Commentary Magazine


Posts For: April 25, 2009

An “F”

Robert Reich is a tough grader. Overall, he gives Obama a C+ on the economy, but the tough score comes on bailouts:

I give them an F. I’m a big fan of this administration, but I’ve got to be honest. The bailouts are failing. So far American taxpayers have shoveled out almost $600 billion. Yet the banks are lending less money than they did five months ago. Their toxic assets and nonperforming loans are growing, bank executives are still taking home princely sums, and the banks are still cooking their books. And now the Treasury is talking about converting taxpayer dollars into bank equity, which exposes taxpayers to even greater losses.

And he doesn’t even talk about the tens of billions thrown away on the car company bailouts. One wonders why more Democrats, who aren’t supposed to like corporate welfare, aren’t joining with Reich (and Republicans and tea party protestors) to call for a halt to this.

In fairness to Congress, the Obama administration has steered clear of the appropriators and taken to running this out of the Fed. But if this is as big a waste of taxpayer money as it appears to be, then it’s time for Congress to reassert itself, demand oversight, and start passing some legislation to rein in bailout mania. That would be smart policy and smart politics. But perhaps the temptation to run roughshod over the private sector is too great to kick companies off the dole and tell them to sink or swim.

Robert Reich is a tough grader. Overall, he gives Obama a C+ on the economy, but the tough score comes on bailouts:

I give them an F. I’m a big fan of this administration, but I’ve got to be honest. The bailouts are failing. So far American taxpayers have shoveled out almost $600 billion. Yet the banks are lending less money than they did five months ago. Their toxic assets and nonperforming loans are growing, bank executives are still taking home princely sums, and the banks are still cooking their books. And now the Treasury is talking about converting taxpayer dollars into bank equity, which exposes taxpayers to even greater losses.

And he doesn’t even talk about the tens of billions thrown away on the car company bailouts. One wonders why more Democrats, who aren’t supposed to like corporate welfare, aren’t joining with Reich (and Republicans and tea party protestors) to call for a halt to this.

In fairness to Congress, the Obama administration has steered clear of the appropriators and taken to running this out of the Fed. But if this is as big a waste of taxpayer money as it appears to be, then it’s time for Congress to reassert itself, demand oversight, and start passing some legislation to rein in bailout mania. That would be smart policy and smart politics. But perhaps the temptation to run roughshod over the private sector is too great to kick companies off the dole and tell them to sink or swim.

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No Joy in That

Former CIA Director and House Intelligence Chair Porter Goss has had enough of expedient amnesia by Democrats in Congress on the enhanced interrogation techniques. So he lays it out:

Let me be clear. It is my recollection that:
– The chairs and the ranking minority members of the House and Senate intelligence committees, known as the Gang of Four, were briefed that the CIA was holding and interrogating high-value terrorists.
– We understood what the CIA was doing.
– We gave the CIA our bipartisan support.
– We gave the CIA funding to carry out its activities.
– On a bipartisan basis, we asked if the CIA needed more support from Congress to carry out its mission against al-Qaeda.
I do not recall a single objection from my colleagues. They did not vote to stop authorizing CIA funding.

And what does he think of the notion that by revealing our techniques to the enemy and pulling the rug out from under intelligence operatives we have made ourselves safer?  That’s the stuff of “unicorns and fairy dust,” he says.

So two issues remain after this week’s trauma and drama. First, who other than the Obama team (and maybe not even all of them) thinks America looks better and that our intelligence community will function better after release of the memos and talk of show trials and prosecution? Looking back on this week, all the president did was set off a feeding frenzy, demoralize our intelligence community and ensure that more and more time and energy will be spent “looking back, not forward.” At every level — intelligence, communications, political — it has been a disaster.

Second, why did Nancy Pelosi and the Democrats think they could escape scrutiny once the president got the ball rolling? Perhaps they are drunk with power, but even they must know that when multiple people are involved from two branches of government there is little chance of keeping something under wraps in an investigation. It is becoming increasingly clear that Democrats, including the speaker, were well aware of what was going on — and that the speaker has been, quite frankly, misrepresenting her own role.

Republicans are reveling in the sight of the speaker trapped in her web of half-truths. But the damage done to our intelligence community should dwarf any partisan glee some may derive from this. The main take-away from this week: we are a more divided and less secure country and our enemies more emboldened than a week ago. There is no joy in that.

