by: Robert Reich, TPM Cafe
This is not the Great Depression of the 1930s, but nor is it turning out to be merely a bad recession of the kind we've experienced periodically over the last half century. Call it a Mini Depression. The employment report last Friday shows job losses accelerating, along with the number of Americans working part time who'd rather be and need to be working full time. Retail sales have fallen off a cliff. Stock prices continue to drop. General Motors is on the brink of bankruptcy. The rate of home foreclosures is mounting.
When Barack Obama takes office in January, he will inherit a mess. What to do? (Because I'm an informal economic adviser, I should warn anyone who reads this that it reflects only my thoughts and therefore should not be attributed to him or to anyone else advising him.)
First, understand that the main problem right now is not the supply of credit. Yes, Wall Street is paralyzed at the moment because the bursting of the housing and other asset bubbles means that lenders are fearful that creditors won't repay loans. But even if credit were flowing, those loans wouldn't save jobs. Businesses want to borrow now only to remain solvent and keep their creditors at bay. If they fail to do so, and creditors push them into reorganization under bankruptcy, they'll cut their payrolls, to be sure. But they're already cutting their payrolls. It's far from clear they'd cut more jobs under bankruptcy reorganization than they're already cutting under pressure to avoid bankruptcy and remain solvent.
This means bailing out Wall Street or the auto industry or the insurance industry or the housing industry may at most help satisfy creditors for a time and put off the day of reckoning, but industry bailouts won't reverse the downward cycle of job losses.
The real problem is on the demand side of the economy.
Consumers won't or can't borrow because they're at the end of their ropes. Their incomes are dropping (one of the most sobering statistics in Friday's jobs report was the continued erosion of real median earnings), they're deeply in debt, and they're afraid of losing their jobs.
Introductory economic courses explain that aggregate demand is made up of four things, expressed as C+I+G+exports. C is consumers. Consumers are cutting back on everything other than necessities. Because their spending accounts for 70 percent of the nation's economic activity and is the flywheel for the rest of the economy, the precipitous drop in consumer spending is causing the rest of the economy to shut down.
I is investment. Absent consumer spending, businesses are not going to invest.
Exports won't help much because the of the rest of the world is sliding into deep recession, too. (And as foreigners - as well as Americans - put their savings in dollars for safe keeping, the value of the dollar will likely continue to rise relative to other currencies. That, in turn, makes everything we might sell to the rest of the world more expensive.)
That leaves G, which, of course, is government. Government is the spender of last resort. Government spending lifted America out of the Great Depression. It may be the only instrument we have for lifting America out of the Mini Depression. Even Fed Chair Ben Bernanke is now calling for a sizable government stimulus. He knows that monetary policy won't work if there's inadequate demand.
So the crucial questions become (1) how much will the government have to spend to get the economy back on track? and (2) what sort of spending will have the biggest impact on jobs and incomes?
The answer to the first question is "a lot." Given the magnitude of the mess and the amount of underutilized capacity in the economy - people who are or will soon be unemployed, those who are underemployed, factories shuttered, offices empty, trucks and containers idled - government may have to spend $600 or $700 billion next year to reverse the downward cycle we're in.
The answer to the second question is mostly "infrastructure" - repairing roads and bridges, levees and ports; investing in light rail, electrical grids, new sources of energy, more energy conservation. Even conservative economists like Harvard's Martin Feldstein are calling for government to stimulate the economy through infrastructure spending. Infrastructure projects like these pack a double-whammy: they create lots of jobs, and they make the economy work better in the future. (Important qualification: To do this correctly and avoid pork, the federal government will need to have a capital budget that lists infrastructure projects in order of priority of public need.)
Government should also spend on health care and child care. These expenditures are also double whammies: they, too, create lots of jobs, and they fulfill vital public needs.
Expect two sorts of arguments against this. The first will come from fiscal hawks who claim that the government is already spending way too much. Even without a new stimulus package, next year's budget deficit could run over a trillion dollars, given the amounts to be spent bailing out Wall Street and perhaps the auto industry, and providing extended unemployment insurance and other measures to help those in direct need. The hawks will argue that the nation can't afford giant deficits, especially when baby boomers are only a few years away from retiring and claiming Social Security and Medicare.
