on the check. But the bank, and a number of others, is quietly holding on to other forms of public support that come with virtually no strings attached. Banks have been benefiting from an indirect subsidy adopted by the federal government at the height of the financial crisis last fall that allows them to issue their debt cheaply with the backing of the Federal Deposit Insurance Corporation … The value of the assistance, economists say, is incalculable…”
USA Today editorial: “Banks seek post-bust excuse
to resume outsized pay.”
CEO pay went up in 2008, reports AFL-CIO: “Even as the U.S. economy went into a tailspin, the median salary for CEOs of 200 large corporations increased by 4.5 percent to $1.08 million. On top of that, these corporations keep plying executives with generous freebies, despite the public outcry over private jets and other executive perks. The 2009 AFL-CIO Executive PayWatch site … points out that the perks for executives rose on average by 12.5 percent in 2008 to $336,248—or nine times the median salary of a full-time worker. Even more appalling is the practice of rewarding executives who drive their companies into the ground.”
“Several hundred American Airlines ground workers gathered outside the company’s Fort Worth headquarters Tuesday to protest bonuses scheduled to be paid to top executives and managers this week,” reports Ft. Worth Star Telegram.
More from AFL-CIO: “…many CEOs and top execs have contracts that give them high pay, job security and numerous benefits. Yet these same executives are fighting a vicious battle to prevent their workers from having an opportunity to get workplace contracts by opposing passage of the Employee Free Choice Act.”
Fairness Focus On Tax Day
Politico Playbook previews Obama tax remarks: “THE WHITE HOUSE plans to release data today showing the benefits of the president’s tax policies for the middle class. The president will hold a private meeting in the EEOB with working families who will benefit from the tax relief that has been a core component of the Administration’s efforts to date, aides say. Following the meeting he will deliver remarks on restoring fairness to the tax code and providing tax relief to working families. Remarks will focus on steps he has taken to return focus to people who need tax relief the most including the Recovery Act (making work pay), small businesses lending programs, investment in education, tax credits for first time home buyers, deficit reduction etc.”
Robert Borosage in HuffPost takes on Senate estate tax cut : ” Since 1980, when the conservative era began, inequality has reached Gilded Age extremes – while top end tax rates have been cut. The wealthiest few captured ever more of the nation’s income while successfully lowering their tax rates. And worse – this is still going on. This month, every Republican Senator – joined bizarrely by 10 Democrats – pushed for yet another tax break for the super-rich – those with fortunes over $7 million. Apparently worried that the heirs of the Paris Hilton class might not be able to keep the yacht clubs humming, Republican Senators voted in lockstep to direct the Congress to raise the full exemption of estates from $7 to $10 million per couple, and drop the top rate from 45% to 35%. Over a decade when fully in effect, this represents a bauble worth about $90 billion to the 1 in 400 estates (one-fourth of one percent) that reach that level.”
Campaign for America’s Future urges constituents to contact Senate: “No Estate Tax Bailouts For Multi-Millionaires”
Stan Collender slaps CNBC for using “death tax” canard: “…while few have an estate, everyone dies. Hence the tax that only a relative handful will ever pay and few cared about became a tax about which everyone should be concerned. Cutting the ‘death tax’ had far more popular support. It was brilliant. The only problem is that it was also not true. The estate tax isn’t on death any more than the income tax is on life.”
HuffPost’s Arthur Delaney reports on loss from tax havens: “A Senate report estimated in 2008 that the United States loses up to $100 billion a year in tax revenue to offshore tax havens (PDF). In a report released Wednesday, the U.S. Public Interest Research Group offers a state-by-state breakdown of the cost to taxpayers of tax revenue lost to ‘shell companies and sham headquarters’ in places like Switzerland and the Cayman Islands.”
Conservative LA Times blogger Andrew Malcom stunned at tax poll: “Tax day insanity: Poll finds more Americans happy with what they pay.”
Obama Econ Speech Reacts
LA Times sees Obama speech as standing up to Congress: “Already facing push-back in Congress on his overall economic strategy, Obama was effectively laying down a marker: He will fight for his ambitious agenda and argue that his opponents are putting long-term recovery at risk.”
NYT adds: “Mr. Obama used the address to link those disparate issues and present an integrated vision for the future of American capitalism when the recession eventually ends. He defended himself against those who accuse him of bankrupting the nation and those who argue that he should be more aggressive about taking over banks and spending even more money.”
W. Post, playing to type, gets excited about cutting entitlement programs: “President Obama today laid out a vision for a new era of U.S. economic prosperity and called on the nation to ‘get serious’ about reforming entitlement programs such as Medicare, Medicaid and Social Security — reform that he said starts with overhauling the American health care system.”
