Misery Economic Theater 2011

[ewmayer]

[This first item is from last Friday, 18. March]

As it happens, today is another (count % 100) == 0 day, specifically Day 1500 in my unofficial running days-since-start-of-the-global-financial-crisis-let`s-see-who`s-in-jail-as-a-result tally, and we have 1 new jailbird ... alas, not one of the crooks running the fraudulent-finance show, so this will do 0 to provide the "You put Lloyd Blankfein in pound-me-in-the-ass prison for one six-month term, and all this bullshit would stop, all over Wall Street" incentive advocated by an unnamed congressional aide in Matt Taibbi`s latest Rolling Stone article on the subject. Instead we get an 8-year prison term handed out to a former Goldman programmer for allegedly stealing code - code whose only purpose is to rig markets and rip off retail investors, mind you - while the folks who profit most from use of such code and who helped orchestrate much more damaging financial crimes retain their de facto immunity from prosecution:

Sergey Aleynikov Gets 8 Year Prison Sentence

The man who singlehandedly almost stole Goldman's algorithm that could "manipulate markets" (p 8, lines 4-7) is now the person with the biggest prison sentence to come out of the entire financial crisis. Sergey Aleynikov has just gotten a 97 month sentence for doing absolutely nothing but copying some Goldman code that would likely never be recreated by anyone. In the meantime the bank execs who should be in jail, are currently benefiting from their co-opted Fed to allow them to collect taxpayer-funded dividend payments. Justice may be blind, but not in America, where its eyes have been unfortunately poked out. On the other hand, at least Aleynikov did not get the gas chamber.

---------------------------

A Decade of Labor Market Pain

In February 2001, nonfarm payrolls hit their business cycle peak of 132.5 million. Ten years later, the latest data pegs February 2011 payrolls at 130.5 million, a 1.5% decline. To put this in perspective, the ten-year period of the Great Depression, 1929-39 saw a 2.3% decline in nonfarm employment, roughly the same magnitude.

But even that 1.5% understates the extent of the pain for most of the workforce. I divide the economy into two parts. On the one side are the combined public and quasi-public sectors, and on the other side is the rest of the economy. Public, of course, refers to government employees. ‘Quasi-public’, a term I just invented, includes the nominal private-sector education, healthcare, and social assistance industries. I call them ’quasi-public’ because these industries depend very heavily on government funding. For example, social assistance includes ‘child and youth services’ and ‘services for the elderly and disabled’, which are often provided under government contract.

The chart below shows employment growth in the public/quasi-public sector, compared to employment growth in the rest of the economy, with February 2001 set to 100. We can see that public/quasi-public employment rose steadily over the past ten years, and is now up 16%. By comparison, the rest of the private sector is down 8% in jobs over the past 10 years.

Once again, we look at the Great Depression for an analogy. From 1929 to 1939, government employment rose by about 30%. If we back that out, then private sector non-ag jobs fell by 6% over the Depression decade. That compares to the contemporary 8% decline in private non-ag non-quasi-public jobs since 2001. So by this measure, the past 10 years have been worse for the labor market than the decade of the Great Depression.

My Comment: I`d be interested to see the private-sector jobs further broken down into 2 categories: [1] FIRE Economy (Finance, Insurance, Real Estate) and [2] Everything Else. We know that the FIRE economy has grown hugely since roughly the end of WW2 at the expense of the "old smokestack" manufacturing economy ... I expect after a brief hiccup in 2008-2009, FIRE has resumed its growth trajectory, in no small part due to unprecedented government largesse targeting that sector above all else as "key to economic recovery". Note also the unintentionally chart caption on the preceding link-page, which charts "value-add as % of sector GDP". Really the "value add" simply measures "size of sector as % of GDP" ... the reality is that FIRE adds little if anything in value to the productive economy; rather it is at this point almost entirely parasitical. There might have been a time, many, many years ago, when FIRE, despite its inevitable greed-run-amok and speculative excesses, actually resulted in a net + for the economy as a whole, by steering capital toward productive uses, but if there ever was such a time, it was at least 2 decades ago, probably more.