They're wrong. Government spending that puts people back to work and invests in the future productivity of the nation is exactly what the economy needs right now. Deficit numbers themselves have no significance. The pertinent issue is how much underutilized capacity exists in the economy. When there's lots of idle capacity, deficit spending is entirely appropriate, as John Maynard Keynes taught us. Moving the economy to fuller capacity will of itself shrink future deficits.
The second argument will come from conservative supply-siders who will call for income-tax cuts rather than spending increases. They'll claim that individuals with more money in their pockets will get the economy moving again more readily than can government. They're wrong, for three reasons. First, income-tax cuts go mainly to upper-income people who tend to save rather than spend. Most Americans pay more in payroll taxes than in income taxes. Second, even if a rebate could be fashioned, people tend to use those extra dollars to pay off their debts rather than buy new goods and services, as we witnessed a few months ago when the government sent out rebate checks. Third, even when individuals purchase goods and services, those purchases tend not to generate as many American jobs as government spending on the same total scale because much of what consumers buy comes from abroad.
Fiscal hawks and conservative supply siders notwithstanding, a major stimulus is in order. Government is the spender of last resort, and the nation is coming close to its last resort.
»
by: Robert Reich, TPM Cafe
In 1929 the Industrial market crashed signaling the beginning of the Great Depression. (Photo: BusinessWeek)
This is not the Great Depression of the 1930s, but nor is it turning out to be merely a bad recession of the kind we've experienced periodically over the last half century. Call it a Mini Depression. The employment report last Friday shows job losses accelerating, along with the number of Americans working part time who'd rather be and need to be working full time. Retail sales have fallen off a cliff. Stock prices continue to drop. General Motors is on the brink of bankruptcy. The rate of home foreclosures is mounting.
When Barack Obama takes office in January, he will inherit a mess. What to do? (Because I'm an informal economic adviser, I should warn anyone who reads this that it reflects only my thoughts and therefore should not be attributed to him or to anyone else advising him.)
First, understand that the main problem right now is not the supply of credit. Yes, Wall Street is paralyzed at the moment because the bursting of the housing and other asset bubbles means that lenders are fearful that creditors won't repay loans. But even if credit were flowing, those loans wouldn't save jobs. Businesses want to borrow now only to remain solvent and keep their creditors at bay. If they fail to do so, and creditors push them into reorganization under bankruptcy, they'll cut their payrolls, to be sure. But they're already cutting their payrolls. It's far from clear they'd cut more jobs under bankruptcy reorganization than they're already cutting under pressure to avoid bankruptcy and remain solvent.
This means bailing out Wall Street or the auto industry or the insurance industry or the housing industry may at most help satisfy creditors for a time and put off the day of reckoning, but industry bailouts won't reverse the downward cycle of job losses.
The real problem is on the demand side of the economy.
Consumers won't or can't borrow because they're at the end of their ropes. Their incomes are dropping (one of the most sobering statistics in Friday's jobs report was the continued erosion of real median earnings), they're deeply in debt, and they're afraid of losing their jobs.
Introductory economic courses explain that aggregate demand is made up of four things, expressed as C+I+G+exports. C is consumers. Consumers are cutting back on everything other than necessities. Because their spending accounts for 70 percent of the nation's economic activity and is the flywheel for the rest of the economy, the precipitous drop in consumer spending is causing the rest of the economy to shut down.
I is investment. Absent consumer spending, businesses are not going to invest.
Exports won't help much because the of the rest of the world is sliding into deep recession, too. (And as foreigners - as well as Americans - put their savings in dollars for safe keeping, the value of the dollar will likely continue to rise relative to other currencies. That, in turn, makes everything we might sell to the rest of the world more expensive.)
That leaves G, which, of course, is government. Government is the spender of last resort. Government spending lifted America out of the Great Depression. It may be the only instrument we have for lifting America out of the Mini Depression. Even Fed Chair Ben Bernanke is now calling for a sizable government stimulus. He knows that monetary policy won't work if there's inadequate demand.
So the crucial questions become (1) how much will the government have to spend to get the economy back on track? and (2) what sort of spending will have the biggest impact on jobs and incomes?
The answer to the first question is "a lot." Given the magnitude of the mess and the amount of underutilized capacity in the economy - people who are or will soon be unemployed, those who are underemployed, factories shuttered, offices empty, trucks and containers idled - government may have to spend $600 or $700 billion next year to reverse the downward cycle we're in.
