Impolite Company

Texans, Do You Feel Stimulated?

The Texas Comptroller has a website that tracks the spending and effects of stimulus spending in Texas--big ol' ten gallon hat tip to The Texas Observer for pointing this out, Comptroller's Stimulus Site.  It includes spreadsheets of what's going to be spent here, a master list of contacts for who's spending the money (in case you want to get your hands on some or you just want to send them a tea bag), the latest news on Texas stimulus efforts, plain English explanations of the legislation and more.  Check it out at American Recovery and Reinvestment Act:  A Texas Eye on the Dollars.

Congressional Oversight Panel: Assessing TARP

The Congressional Oversight Panel overseeing the administration of the TARP program has made its April report and, thanks to an assist from Paul Krugman, I've got the goods on it right here.  Or actually, I just have links to the goods.  I've only had the time to very quickly breeze through the executive summary but there's plenty of loot there to dig through and so I'll give you links to the full report, the executive summary and embed video below.  Here's a couple of operative paragraphs from the executive summary:

One key assumption that underlies Treasury’s approach is its belief that the system-wide deleveraging resulting from the decline in asset values, leading to an accompanying drop in net wealth across the country, is in large part the product of temporary liquidity constraints resulting from nonfunctioning markets for troubled assets. The debate turns on whether current prices, particularly for mortgage-related assets, reflect fundamental values or whether prices are artificially depressed by a liquidity discount due to frozen markets – or some combination of the two.

If its assumptions are correct, Treasury’s current approach may prove a reasonable response to the current crisis. Current prices may, in fact, prove not to be explainable without the liquidity factor. Even in areas of the country where home prices have declined precipitously, the collateral behind mortgage-related assets still retains substantial value. In a liquid market, even under-collateralized assets should not be trading at pennies on the dollar. Prices are being partially subjected to a downward self-reinforcing cycle. It is this notion of a liquidity discount that supports the potential of future gain for taxpayers and makes transactions under the CAP and the PPIP viable mechanisms for recovery of asset values while recouping a gain for taxpayers.

Brain Scans Bely Rational Economic Decision-making

(Post headline is brought to you compliments of the theory that you should say what you're going to say in the headline--it appears that such a policy produces clunky headlines)

A recent study involving neuro-economists, brain scans and investment decisions indicates that when people get expert advice on investment decisions, the portion of their brain that does the tough analytical work shuts down and they do what Jim Cramer says (or whomever they think is an expert).  Though Lynn might argue that's how my brain works when Paul Krugman says something, I would like to point out that I have been critical of him (especially when he's critical of Pres. Obama!  Yeah, Obama!! Obama trumps Krugman!!) in the past.  This sort of calls into question the whole idea that humans are rational decision-makers when it comes to economic decisions.  But it seems to be a pretty preliminary study and we shouldn't jump to huge conclusions based on it.  It does indicate that at least to a certain extent we still have some sort of hardwiring that promotes respect for authority and this makes sense--it's easier, it's less brain-resource intensive, to make a decision based on what an expert says rather than trying to do all the legwork necessary to gather all the facts and do all the analysis yourself.  Read about the study at Given "Expert" Advice, Brain Shuts Down:

A brain-scanning study of people making financial choices suggests that when given expert advice, the decision-making parts of our brains often shut down.

The problem with this, of course, is that the advice may not be good.

"When the expert's advice made the least sense, that's where we could see the behavioral effect," said study co-author Greg Berns, an Emory University neuroscientist. "It's as if people weren't using their own internal value mechanisms."

The Geithner Troubled Asset Plan

I'm being totally lazy on this and not working through the details--I just don't have time this week.  But I don't want my own schedule to prevent you, my dear readers, from having the sort of direct access to stimulating and scintillating government documents that you've come to expect around here (or, at least, for Lynn who may be the only one out there who's reading the docs!).  So, here's a link to the five page summary and explanation of the plan--have at it!  Public-Private Investment Plan Whitepaper:

A variety of troubled legacy assets are currently congesting the U.S. financial system. An initial
fundamental shock associated with the bursting of the housing bubble and deteriorating
economic conditions generated losses for leveraged investors including banks. This shock was
compounded by the fact that loan underwriting standards used by some originators had become
far too lax and by the proliferation of structured credit products, some of which were ill-understood by some market participants.

The resulting need to reduce risk triggered a wide-scale deleveraging in these markets and led to fire sales. As prices declined further, many traditional sources of capital exited these markets, causing declines in secondary market liquidity. As a result, we have been in a vicious cycle in which declining asset prices have triggered further deleveraging and reductions in market liquidity, which in turn have led to further price declines. While fundamentals have surely deteriorated over the past 18-24 months, there is evidence that current prices for some legacy assets embed substantial liquidity discounts.