The Plum Line’s Greg Sargent: “He offered the most sustained response I’ve heard to criticism of his economic plans from the left. Also noteworthy: He went out of his way to argue that he isn’t ideologically predisposed against bank nationalization and aggressively rebutted claim that his administration has at times been ideologically predisposed towards letting Wall Street execs off the hook.”
The Guardian’s Mike Tomasky analyzes Obama economic speech: “…his response to critics on the left was a little bit vague.”
Dean Baker’s challenges Obama point on multiplier effect of bank capital: “Yes, giving a dollar in capital to the banks can end up generating $10 in loans, if they are prepared to make them. But, the benefit to the economy may be very little. The loans may go to buy cattle futures, credit default swaps, or shares of Goldman Sachs stock. None of these uses provide any direct stimulus to the economy.”
HHS Nominee Elaborates On Public Health Plan Option
In her written follow-up to the questions submitted for the record by the Finance Committee, Sebelius addressed some of the Republican concerns about the public health insurance plan. In response to a question from Senator Kyl on whether a public plan was necessary to insure all Americans, Sebelius explained some of President Obama’s thinking when he included the idea of a public health insurance plan among his campaign proposals:
“The President‘s campaign plan proposed a public option alongside private insurance options in a National Health Insurance Exchange. He recognizes the importance of giving the American people this choice, which would also challenge private insurers to compete on cost and quality, not cream-skimming and risk selection.”
Sebelius also addressed Senator Ensign’s concerns about the ability of private plans to compete with a public health insurance, stressing the importance of “maintaining a level playing field” and stating “the public plan option should pay providers competitive rates, and the private plan options should be barred from cherry-picking the healthiest enrollees.” Sebelius had similar responses to Senator Grassley’s questions on the issue, making clear that “the President is open to good ideas from both sides of the aisle, and he will work with Congress on this and other elements of the plan.”
Ezra Klein looks at her answer on individual mandate: “Whatever that answer is, it’s not a ‘no.’”
Joe Paduda debunks charge that our government can’t handle health care: “…costs haven’t increased nearly as fast as they have in the private sector. In the ten years ending in 2005, the number of veterans receiving treatment from the VA more than doubled, from 2.5 million to 5.3 million, but the agency needed 10,000 fewer employees to deliver that care – as a result the cost per patient stayed flat. (costs for care in the private sector jumped 60% over the same period).”
Trade Low Priority For Americas Summit
W. Post preview’s Fri-Sun Summit of the Americas: “Obama will encounter several Latin American leaders who have long criticized the economic mix of free trade, privatization and public-debt reduction known as ‘the Washington consensus.’ … While the summit’s final declaration has been negotiated for nearly a year, the hemisphere’s 34 democratically elected leaders will meet in an open forum to discuss the document, some of which was drafted before the financial crash last fall. Many of the region’s economies are reliant on exports, now slumping, while some of the poorest countries have seen a sharp decline in remittances from the United States that provide their economic lifeblood…”
The Hill reports trade will not dominate: “President Obama will punt on hot-button issues like illegal immigration and trade agreements and will instead focus on the global economic crisis and climate change when he travels to Mexico and Trinidad and Tobago this week, the White House acknowledged Tuesday.”
International Climate Divide
He’s made it clear that whatever greenhouse-gas targets the United States adopts will determine what he can push for in Copenhagen: “I don’t want to repeat the experience of Kyoto, agreeing to something that has no, or an inadequate amount, of domestic support.”
But the short-term goals he and the administration espouse — bringing U.S. emissions down to 1990 levels by 2020 and cutting them by roughly an additional 80 percent by midcentury — are disappointing both environmental groups and some European officials, who have told Stern the European Union will not make as deep cuts if Washington sticks to its current targets.
“It encourages other countries to lower their level of ambition,” said Alden Meyer, director of strategy and policy for the Union of Concerned Scientists, an advocacy group. U.N. Foundation President Tim Wirth said foreign leaders welcome Stern’s overtures, but “I’ve been surprised at how stubborn the skepticism about the U.S. administration has been.”
Kansas Gov. blocks new coal plants before heading to DC. NYT: “On Monday, Kansas governor Kathleen Sebelius vetoed a bill that would have permitted the construction of two coal-fired power plants in her state — the fourth coal bill that she has rejected in two years. In her veto statement, Ms. Sebelius said, “What was a bad idea last year, is an even worse idea today,” an allusion to earlier efforts to get the coal plants past the regulatory process. The legislature will reconvene in late April and attempt to override her veto, but that has proven impossible three times in the past … the lieutenant governor, who would succeed Ms. Sebelius, has vowed to veto the coal bill too. As a result the majority leader in the Kansas Senate, Derek Schmidt, has said he believes the bill will be dead for this year and probably next.”