Former CIA Director and House Intelligence Chair Porter Goss has had enough of expedient amnesia by Democrats in Congress on the enhanced interrogation techniques. So he lays it out:

Let me be clear. It is my recollection that:
– The chairs and the ranking minority members of the House and Senate intelligence committees, known as the Gang of Four, were briefed that the CIA was holding and interrogating high-value terrorists.
– We understood what the CIA was doing.
– We gave the CIA our bipartisan support.
– We gave the CIA funding to carry out its activities.
– On a bipartisan basis, we asked if the CIA needed more support from Congress to carry out its mission against al-Qaeda.
I do not recall a single objection from my colleagues. They did not vote to stop authorizing CIA funding.

And what does he think of the notion that by revealing our techniques to the enemy and pulling the rug out from under intelligence operatives we have made ourselves safer?  That’s the stuff of “unicorns and fairy dust,” he says.

So two issues remain after this week’s trauma and drama. First, who other than the Obama team (and maybe not even all of them) thinks America looks better and that our intelligence community will function better after release of the memos and talk of show trials and prosecution? Looking back on this week, all the president did was set off a feeding frenzy, demoralize our intelligence community and ensure that more and more time and energy will be spent “looking back, not forward.” At every level — intelligence, communications, political — it has been a disaster.

Second, why did Nancy Pelosi and the Democrats think they could escape scrutiny once the president got the ball rolling? Perhaps they are drunk with power, but even they must know that when multiple people are involved from two branches of government there is little chance of keeping something under wraps in an investigation. It is becoming increasingly clear that Democrats, including the speaker, were well aware of what was going on — and that the speaker has been, quite frankly, misrepresenting her own role.

Republicans are reveling in the sight of the speaker trapped in her web of half-truths. But the damage done to our intelligence community should dwarf any partisan glee some may derive from this. The main take-away from this week: we are a more divided and less secure country and our enemies more emboldened than a week ago. There is no joy in that.

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The New York Times is Wrong About Mortgage Modifications

In a remarkable editorial, the New York Times informs us that Senate Republicans are blocking the economic recovery by impeding legislation that would allow bankruptcy judges to modify the terms of troubled mortgages.

Let’s begin by examining the Times’s unquestioned assumptions. The biggest, ugliest one is that we must prevent mortgage foreclosures at all costs. This error is very important to understand, because it’s shared by Sheila Bair at the FDIC, Barney Frank at the House Finance Committee, and nearly everyone else who’s engaged in making policy.

The high incidence of distress in home mortgages is happening for a very good reason: housing is still overvalued, both in an absolute sense, and relative to household income. We simply built too many houses during the bubble, and that oversupply needs to be worked off over time. And now that equity values have stopped rising every month, people have nothing but their incomes to fund their mortgage liabilities and, on average, that’s not enough.

Therefore, to say that we must apply policy to prevent foreclosures is to deny economic reality. The effect of government’s multifarious efforts to keep people in their homes is to prevent the housing bubble from fully deflating, which must happen for us to start directing economic resources rationally again and get a recovery under way.

And yes, I’m well aware of the argument that an endpoint housing deflation can permanently equilibrate the market at far lower levels. Guess what? That’s a pretty accurate description of a low-leverage, expensive-capital world. And how is that any different from the real private sector economy we have today? To suppose that policymakers can counteract this is to believe you can stop water flowing downhill: in reality, you can only slow it down, and you’ll get awful wet in the process.

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In a remarkable editorial, the New York Times informs us that Senate Republicans are blocking the economic recovery by impeding legislation that would allow bankruptcy judges to modify the terms of troubled mortgages.

Let’s begin by examining the Times’s unquestioned assumptions. The biggest, ugliest one is that we must prevent mortgage foreclosures at all costs. This error is very important to understand, because it’s shared by Sheila Bair at the FDIC, Barney Frank at the House Finance Committee, and nearly everyone else who’s engaged in making policy.

The high incidence of distress in home mortgages is happening for a very good reason: housing is still overvalued, both in an absolute sense, and relative to household income. We simply built too many houses during the bubble, and that oversupply needs to be worked off over time. And now that equity values have stopped rising every month, people have nothing but their incomes to fund their mortgage liabilities and, on average, that’s not enough.

Therefore, to say that we must apply policy to prevent foreclosures is to deny economic reality. The effect of government’s multifarious efforts to keep people in their homes is to prevent the housing bubble from fully deflating, which must happen for us to start directing economic resources rationally again and get a recovery under way.

And yes, I’m well aware of the argument that an endpoint housing deflation can permanently equilibrate the market at far lower levels. Guess what? That’s a pretty accurate description of a low-leverage, expensive-capital world. And how is that any different from the real private sector economy we have today? To suppose that policymakers can counteract this is to believe you can stop water flowing downhill: in reality, you can only slow it down, and you’ll get awful wet in the process.