Risk=Someone Else's Problem

Paul Krugman wrote about the Geithner Toxic Assets Rescue Plan over the weekend (whatever it's going to be called) and you can definitely color him unimpressed.  In fact, he used the word "despair" in his title--not a good sign.  He essentially pans it as being the same bad idea that Paulson announced last fall and eventually ran away from as unworkable.  Krugman's argument against the idea made sense to me at the time and still does but I hope Paul-o is wrong on this one, Despair over Financial Policy:

But it’s immediately obvious, if you think about it, that these funds will have skewed incentives. In effect, Treasury will be creating — deliberately! — the functional equivalent of Texas S&Ls in the 1980s: financial operations with very little capital but lots of government-guaranteed liabilities. For the private investors, this is an open invitation to play heads I win, tails the taxpayers lose. So sure, these investors will be ready to pay high prices for toxic waste. After all, the stuff might be worth something; and if it isn’t, that’s someone else’s problem.

Mad Funny v. Mad Money

Editorially Insert:  I'm only now watching it and this is an incredibly good, earnest interview.  You can see Cramer's shame for some of the things he's done and Stewart's populist anger.  Please watch this.

Jim Cramer and Jon Stewart go head to head after lots of build up, lots of sniping.  The Chicago Tribune hyped it this way, Cramer vs. Stewart:  Rock 'Em Sock 'Em:

In one corner, Jim Cramer, CNBC’s“Mad Money” host, known for his wild swings and apparent failure to take Ritalin. In the other, Comedy Central’s “Daily Show” host Jon Stewart, whose favorite punch is the undercut. The two have been feuding over just how bullish Cramer was on the Bear Stearns firm, right before it collapsed last year.

You can see the whole show here or you can just jump to about the six minute mark to get to the Cramer portion of the show:

Gov. Perry Doesn't Need Your $555 Million

Yesterday Gov. Rick Perry announced that Texas wouldn't be taking a half billion dollars in federal stimulus funds that would have opened up the unemployment system to more people who are facing economic problems and help shore up the ailing Texas unemployment trust fund, Perry Will Fight Stimulus Dollars for Unemployment:

The Texas Workforce Commission estimates that the state could qualify for the full $555 million with changes to existing law that would cost at least $368 million over five years. To be eligible for all the money, lawmakers must change how the state calculates a worker's eligibility and extend benefits to more people, including those looking for part-time work.

Honestly, I don't know if he really believes what he's saying or if he just wants to score political points but he risks making the Texas unemployment insurance system even less relevant than it already is.  But I don't know enough about the Texas system and so I'm just going to provide some links to Democratic reactions to the Perry announcement--thanks to Capitol Annex, The Texas Observer's Floor Pass and Burnt Orange Report for their work on this issue:

Senate Democrats Blast Perry's Rejection of $555 Million in Unemployment Aid
Van de Putte Says Perry's Decision on Unemployment Aid Will Harm Texas Families
Watson Responds to Perry's Decision to Reject Unemployment Stimulus Funds
Perry's "Let Them Eat Cake" Press Conference
Hutchison's Cowardly Comeback

And for a quick update, Capitol Annex is reporting that a House Committee Recommends Legislature Overturn Perry's Rejection of Unemployment Stimulus Funds, which may be exactly what Perry was planning on:

In a 5-1 vote yesterday, the House Select Committee on Federal Economic Stabilization Funding passed a motion recommending that the Texas Legislature take actions necessary to ensure that all funds from the American Recovery and Reinvestment Act related to unemployment insurance are received by the state.

Bernanke: Making Sure Deflation Doesn't Happen

Krugman!  Krugman!!  Krugman!!!  In a self-described wonkish post today, Paul Krugman linked to a speech by Ben Bernanke (current Fed Chair) back when he was just a l'il ol' governor on the Fed's Board of Governors.  In the speech, Bernanke talks about why the threat of deflation is so small and what the Fed can do to make sure it doesn't happen.  Which is good, because that's some of what he's up against right now.  Krugman doesn't think that what they're doing is working but, if you're interested, here's what Bernanke's blueprint looked like back in 2002, Deflation:  Making Sure "It" Doesn't Happen Here:

So, is deflation a threat to the economic health of the United States? Not to leave you in suspense, I believe that the chance of significant deflation in the United States in the foreseeable future is extremely small, for two principal reasons. The first is the resilience and structural stability of the U.S. economy itself. Over the years, the U.S. economy has shown a remarkable ability to absorb shocks of all kinds, to recover, and to continue to grow. Flexible and efficient markets for labor and capital, an entrepreneurial tradition, and a general willingness to tolerate and even embrace technological and economic change all contribute to this resiliency. A particularly important protective factor in the current environment is the strength of our financial system: Despite the adverse shocks of the past year, our banking system remains healthy and well-regulated, and firm and household balance sheets are for the most part in good shape...