The Obama administration took another step toward regulating carbon dioxide, issuing a notice Tuesday that the Environmental Protection Agency will review whether those emissions should fall under the Clean Water Act. The EPA earlier this year determined that C02 should be regulated under the Clean Air Act due to its impact on temperatures. But Tuesday’s notice — soliciting scientific data as to what extent seas are made more acidic by C02 — could extend regulation out to U.S. waters….
…”As more CO2 dissolves in the ocean, it reduces ocean pH, which changes the chemistry of the water,” the EPA said in its notice. “These changes present potential risks across a broad spectrum of marine ecosystems.” “Preliminary projections indicate that oceans will become more acidic over time and overall, the net effect is likely to disrupt the normal functioning of many marine and coastal ecosystems,” it added.
Salazar hears both sides in Alaska on coastal drilling: “Gov. Sarah Palin told the new secretary of Interior on Tuesday that Alaska needs new offshore oil and gas development or risks an early shutdown of the trans-Alaska oil pipeline. ‘Once that line shuts down, it will mean the end of oil production on the North Slope,’ Palin said, adding that plans for a new pipeline to carry natural gas to Lower 48 markets are at stake, too. But at the same meeting in downtown Anchorage, skeptical fishermen raised the spectre of the Exxon Valdez oil spill as an example of the dangers of development. The mayor of the North Slope Borough said new oil and gas projects in the Chukchi and Beaufort seas aren’t worth the risk.”
For years, many states have had small, typically underfunded programs to help low-income families “weatherize” their homes, caulking windows, insulating attics and walls, sealing cracks and buying energy-efficient appliances. But those historically small government programs are now about to become inundated with vast sums of taxpayer money…
…In Virginia, for example, the state program is expected to get about $94 million from the federal government — more than 22 times the roughly $4 million in annual money the Department of Energy has previously given the state program. … Georgia’s weatherization program is about to increase by more than 15 times, going from about $7.5 million in previous years to about $125 million under the new program. New Jersey’s program is expected to rise from $10.5 million to nearly $122 million, and Pennsylvania is slated to get about $258 million….
… The weatherization program means that low-income families can lower heating bills by as much as 32 percent, saving up to hundreds of dollars a year and reducing overall U.S. energy consumption, officials have said. In addition, the program is also supposed to bring a boom in jobs across the country as more workers are needed in nearly every state, Hollifield said. “All of our crews across the state are adding people, and they will be looking to do a lot more subcontracting,” she said. “So there will also be opportunities for the construction industry, which has been in a slump, now that they can perhaps participate in some of the weatherization work.”
GM Bondholder Squeeze
Bloomberg reports UAW may get edge over GM bondholders: “A United Auto Workers union retiree health-care fund will probably get preferential treatment over other unsecured claims in a General Motors Corp. bankruptcy or restructuring, people familiar with the plans said. The Detroit automaker needs a cooperative union to build its cars and trucks once the automaker is restructured and that gives workers more leverage than other claimants, the people said, who asked not to be named because plans aren’t set. GM is seeking the cuts to keep $13.4 billion in U.S. loans and win more aid as it restructures … The bondholders believe they are protected by the bankruptcy code from being given worse treatment than other creditors, such as the unions, and will fight a proposal they find unfair…”
W. Post on Chysler’s obstacles: “By the end of this month, the automaker must persuade creditors to trim its massive debt, renegotiate how it will pay for the union’s retiree health benefits, battle state franchise laws to quickly close dealerships and complete an alliance with Fiat. Otherwise, the government cuts off its loans. As Chrysler’s deadline draws nearer, more and more analysts are doubting that the automaker has enough time to meet those targets. And without federal loans, they say, the automaker will be forced into bankruptcy — or even liquidation.”
Say good-bye to Fannie and Freddie as you know them. The bailed-out mortgage finance companies will emerge from their travails combined as one, broken up or with substantially reshaped missions, according to U.S. lawmakers and analysts. ..
…The Treasury has agreed to give the two government- sponsored enterprises, or GSEs, as much as $400 billion through Dec. 31. That agreement probably will need to be extended by Congress before year-end, said Karen Shaw Petrou, a managing partner of Federal Financial Analytics Inc., a Washington-based research firm. “There will be a massive re-write of the GSEs into some new structure,” though probably not this year, Petrou said.
House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, is exploring ways to separate the companies’ private and public missions, said Steve Adamske, a Frank spokesman. A government trust fund would assume the companies’ responsibilities to subsidize rental housing and a remaining company would continue to do business in the private mortgage market, according to Adamske, who said it’s too soon to say what the final structure would look like. “
Manufacture This: “…the Treasury Department’s semi-annual report on currency manipulators [is due today]. Will the Obama Administration designate China as a currency manipulator, will they delay the report (as often happens), or will they continue the pattern of denial begun by the Bush Administration?”
Terrance Heath contributed to the making of this Breakfast.