In related (un)employment-trends news, Mish has a recent posting comparing recent trends government (BLS) numbers against private-poll results from Gallup.

[xilman]

Originally Posted by ewmayer

Until last week. Analogously, one could argue that "The cold-war-era nuclear arms race helped keep the world safe from nuclear war for over 50 years." I feel ever so much better knowing that.

Personally, I think that is very likely to be a true, but a rather over-simplified, analysis.

In my opinion, the reason that the only the US has indulged in nuclear warfare is that it became clear quite early on that collateral damage from the use of nuclear weapons was unacceptably high. The conjunction of computer modelling, spy satellites and first-strike-resistant launchers convinced everyone (*) that starting a nuclear war was not worth the expense.

As the saying goes: you can never have too much overkill.

Paul

(*) Back in the good old days, the US, the USSR, the UK, France and China were the only powers capable of doing significant damage to each other or anyone else. These days, we can add Israel, India and Pakistan to the list and replace the USSR with Russia. North Korea is still incapable of doing significant damage to anyone else but could be obliterated by any one of the others.

[ewmayer]

Originally Posted by xilman

Personally, I think that is very likely to be a true, but a rather over-simplified, analysis.

In my opinion, the reason that the only the US has indulged in nuclear warfare is that it became clear quite early on that collateral damage from the use of nuclear weapons was unacceptably high. The conjunction of computer modelling, spy satellites and first-strike-resistant launchers convinced everyone (*) that starting a nuclear war was not worth the expense.

...Except that it only became clear after the dissolution of the Soviet Union - in fact the really shocking revelations here did not come until 2002 - just how awfully close the U.S. and USSR had come to nuclear war - in particular during the Cuban Missile Crisis:

Post-crisis history

Arthur M. Schlesinger, Jr., a historian and adviser to John F. Kennedy, told National Public Radio in an interview on October 16, 2002 that Castro did not want the missiles, but that Khrushchev had pressured Castro to accept them. Castro was not completely happy with the idea but the Cuban National Directorate of the Revolution accepted them to protect Cuba against U.S. attack, and to aid its ally, the Soviet Union. Schlesinger believed that when the missiles were withdrawn, Castro was angrier with Khrushchev than he was with Kennedy because Khrushchev had not consulted Castro before deciding to remove them.

In early 1992, it was confirmed that Soviet forces in Cuba had, by the time the crisis broke, received tactical nuclear warheads for their artillery rockets and Il-28 bombers. Castro stated that he would have recommended their use if the U.S. invaded despite knowing Cuba would be destroyed.

Arguably the most dangerous moment in the crisis was only recognized during the Cuban Missile Crisis Havana conference in October 2002. Attended by many of the veterans of the crisis, they all learned that on October 26, 1962 the USS Beale had tracked and dropped signaling depth charges (the size of hand grenades) on the B-59, a Soviet Project 641 (NATO designation Foxtrot) submarine which, unknown to the U.S., was armed with a 15 kiloton nuclear torpedo. Running out of air, the Soviet submarine was surrounded by American warships and desperately needed to surface. An argument broke out among three officers on the B-59, including submarine captain Valentin Savitsky, political officer Ivan Semonovich Maslennikov, and Deputy brigade commander Second Captain Vasili Arkhipov. An exhausted Savitsky became furious and ordered that the nuclear torpedo on board be made combat ready. Accounts differ about whether Commander Arkhipov convinced Savitsky not to make the attack, or whether Savitsky himself finally concluded that the only reasonable choice left open to him was to come to the surface. During the conference Robert McNamara stated that nuclear war had come much closer than people had thought. Thomas Blanton, director of the National Security Archive, said, "A guy called Vasili Arkhipov saved the world."

The crisis was a substantial focus of the 2003 documentary, The Fog of War, which won the Academy Award for Best Documentary Feature.