Hmmm, ya think?

Japan's Lost Decade

Just because I've been away for a bit, it doesn't mean I've changed in any fundamental way.  Which is to say, I still like Krugman--Lynn, if you're back from Vegas I do so hate to make you suffer like this!  A couple of days ago, Krugman speculated that we might just have to reevaluate our take on Japan's political response to their own economic malaise, particularly considering our own lurching efforts, Japan Reconsidered:

For one thing, the famed sluggishness of Japanese policy — the refusal to face up to banking system losses and pour in the funds needed to recapitalize the system, the refusal to let zombie banks die, the stop-go nature of fiscal policy, with concerns about rising debt warring with concerns about the economy — all of that seems entirely comprehensible now, doesn’t it? Even with the knowledge of what happened to Japan to motivate us, so far we’re following exactly the same path.

(Krugman bonus track:  Can America Be Saved?--with a minority party with such a distorted view of what makes the economy work, do we have a chance to get out of this pickle?)

The Dow is Still a Crazy Metric

At least it's a crazy metric to use as your definition of how the economy is doing.  While I'll admit that I felt some psychological relief yesterday at the news that the Dow gained nearly 400 points, when you look at what brought on the gains it's a little less soothing.  Here's what my boys at Planet Money said about it, Are the Markets Serious:

That the market rose so steeply on the same day the Chairman of the Federal Reserve, Ben Bernanke, called for more stringent regulation of the banking industry also defies financial market logic. Usually markets react badly to being told what to do, much like your average teenager. But it's questionable if logic and markets should even exist in the same sentence.

Obviously Citigroup isn't out of the woods yet. House prices keep falling and default rates are rising, yet today the market feels bullish on Citigroup, the bank it once abandoned.

Investors are a twitchy bunch and especially in this atmosphere they're going to be all over the place.  Who knows, now that those buyers have had a night to sleep on it they might be selling today.  Selfishly, I want the market to bounce back and to do so soon.  But that won't mean we suddenly have a healthy economy, just as it wasn't healthy back in the day when it was at 14,000.

Why We Care about AIG so Much

After yesterday's announcement of $61.7 billion in losses and the Obama Administration's announcement of a further $30 billion in assistance, I told you that NPR's Planet Money was on the story and that I'd give you an update that talked about why AIG is so important.  Of course, I recommend the Planet Money broadcast that includes around eleven minutes talking about AIG at this link:  What if We Let AIG Fail? (AIG story starts at 4:05 and runs till about 15:30).

The story looks at what might have happened if the government wasn't propping up AIG when it hit the fan yesterday.  The short answer is it would have been the Lehman Brothers collapse from back in September, only worse.  The longer version:

• Because AIG insures many more institution's debt than did Lehman, the chain reaction would have been more extensive
• There would have been a longstanding and precipitous plummet in the markets
• Other major corporate institutions would have gone under
• Governments (local, municipal, some national) would have had significant problems
• And the credit market freeze that essentially was a death experience for the economy back in September would have been more protracted

Can Sustainable Agriculture Feed the World?

I don't know enough about economics or agriculture to intelligently debate this question but I do try to find as much information on it as possible when it comes out.  Jill Richardson over at La Vida Locavore has a post today excerpting a larger study detailing the efficiency of sustainable agriculture.  Check out the full article at Is Ecological Agriculture Productive?--here's a little taste:

In 293 countries studied, organic produced 92% as much as conventional in developed countries, but produced 80% MORE than conventional in developing countries. Given those numbers, the researchers found that we could keep the same farmland that is in use now, switch to organic, and still successfully feed the world - or even feed a LARGER population. To do this, we wouldn't have to use more land for farming.

AIG= -$61.7 Billion

$61.7 billion in losses.  Wow.  I'm going to keep my eyes on NPR's Planet Money on this story as it continues to play out as they sound pretty committed to getting to the bottom of the situation, Go Ahead and Be Mad:

This is officials' fourth pass at propping up AIG. The company continues to report losses as the value of its holdings continues to fall. In addition to those writedowns, the company is burning up cash. Taxpayers had already invested some $150 billion in AIG, for an ownership stake of just under 80 percent. The Federal Reserve will now take a share of two AIG businesses, the Asia-based American International Assurance Co. and American Life Insurance Co., which operates in 50 countries.