Now let’s look at the Times’s point about loan modifications in bankruptcy. Today, lenders have very little incentive to modify troubled mortgages by reducing the principal amount owed on the house. But from the borrower’s viewpoint, that’s the only modification that makes any sense. Borrowers are in distress mostly because their mortgages are too big for their incomes, and their home values have declined below the point at which they can sell out without taking a crippling loss.

But if a lender reduces the principal amount of a loan, he’s literally transferring economic value to the borrower without compensation. No one does that voluntarily, and the counterargument (that borrowers are likely to stay current on reduced-principle loans) turns out to be largely untrue anyway.

What’s the proposed solution, encoded in pending legislation and championed by the Times? Change the bankruptcy law and allow judges to force lenders to involuntarily make principal-amount reductions.

What’s wrong with that? For one thing, it’s unconstitutional. A mortgage is a secured asset. In default, the lender has the right to seize the house. That security is what makes it possible to borrow money to buy a house at a single-digit interest rate, as opposed to the double-digit rates that are typical for unsecured debt, like credit card balances.

So if you eliminate the ability of a lender to recover his security in a default, you’re taking away his property. Facially, that violates the Fifth Amendment. But forget about that (if you can).

If we change the bankruptcy law to allow judges to reduce mortgage principal amounts, then we’ll de facto be converting every mortgage in America (all $12 trillion worth of them) from a secured to an unsecured credit. That means future mortgages will be far less affordable unless taxpayers subsidize them, just as we currently subsidize student loans.

And what about the effect on existing mortgages? if you accounted honestly for the effect of involuntary principal reductions, it would sharply drop the value of every mortgage asset (and every bank balance sheet) in America, and in a good part of the rest of the world (which lent to us during the bubble) too.

Something tells me that Tim Geithner isn’t going to be adding a factor to account for that in his bank stress tests.

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Flotsam and Jetsam

Hmm, does the ACLU suit against Chris Christie help or hurt him in the GOP New Jersey gubernatorial primary? I’m thinking that “tracking cell phone calls with a warrant and getting 66 convictions out of it” is probably a good fact — indeed ad material — for him.

I think Cesar Conda is right on both counts: “Far and away, the high point of President Obama’s first one hundred days has been his muscular policy to win the war in Afghanistan. Obama’s low point: His flip-flop on criminally prosecuting former Bush Administration officials involved in crafting enhanced interrogation policies. Prosecuting these public servants is backward-looking, hyper-partisan and vengeful, all negative characteristics of Washington that Obama campaigned against.” In my book, runners up for high point — a responsible policy on Iraq and reneging on protectionist campaign rhetoric; for low point – a budget which takes generational theft to a whole new level and killing the DC school voucher program.

Taxing plastic bags? Sounds like a joke. No, it’s the legislative genius of Jim Moran(D-VA) at work. I wonder what the Virginia gubernatorial candidates think of that one.

David Broder gets one thing right : Obama shouldn’t “pass the buck” to Eric Holder on whether to prosecute Bush officials. (Wouldn’t that make Holder more important than the president on perhaps the most controversial issue of his presidency?) Unlike stem cell research, Obama shouldn’t get away with ducking the responsibility to make the hard call. Besides, we were told all the decisions that come to him are the hard ones. So time for him to make this one himself.

Bill Kristol observes that “it is a dark and painful chapter in our history to have as our leaders men who, however inadvertently, make mock of the efforts of the tough and brave Americans who guard us while we sleep.”

A priceless story about Iran from Michael Ledeen.

Jim Tedisco concedes in NY-20. How refreshing when someone does that in a close race! GOP spin: the Dems won this seat with 68% in November and now it’s a 50-50 race. Democratic spin: A win is a win. Reminder for both sides: if swing districts are all 400-vote margin affairs they better hire lots and lots of lawyers for 2010.

The teachers union (UTLA) is at is again in Los Angeles. Mickey Kaus notes: “At least with General Motors–which arguably makes much better cars than the L.A. Unified School District makes schools–there is the possibility of bankruptcy to force changes in excessively protective union rules. In public education, there’s only the hope that charter schools will eventually expand so rapidly that they displace conventional schools governed by the UTLA.”

Larry Kudlow explains why we should be concerned after the First 100 Days.