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Paul Krugman actually makes sense today, since he is not discussing the wonders of government borrowing to solve all economic ills;

The War on Elizabeth Warren

Last week, at a House hearing on financial institutions and consumer credit, Republicans lined up to grill and attack Elizabeth Warren, the law professor and bankruptcy expert who is in charge of setting up the new Consumer Financial Protection Bureau. Ostensibly, they believed that Ms. Warren had overstepped her legal authority by helping state attorneys general put together a proposed settlement with mortgage servicers, which are charged with a number of abuses.
Fred R. Conrad/The New York Times

But the accusations made no sense. Since when is it illegal for a federal official to talk with state officials, giving them the benefit of her expertise? Anyway, everyone knew that the real purpose of the attack on Ms. Warren was to ensure that neither she nor anyone with similar views ends up actually protecting consumers.

And Republicans were clearly also hoping that if they threw enough mud, some of it would stick. For people like Ms. Warren — people who warned that we were heading for a debt crisis before it happened — threaten, by their very existence, attempts by conservatives to sustain their antiregulation dogma. Such people must therefore be demonized, using whatever tools are at hand. ...

My Comment: Ah, those wascawwy Wepubwicans ... they have roughly as much credibility on the subject of financial (de)regulation as they do on climate science.

[Fusion_power]

The PIIGS are grunting again today. Portugal, is now on the verge of government collapse. Austerity measures proposed just a few months ago are being rejected in effect setting the stage for a calamitous default with resulting efforts to bail them out.

When you are spending nearly twice as much as you are taking in as taxes, you have to borrow to offset the red ink. Eventually the debt burden cannot be resolved by anything less than cathartic fiscal surgery. Portugal is on the brink.

One has to ask, When will Spain bite the bullet?

Note to self, hot barbecued pig wings might just be the wave of the future. We all know these pigs can't fly so they obviously don't need the wings. we might as well put them to good use. Second note to self, what if the pig being barbecued is the U.S.?

DarJones

[ewmayer]

This is a bit aside from the usual economics, except that matters military and economic almost invariably overlap to some degree. For instance, those Tomahawk cruise missiles we've all gotten used to seeing launched from U.S. ships (in place of the more-old-fashioned naval artillery bombardment) in various interesting and apparently-deemed-cruise-missile-worthy parts of the world? Those cost about $1 million each, and that`s just the direct replacement cost of the missile, not the support infrastructure needed to store, launch and control it.

(I had a buddy in the UofMichigan AeroE program who went to work for Williams International, the company that makes the very high-tech small jet turbine engines for those. It's a shame those inevitably get destroyed along with the rest of the missile - each would suffice as a beautifully designed high-end propulsion source for a small private jet or other small vehicle needing high-reliability, high-efficiency compact jet propulsion.)

But without further ado, today's "who said it?" pop-quiz:

The President does not have power under the Constitution to unilaterally authorize a military attack in a situation that does not involve stopping an actual or imminent threat to the nation.

As Commander-in-Chief, the President does have a duty to protect and defend the United States. In instances of self-defense, the President would be within his constitutional authority to act before advising Congress or seeking its consent. History has shown us time and again, however, that military action is most successful when it is authorized and supported by the Legislative branch. It is always preferable to have the informed consent of Congress prior to any military action.

[xilman]

Originally Posted by Fusion_power

When you are spending nearly twice as much as you are taking in as taxes, you have to borrow to offset the red ink.

Not quite true.

You can raise money by selling assets. The UK raised billions from privatization in the 1980s and then had a nice little earner teaching other countries how to follow suit. The Bank of England has since sold off a few tonnes of gold, at a rather poor price in my opinion, to raise a few more quid for spending.

More recently, the UK raised a few more billions by selling 3G spectrum. I suppose that this could be described as a form of taxation if the definition is stretched a bit further than is usual.

Paul

[science_man_88]

http://www.economist.com/content/global_debt_clock

the problem is i don't have the average amount the world makes per year to help calculate if the world can ever be debt free.

[ewmayer]

Originally Posted by xilman

More recently, the UK raised a few more billions by selling 3G spectrum. I suppose that this could be described as a form of taxation if the definition is stretched a bit further than is usual.

Indeed, wireless spectrum auctions are one of the last few remaining "free money" cash cows for governments - "selling" something which cost them nothing and which exists only in the form of "the right not to have someone else transmit photons in a particular frequency range in this geographic locale", for a premium price.