The Federal Reserve is not trying to save AIG so much as keep it from taking out the rest of the global economy in a catastrophic collapse. This is a story of amazing complexity. We're aiming to drill down into part of it for today's podcast. Stick with this. It's worth understanding.

The first comment to this post on Planet Money raises an excellent question:  if AIG's survival is so central to the gobal economy, why is it riding on the backs of US taxpayers?

Krugman and Me

One of my favorite commenters (this still isn't a word according to the spell checker, but it doesn't come up with a reasonable alternative and so I will snub its overly conservative lexicon) around here has frequently bemoaned my affinity for all things Krugman and, though I've pointed out that I'm not a huge fan of Krugman's more political efforts, he's mainly correct.  I'm comfortable with his economics, he explains them well for the layperson and so I'll continue to rely on him.  Although lately I've hesitated to go to him extensively because he's been rather blunt in his assessment of the stimulus and bailout packages and I didn't want to stir that pot until I'd gotten a little space from the various announcements and thought about things some more. 

Well, I've thought about it some more and I think today is as good a day as any to give voice to both barrels of Krugman, one barrel aimed at the overly tentative European leadership and the other barrel for our friends in DC in the Obama Administration.  The Krugman post is Failing the Test, and here's hopefully enough to tempt you into reading it for yourself:

It’s a depressing spectacle: on both sides of the Atlantic, policy-makers just keep falling short — and the odds that this slump really will turn into Great Depression II keep rising.

In Europe, leaders rejected pleas for a comprehensive rescue plan for troubled East European economies, promising instead to provide “case-by-case” support. That means a slow dribble of funds, with no chance of reversing the downward spiral...On this side of the Atlantic, Tim Geithner seems committed to the view that banks should stay private even if they’re bankrupt, because — well, just because.

Global Wealth and the Economic Meltdown

I think it was last week I mentioned in one of my posts that I thought that lots of foreign capital looking for a place to be invested was one of the things that fed the massive growth of the market in the US for securitized mortgage products, the big securities based on massive numbers of mortgages sliced up, diced up, processed, packaged and resold.  This has been one of my pet theories all along but I haven't seen direct evidence that I'm right to some extent until today when I read Krugman's column from yesterday.  I guess it's natural that, reading as much Krugman as I have lately (I'm currently reading The Return of Depression Economics--very good, very readable, very much on point; economic meltdowns for dummies!) that I probably imbibed my pet theory from him without realizing it.  But it felt good to have my instincts confirmed, Revenge of the Glut:

In the mid-1990s, he [Ben Bernanke--gms] pointed out, the emerging economies of Asia had been major importers of capital, borrowing abroad to finance their development. But after the Asian financial crisis of 1997-98 (which seemed like a big deal at the time but looks trivial compared with what’s happening now), these countries began protecting themselves by amassing huge war chests of foreign assets, in effect exporting capital to the rest of the world.

The result was a world awash in cheap money, looking for somewhere to go.

Most of that money went to the United States — hence our giant trade deficit, because a trade deficit is the flip side of capital inflows...

I wont' copy and paste more because Krugman deserves to have your peepers on his column (ugh, that doesn't sound right); check it out, it's a good read.

Shrinkage: 6.2% Economic Contraction

Zoinks.  The Obama Administration released the revised economic numbers for the last quarter of 2008 and they show a 6.2% annualized contraction in GDP, the worst numbers since 1982.  That's harsh, In Revision, GDP Shrank 6.2% at End of 2008:

The downward revisions came primarily because of a larger-than-anticipated contraction in inventories of unsold goods. A wider trade gap than previously reported — that is, fewer American goods being purchased abroad — also pushed G.D.P. downward. Lower consumer sales sliced off some of the previously reported economic output, as well.

Friday’s revision, which will be followed by a final number from the Bureau of Economic Analysis next month, usually garners little attention from analysts. But because the contraction was more severe than previously reported, and because the government has been grappling with how to determine how serious the recession is and how to remedy it, many will be citing data as a sign that the economy is on a dismal trajectory.

More from the White House on the Budget

Before I get to the White House handouts, let me begin by offering you a link to Dan Froomkin's excellent index of the reactions to the budget so far.  Froomkin is far more than an aggregator, he gets good articles from across the political spectrum and produces a representative summary of what each is about.  He provides a great one-stop location to get the scoop.  For his work on the budget, check out The Robin Hood Budget:

Obama's budget would dramatically increase taxes on the wealthy, while cutting payments and subsidies to insurance companies, pharmaceutical companies, agribusiness and defense contractors -- and mandating a system to charge polluters for their carbon emissions.