Dana Perino: “The Obama administration is completely wrapped around the axle.” She reiterates that “members of Congress were briefed about the program. . .  It will be very curious to me if they decide to go forward with the commission if they call themselves to the witness stand.” After a few months of Robert Gibbs you forget what a competent spokesperson sounds and looks like.

It’s clear why it never would have worked. Sen Judd Gregg on the Obama budget: “”We’re headed on an unsustainable path. The simple fact is these [budget] numbers don’t work and the practical implications of them are staggering for the nation and the next generation.”

And on healthcare, he explains that the “public option” is a stalking horse for a single-payer system. And that’s not a good result: “All your single-payer systems are rationing systems. It’s also a debate about technology and innovation. Because you will not have capital pursuing technology, innovation and science if it’s health-care related, because the return on capital won’t be there. And these things are so expensive, especially on the pharmaceutical side and the biologic side, that you’ll dramatically slow improvements in the quality of health care through science with a single-payer plan.”

DHS Secretary Janet Napolitano sincerely tells veterans she is “sorry” for the “rightwing extremism” report. Say what you will about the Obama team, but these people know how to apologize.

Hmm, does the ACLU suit against Chris Christie help or hurt him in the GOP New Jersey gubernatorial primary? I’m thinking that “tracking cell phone calls with a warrant and getting 66 convictions out of it” is probably a good fact — indeed ad material — for him.

I think Cesar Conda is right on both counts: “Far and away, the high point of President Obama’s first one hundred days has been his muscular policy to win the war in Afghanistan. Obama’s low point: His flip-flop on criminally prosecuting former Bush Administration officials involved in crafting enhanced interrogation policies. Prosecuting these public servants is backward-looking, hyper-partisan and vengeful, all negative characteristics of Washington that Obama campaigned against.” In my book, runners up for high point — a responsible policy on Iraq and reneging on protectionist campaign rhetoric; for low point – a budget which takes generational theft to a whole new level and killing the DC school voucher program.

Taxing plastic bags? Sounds like a joke. No, it’s the legislative genius of Jim Moran(D-VA) at work. I wonder what the Virginia gubernatorial candidates think of that one.

David Broder gets one thing right : Obama shouldn’t “pass the buck” to Eric Holder on whether to prosecute Bush officials. (Wouldn’t that make Holder more important than the president on perhaps the most controversial issue of his presidency?) Unlike stem cell research, Obama shouldn’t get away with ducking the responsibility to make the hard call. Besides, we were told all the decisions that come to him are the hard ones. So time for him to make this one himself.

Bill Kristol observes that “it is a dark and painful chapter in our history to have as our leaders men who, however inadvertently, make mock of the efforts of the tough and brave Americans who guard us while we sleep.”

A priceless story about Iran from Michael Ledeen.

Jim Tedisco concedes in NY-20. How refreshing when someone does that in a close race! GOP spin: the Dems won this seat with 68% in November and now it’s a 50-50 race. Democratic spin: A win is a win. Reminder for both sides: if swing districts are all 400-vote margin affairs they better hire lots and lots of lawyers for 2010.

The teachers union (UTLA) is at is again in Los Angeles. Mickey Kaus notes: “At least with General Motors–which arguably makes much better cars than the L.A. Unified School District makes schools–there is the possibility of bankruptcy to force changes in excessively protective union rules. In public education, there’s only the hope that charter schools will eventually expand so rapidly that they displace conventional schools governed by the UTLA.”

Larry Kudlow explains why we should be concerned after the First 100 Days.

Dana Perino: “The Obama administration is completely wrapped around the axle.” She reiterates that “members of Congress were briefed about the program. . .  It will be very curious to me if they decide to go forward with the commission if they call themselves to the witness stand.” After a few months of Robert Gibbs you forget what a competent spokesperson sounds and looks like.

It’s clear why it never would have worked. Sen Judd Gregg on the Obama budget: “”We’re headed on an unsustainable path. The simple fact is these [budget] numbers don’t work and the practical implications of them are staggering for the nation and the next generation.”

And on healthcare, he explains that the “public option” is a stalking horse for a single-payer system. And that’s not a good result: “All your single-payer systems are rationing systems. It’s also a debate about technology and innovation. Because you will not have capital pursuing technology, innovation and science if it’s health-care related, because the return on capital won’t be there. And these things are so expensive, especially on the pharmaceutical side and the biologic side, that you’ll dramatically slow improvements in the quality of health care through science with a single-payer plan.”

DHS Secretary Janet Napolitano sincerely tells veterans she is “sorry” for the “rightwing extremism” report. Say what you will about the Obama team, but these people know how to apologize.

Read Less