(Many readers will likely have heard the recent scandal in India in which corrupt/incompetent government officials at the Indian space agency and state-run telecom firm essentially away an estimated $40-50 billion worth of wireless spectrum).

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Mish has the latest on the troubles in Portugal`s government:

Portuguese Government on Verge of Collapse: Unless there is an unexpected breakthrough within hours, it's likely the end of the line for Portugal's Prime Minister who has threatened to resign if parliament does not approve austerity measures he seeks.

Portugal's government is on the verge of collapse after opposition parties withdrew their support for another round of austerity policies aimed at averting a financial bailout.

The expected defeat of the minority government's latest spending plans in a parliamentary vote Wednesday will likely force its resignation and could stall national and European efforts to deal with the continent's protracted debt crisis.

The vote comes on the eve of a two-day European Union summit where policymakers are hoping to take new steps to restore investor faith in the fiscal soundness of the 17-nation eurozone, including Portugal.

My Comment: ...And it appears the government collapse is a done deal.

[ewmayer]

On the heels of mass protests against government cutbacks in the UK, please consider Paul Krugman`s latest paean for maintained high levels of government spending "until the recovery is self-sustaining":

The Austerity Delusion

Portugal’s government has just fallen in a dispute over austerity proposals. Irish bond yields have topped 10 percent for the first time. And the British government has just marked its economic forecast down and its deficit forecast up.

What do these events have in common? They’re all evidence that slashing spending in the face of high unemployment is a mistake. Austerity advocates predicted that spending cuts would bring quick dividends in the form of rising confidence, and that there would be few, if any, adverse effects on growth and jobs; but they were wrong.

It’s too bad, then, that these days you’re not considered serious in Washington unless you profess allegiance to the same doctrine that’s failing so dismally in Europe.

It was not always thus. Two years ago, faced with soaring unemployment and large budget deficits — both the consequences of a severe financial crisis — most advanced-country leaders seemingly understood that the problems had to be tackled in sequence, with an immediate focus on creating jobs combined with a long-run strategy of deficit reduction.

Why not slash deficits immediately? Because tax increases and cuts in government spending would depress economies further, worsening unemployment. And cutting spending in a deeply depressed economy is largely self-defeating even in purely fiscal terms: any savings achieved at the front end are partly offset by lower revenue, as the economy shrinks.

So jobs now, deficits later was and is the right strategy. Unfortunately, it’s a strategy that has been abandoned in the face of phantom risks and delusional hopes. On one side, we’re constantly told that if we don’t slash spending immediately we’ll end up just like Greece, unable to borrow except at exorbitant interest rates. On the other, we’re told not to worry about the impact of spending cuts on jobs because fiscal austerity will actually create jobs by raising confidence.

How’s that story working out so far?

Self-styled deficit hawks have been crying wolf over U.S. interest rates more or less continuously since the financial crisis began to ease, taking every uptick in rates as a sign that markets were turning on America. But the truth is that rates have fluctuated, not with debt fears, but with rising and falling hope for economic recovery. And with full recovery still seeming very distant, rates are lower now than they were two years ago.

But couldn’t America still end up like Greece? Yes, of course. If investors decide that we’re a banana republic whose politicians can’t or won’t come to grips with long-term problems, they will indeed stop buying our debt. But that’s not a prospect that hinges, one way or another, on whether we punish ourselves with short-run spending cuts.

Just ask the Irish, whose government — having taken on an unsustainable debt burden by trying to bail out runaway banks — tried to reassure markets by imposing savage austerity measures on ordinary citizens. The same people urging spending cuts on America cheered. “Ireland offers an admirable lesson in fiscal responsibility,” declared Alan Reynolds of the Cato Institute, who said that the spending cuts had removed fears over Irish solvency and predicted rapid economic recovery.

That was in June 2009. Since then, the interest rate on Irish debt has doubled; Ireland’s unemployment rate now stands at 13.5 percent.