It would, in short, reverse the redistribution of wealth that took place during the Bush era. This time, the rich will be subsidizing the poor, not the other way around.

The complete collection of budget documents is available at FY 2010 President's Budget.  This includes about 44 pages of introductory material, addressing the misplaced priorities of past budgets and policy and the policy goals and programs laid out in the 2010 budget (including the steps toward transparency and fiscal discipline outlined in this budget).  Beyond the introductory material linked to above, the budget page includes links to the portions of the budget for each department of the government, with individual links to each of them (I forgot this is government material!  I'll just include those links below as well):

• Department of Agriculture (6 pages, 174 KB)
• Department of Commerce (2 pages, 99 KB)
• Department of Defense (4 pages, 86 KB)
• National Intelligence Program (2 pages, 75 KB)
• Department of Education (4 pages, 109 KB)
• Department of Energy (4 pages, 80 KB)
• Department of Health and Human Services (4 pages, 108 KB)
• Department of Homeland Security (2 pages, 78 KB)
• Department of Housing and Urban Development (4 pages, 89 KB)
• Department of the Interior (4 pages, 96 KB)
• Department of Justice (2 pages, 210 KB)
• Department of Labor (4 pages, 98 KB)
• Department of State and Other International Programs (4 pages, 134 KB)
• Department of Transportation (2 pages, 87 KB)
• Department of the Treasury (2 pages, 72 KB)
• Department of Veterans Affairs (2 pages, 111 KB)
• Corps of Engineers – Civil Works (2 pages, 98 KB)
• Environmental Protection Agency (4 pages, 91 KB)
• National Aeronautics and Space Administration (2 pages, 88 KB)
• National Science Foundation (2 pages, 80 KB)
• Small Business Administration (2 pages, 92 KB)
• Social Security Administration (2 pages, 72 KB)
• Corporation for National Community Service (2 pages, 78 KB)

If you'd like to read the conclusion to the introductory material, it will be reproduced in full after the fold.

How to Halve the Budget Deficit in Four Years

Step One:  Increase the budget deficit to $1.75 trillion

Step Two:  End recession.

Step Three:  Reduce budget deficit to $875 billion.

Done.

Obama Sending Congress "Hard Choices"
Remarks by the President on the Fiscal Year 2010 Budget:

But while we must add to our deficits in the short term to provide immediate relief to families and get our economy moving, it is only by restoring fiscal discipline over the long run that we can produce sustained growth and shared prosperity.  And that is precisely the purpose of the budget I'm submitting to Congress today.

In keeping with my commitment to make our government more open and transparent, this budget is an honest accounting of where we are and where we intend to go.  For too long, our budget has not told the whole truth about how precious tax dollars are spent.  Large sums have been left off the books, including the true cost of fighting in Iraq and Afghanistan.  And that kind of dishonest accounting is not how you run your family budgets at home; it's not how your government should run its budgets, either.  We need to be honest with ourselves about what costs are being racked up -- because that's how we'll come to grips with the hard choices that lie ahead.  And there are some hard choices that lie ahead.

The numbers are startling but as I've said far too many times for it to still be even remotely interesting for you to read, I think they're necessary.  And they look even worse because he's putting items like the war funding in the budget rather than hiding them off the books.  We really have to remember how much of our current problems are hangovers from the Bush Administration.

Krugman v. Urkle

I don't always like Paul Krugman's posts that are more about politics than about economics, but I like his most recent post, possibly because it echoes what I said earlier in the day and because it straddles the intersection between economics and politics.  He addresses the question, What Should a Government Do?

And leaving aside the chutzpah of casting the failure of his own party’s governance as proof that government can’t work, does he really think that the response to natural disasters like Katrina is best undertaken by uncoordinated private action? Hey, why bother having an army? Let’s just rely on self-defense by armed citizens.

And yes, this is the last time I'll refer to Jindal as Urkle--who am I to cast stones at anyone for being a nerdish character? 

In Case You Missed it Last Night

...but that does not mean we can afford to ignore our long-term challenges.  I reject the view that says our problems will simply take care of themselves; that says government has no role in laying the foundation for our common prosperity.

Here's the full video of Pres. Obama's Address to the Joint Session of Congress last night.  As someone who tried to make sure he watched every one of Pres. Bush's major addresses for the last eight years, I'd encourage all of you to watch your president speak, even if you disagree with his policies (courtesy of WhiteHouse.gov, about 61 minutes):