And then there’s the British experience. Like America, Britain is still perceived as solvent by financial markets, giving it room to pursue a strategy of jobs first, deficits later. But the government of Prime Minister David Cameron chose instead to move to immediate, unforced austerity, in the belief that private spending would more than make up for the government’s pullback. As I like to put it, the Cameron plan was based on belief that the confidence fairy would make everything all right.

But she hasn’t: British growth has stalled, and the government has marked up its deficit projections as a result.

Which brings me back to what passes for budget debate in Washington these days.

A serious fiscal plan for America would address the long-run drivers of spending, above all health care costs, and it would almost certainly include some kind of tax increase. But we’re not serious: any talk of using Medicare funds effectively is met with shrieks of “death panels,” and the official G.O.P. position — barely challenged by Democrats — appears to be that nobody should ever pay higher taxes. Instead, all the talk is about short-run spending cuts.

In short, we have a political climate in which self-styled deficit hawks want to punish the unemployed even as they oppose any action that would address our long-run budget problems. And here’s what we know from experience abroad: The confidence fairy won’t save us from the consequences of our folly.

My Comment: As usual with Krugman-on-spending, where to begin? First off, one can argue that Portugal`s bond-interest rates have rocketed upward because bond markets saw the resistance to Mr. Socrates` proposed austerity measures as a sign that Portugal would be unable to rein in its budget issues and as a result would require a bailout ... which appears to have been spot-on. Second, the reason Irish bond yields have risen is that despite the austerity measures taken by the government there, the banking system is still in deep trouble - In other words, the bond markets see that mere austerity will not be enough. Krugman conveniently omits the Icelandic-style option, in which Ireland would have forced 'austerity' on the bondholders in its insolvent banks rather than having its citizenry bear all the pain. Sure, the debt markets would have threatened to shut Ireland out from any new borrowing, but with the bondholder-haircut and a relatively modest amount of fiscal austerity there would be no *need* for more borrowing. What do I care what the interest rate on that credit card is if I don`t use it?


In Prison for Taking a Liar Loan

Looks like the government is finally getting serious about "cracking down" on mortgage-related fraud ... one meaningless low-level petty-fraudster at a time. Mish has all the juicy details:

In Prison for Taking a Liar Loan

Of all the crooked bankers from the top on down, of all the millions of potential cases, government managed to go after a one person who took out two liar loans.

Please consider In Prison for Taking a Liar Loan

This story is truly amazing, you have to read it to appreciate it.

I do not condone liar loans but sending someone to prison for that is more than a bit ridiculous. The punishment should fit the crime.

By the way what does it cost to imprison someone for 2 years? Meanwhile let's recap my rolling list of bank fraud and what little was done about it.

Rolling List of High Profile Fraud Targets

October 10, 2010: FDIC Authorizes $1 Billion Lawsuits Against Failed-Bank Executives; Token Search for Low-Profile Scapegoats

April 29, 2010: Barofsky Threatens Criminal Charges in AIG Coverup, Goldman Sachs Abacus Deal, TARP Insider Trading; New York Fed Implicated

April 16, 2010: Rant of the Day: No Ethics, No Fiduciary Responsibility, No Separation of Duty; Complete Ethics Overhaul Needed

March 2, 2010: Geithner's Illegal Money-Laundering Scheme Exposed; Harry Markopolos Says "Don't Trust Your Government"

January 31, 2010: 77 Fraud, Money Laundering, Insider Trading, and Tax Evasion Investigations Underway Regarding TARP

January 28, 2010: Secret Deals Involving No One; AIG Coverup Conspiracy Unravels

January 26, 2010: Questions Geithner Cannot Escape

January 07, 2010: Time To Indict Geithner For Securities Fraud

October 20, 2009: Bernanke Guilty of Coercion and Market Manipulation

July 17, 2009: Paulson Admits Coercion; Where are the Indictments?

June 26, 2009: Bernanke Suffers From Selective Memory Loss; Paulson Calls Bank of America "Turd in the Punchbowl"

April 24, 2009: Let the Criminal Indictments Begin: Paulson, Bernanke, Lewis

[ewmayer]

In Troubled Spain, Boom Times for Foreign Languages

MADRID — Facing high unemployment at home, more Spaniards are seeking work abroad. But they are confronting a significant hurdle: their poor foreign-language skills, in particular a lack of English.

With a 20 percent unemployment rate, twice the European average, labor mobility has become a burning issue in Spain, prompting some business leaders to call for an overhaul of the Spanish education system that would make better language training a priority.
...
There are early suggestions that the next generation will have sufficient communications skills to work outside Spain: More children are now being taught by English speakers as part of their regular class work. At the same time, more adults are playing catch-up, notably trying learn German to respond to employment offers in Germany, which has the largest economy in Europe.

One place where educational changes are under way is Madrid. A program run by the regional government has made about a third of primary state schools bilingual. The government expects to raise that proportion to half by 2015.

On a recent morning at the Rosa Luxemburgo school in the district of Moncloa-Aravaca, 10-year-olds were studying the human body in English, learning terms like “salivary glands” and “esophagus.” One of them, Macarena Ferrán, said that she also got to practice English regularly while vacationing abroad, last summer in the Netherlands. As to her long-term ambition, “I would like to live in New York because it looks like a very interesting city,” she said in almost flawless English.

For the current generation of Spanish job-seekers, however, working in New York might be more of a distant dream. While there are no reliable comparative statistics, language-school owners like Richard Vaughan even argue that “the level of English is lower than 15 years ago,” reflecting a general decline in education standards in Spain.

Mr. Vaughan, a Texan who moved to Spain in the 1970s, now runs Vaughan Systems, the largest English language teaching company in Spain. He estimated that “fewer than 5 percent of the students graduating from schools of engineering, law or business possess a working knowledge of English.”

My Comment: 5 percent is shockingly low...


SIGTARP Barofsky Goes Out Blasting

...with a scathing Op-Ed about the "success" of TARP in today`s NYT:

Where the Bailout Went Wrong

TWO and a half years ago, Congress passed the legislation that bailed out the country’s banks. The government has declared its mission accomplished, calling the program remarkably effective “by any objective measure.” On my last day as the special inspector general of the bailout program, I regret to say that I strongly disagree. The bank bailout, more formally called the Troubled Asset Relief Program, failed to meet some of its most important goals.

From the perspective of the largest financial institutions, the glowing assessment is warranted: billions of dollars in taxpayer money allowed institutions that were on the brink of collapse not only to survive but even to flourish. These banks now enjoy record profits and the seemingly permanent competitive advantage that accompanies being deemed “too big to fail.”

Though there is no question that the country benefited by avoiding a meltdown of the financial system, this cannot be the only yardstick by which TARP’s legacy is measured. The legislation that created TARP, the Emergency Economic Stabilization Act, had far broader goals, including protecting home values and preserving homeownership.

These Main Street-oriented goals were not, as the Treasury Department is now suggesting, mere window dressing that needed only to be taken “into account.” Rather, they were a central part of the compromise with reluctant members of Congress to cast a vote that in many cases proved to be political suicide.

The act’s emphasis on preserving homeownership was particularly vital to passage. Congress was told that TARP would be used to purchase up to $700 billion of mortgages, and, to obtain the necessary votes, Treasury promised that it would modify those mortgages to assist struggling homeowners. Indeed, the act expressly directs the department to do just that.

But it has done little to abide by this legislative bargain. Almost immediately, as permitted by the broad language of the act, Treasury’s plan for TARP shifted from the purchase of mortgages to the infusion of hundreds of billions of dollars into the nation’s largest financial institutions, a shift that came with the express promise that it would restore lending.

Treasury, however, provided the money to banks with no effective policy or effort to compel the extension of credit. There were no strings attached: no requirement or even incentive to increase lending to home buyers, and against our strong recommendation, not even a request that banks report how they used TARP funds. It was only in April of last year, in response to recommendations from our office, that Treasury asked banks to provide that information, well after the largest banks had already repaid their loans. It was therefore no surprise that lending did not increase but rather continued to decline well into the recovery. (In my job as special inspector general I could not bring about the changes I thought were needed — I could only make recommendations to the Treasury Department.)

Meanwhile, the act’s goal of helping struggling homeowners was shelved until February 2009, when the Home Affordable Modification Program was announced with the promise to help up to four million families with mortgage modifications.

That program has been a colossal failure, with far fewer permanent modifications (540,000) than modifications that have failed and been canceled (over 800,000). This is the well-chronicled result of the rush to get the program started, major program design flaws like the failure to remedy mortgage servicers’ favoring of foreclosure over permanent modifications, and a refusal to hold those abysmally performing mortgage servicers accountable for their disregard of program guidelines. As the program flounders, foreclosures continue to mount, with 8 million to 13 million filings forecast over the program’s lifetime.

Treasury Secretary Timothy Geithner has acknowledged that the program “won’t come close” to fulfilling its original expectations, that its incentives are not “powerful enough” and that the mortgage servicers are “still doing a terribly inadequate job.” But Treasury officials refuse to address these shortfalls. Instead they continue to stubbornly maintain that the program is a success and needs no material change, effectively assuring that Treasury’s most specific Main Street promise will not be honored.

Finally, the country was assured that regulatory reform would address the threat to our financial system posed by large banks that have become effectively guaranteed by the government no matter how reckless their behavior. This promise also appears likely to go unfulfilled. The biggest banks are 20 percent larger than they were before the crisis and control a larger part of our economy than ever. They reasonably assume that the government will rescue them again, if necessary. Indeed, credit rating agencies incorporate future government bailouts into their assessments of the largest banks, exaggerating market distortions that provide them with an unfair advantage over smaller institutions, which continue to struggle.

Worse, Treasury apparently has chosen to ignore rather than support real efforts at reform, such as those advocated by Sheila Bair, the chairwoman of the Federal Deposit Insurance Corporation, to simplify or shrink the most complex financial institutions.

In the final analysis, it has been Treasury’s broken promises that have turned TARP — which was instrumental in saving the financial system at a relatively modest cost to taxpayers — into a program commonly viewed as little more than a giveaway to Wall Street executives.

It wasn’t meant to be that. Indeed, Treasury’s mismanagement of TARP and its disregard for TARP’s Main Street goals — whether born of incompetence, timidity in the face of a crisis or a mindset too closely aligned with the banks it was supposed to rein in — may have so damaged the credibility of the government as a whole that future policy makers may be politically unable to take the necessary steps to save the system the next time a crisis arises. This avoidable political reality might just be TARP’s most lasting, and unfortunate, legacy.

[ewmayer]

House votes to kill main Obama foreclosure aid: (Reuters) - The House of Representatives on Tuesday voted to kill President Barack Obama's signature program to help struggling homeowners avoid foreclosure.

A bill to terminate the program was approved on a 252-170 vote. But the bill is unlikely to clear the Senate.

It was the last in series of four measures brought forward by newly empowered House Republicans to end government assistance for homeowners hurt by the housing crisis.

Republicans argued the foreclosure prevention plan, known as the Home Affordable Modification Program, is ineffective and not worthy of taxpayer support amid soaring budget deficits. The vote broke largely along party lines.

The program, which offers incentives for lenders to modify loans, was launched to great fanfare in the spring of 2009. The Obama administration had hoped it would permanently lower mortgage payments for 3 million to 4 million homeowners.

But fewer than 600,000 borrowers have received permanent loan modifications, and the program has been widely criticized as ineffective from critics on both the left and the right.

"The HAMP program is a failure," said Representative Patrick McHenry, the North Carolina Republican who sponsored the bill. "If we can't eliminate this failed program, what program can we eliminate?"

Analysts see the votes as an effort by Republicans, who last seized control of the House in an election in November with an anti-bailout, anti-spending message, to score points with their political base.

My Comment: Given that this is the same program described by SIGTARP Barofsky as a "colossal failure" in the op-ed I quoted in my post above from yesterday, you won`t find me shedding many tears over this. I just wish the government made the lenders involved in the getting-people-into-homes-they-cannot-possibly-afford debacle pay the price of their recklessness and lawbreaking, not just the folks who should never have been allowed to "buy" such homes. anyway, since this all just partisan poltical posturing anyway, it`s probably not worthy of further discussion.


Obama wants to curb U.S. oil imports by a third: WASHINGTON (Reuters) - President Barack Obama will set an ambitious goal on Wednesday to cut U.S. oil imports by a third over 10 years, focusing on energy security amid high gasoline prices that could stall the country's economic recovery.

"What we were talking about was breaking the pattern of being shocked at high prices and then, as prices go down, being lulled into a trance, but instead let's actually have a plan," Obama told party activists in New York late on Tuesday.

"Let's, yes, increase domestic oil production, but let's also invest in solar and wind and geothermal and biofuels and let's make our buildings more efficient and our cars more efficient. Not all of that work is done yet, but I'm not finished yet. We've got more work to do," Obama said.

The White House says this is a deliberate turn toward energy security and will be followed by other events to highlight his strategy.

"He'll be laying out the goal ... that in a little over a decade from now we'll reduce the amount of oil we import from the rest of the world by about a third," a senior administration official told reporters in Washington.

My Comment: So the president wants to do what just about every president since Reagan has promised but abjectly failed to make good on, eh? I say, keep printing trillions a year to fund Wall Street bailouts and insane government spending, and the resulting currency debasement will eventually get you your hoped-for reduction in oil imports. $10-per-gallon gasoline has a tendency to do that.


The CRA Debate, Revisited

I thought Barry Ritholtz had - in multiple postings the past several years - pretty much laid to rest the assertion made frequently by the political right that the 1970s-era Community Reinvestment Act and its more-recent expansion during the Clinton presidency, played any significant role in the orgy of risky lending which occurred during the late great Housing Bubble and ongoing bust. But Mish posted a piece yesterday which makes me much less certain on that score:

How the CRA Fueled the Housing Bubble:

President Obama wants to expand the Community Reinvestment Act. Thus it should be no surprise that a self-serving report by the Obama Administration concludes that CRA "greenlining" (forcing banks to lend to low-income neighborhoods) did not contribute to the housing bubble or the financial crisis. The IBD article Mish quotes from is done in a Fiction/Fact bipartite format ... I`ll only quote the "Fiction" snips, interested readers can go to the full article for the (IBD-alleged) countering Facts:

Investor's Business Daily takes apart ACORN and the CRA in an editorial Community Reinvestment Act: Separating Fact From Fiction:

FICTION: Because the CRA was passed in 1977, long before the subprime crisis, it couldn't have caused the recent explosion in bad loans.

FICTION: "Many of these (CRA) loans were not very risky," the FCIC report claims.

FICTION: Only 6% of subprime loans were originated by banks subject to the CRA, so the vast majority of risky lending was not tied to the law.

FICTION: "These loans performed well," the FCIC report maintained.

My Comment: The article also notes that one of the chief government proponents of "CRA was not an issue in the mortgage crisis", FCIC chair (and California Democratic party stalwart, former CA treasurer and unsuccessful CA-gubernatorial candidate) Phil Angelides may have some major conflicts of interest with respect to the CRA. Of course this kind of allegation is often used as a pre-emptive smear tactic, but again - read the article and make your own judgment as to its merits, or lack thereof. Mish concludes

The CRA certainly did not cause the financial crisis. However, it did contribute to it.

Ironically, the very same people who insisted money be lent to people who could not afford houses are the very same people now bitching about those same "predatory loans".

Forcing banks to lend money is a piss poor idea. Piss poor loans help neither the lender nor the borrower. Yet, those who added fuel to the housing bubble have now whitewashed their role in the affair and beg for still more funds.

President Obama want to expand the CRA. Instead it should be added to the scrap heap of history along with Fannie Mae, Freddie Mac, HUD, HAMP, and thousands of affordable home programs all of which did anything but make homes affordable.

Now that home prices are falling, one might think the affordable home advocates would be happy. They are not. The hypocrites now want to prop up home prices on the belief that falling home prices hurt neighborhoods.

I sense a heavyweight econo-blogger slugout coming over the issue.