The answer to the second question is mostly "infrastructure" - repairing roads and bridges, levees and ports; investing in light rail, electrical grids, new sources of energy, more energy conservation. Even conservative economists like Harvard's Martin Feldstein are calling for government to stimulate the economy through infrastructure spending. Infrastructure projects like these pack a double-whammy: they create lots of jobs, and they make the economy work better in the future. (Important qualification: To do this correctly and avoid pork, the federal government will need to have a capital budget that lists infrastructure projects in order of priority of public need.)
Government should also spend on health care and child care. These expenditures are also double whammies: they, too, create lots of jobs, and they fulfill vital public needs.
Expect two sorts of arguments against this. The first will come from fiscal hawks who claim that the government is already spending way too much. Even without a new stimulus package, next year's budget deficit could run over a trillion dollars, given the amounts to be spent bailing out Wall Street and perhaps the auto industry, and providing extended unemployment insurance and other measures to help those in direct need. The hawks will argue that the nation can't afford giant deficits, especially when baby boomers are only a few years away from retiring and claiming Social Security and Medicare.
They're wrong. Government spending that puts people back to work and invests in the future productivity of the nation is exactly what the economy needs right now. Deficit numbers themselves have no significance. The pertinent issue is how much underutilized capacity exists in the economy. When there's lots of idle capacity, deficit spending is entirely appropriate, as John Maynard Keynes taught us. Moving the economy to fuller capacity will of itself shrink future deficits.
The second argument will come from conservative supply-siders who will call for income-tax cuts rather than spending increases. They'll claim that individuals with more money in their pockets will get the economy moving again more readily than can government. They're wrong, for three reasons. First, income-tax cuts go mainly to upper-income people who tend to save rather than spend. Most Americans pay more in payroll taxes than in income taxes. Second, even if a rebate could be fashioned, people tend to use those extra dollars to pay off their debts rather than buy new goods and services, as we witnessed a few months ago when the government sent out rebate checks. Third, even when individuals purchase goods and services, those purchases tend not to generate as many American jobs as government spending on the same total scale because much of what consumers buy comes from abroad.
Fiscal hawks and conservative supply siders notwithstanding, a major stimulus is in order. Government is the spender of last resort, and the nation is coming close to its last resort.
http://tpmcafe.talkingpointsmemo.com/2008/11/09/the_mini_depression_and_the_ma/
Tuesday, November 11, 2008
Monday, November 10, 2008
Franklin Delano Obama?/ The Obama Agenda
Franklin Delano Obama?
By Paul Krugman
Suddenly, everything old is New Deal again. Reagan is out; F.D.R. is in. Still, how much guidance does the Roosevelt era really offer for today’s world?
The answer is, a lot. But Barack Obama should learn from F.D.R.’s failures as well as from his achievements: the truth is that the New Deal wasn’t as successful in the short run as it was in the long run. And the reason for F.D.R.’s limited short-run success, which almost undid his whole program, was the fact that his economic policies were too cautious.
About the New Deal’s long-run achievements: the institutions F.D.R. built have proved both durable and essential. Indeed, those institutions remain the bedrock of our nation’s economic stability. Imagine how much worse the financial crisis would be if the New Deal hadn’t insured most bank deposits. Imagine how insecure older Americans would feel right now if Republicans had managed to dismantle Social Security.
Can Mr. Obama achieve something comparable? Rahm Emanuel, Mr. Obama’s new chief of staff, has declared that “you don’t ever want a crisis to go to waste.” Progressives hope that the Obama administration, like the New Deal, will respond to the current economic and financial crisis by creating institutions, especially a universal health care system, that will change the shape of American society for generations to come.
But the new administration should try not to emulate a less successful aspect of the New Deal: its inadequate response to the Great Depression itself.
Now, there’s a whole intellectual industry, mainly operating out of right-wing think tanks, devoted to propagating the idea that F.D.R. actually made the Depression worse. So it’s important to know that most of what you hear along those lines is based on deliberate misrepresentation of the facts. The New Deal brought real relief to most Americans.
That said, F.D.R. did not, in fact, manage to engineer a full economic recovery during his first two terms. This failure is often cited as evidence against Keynesian economics, which says that increased public spending can get a stalled economy moving. But the definitive study of fiscal policy in the ’30s, by the M.I.T. economist E. Cary Brown, reached a very different conclusion: fiscal stimulus was unsuccessful “not because it does not work, but because it was not tried.”
This may seem hard to believe. The New Deal famously placed millions of Americans on the public payroll via the Works Progress Administration and the Civilian Conservation Corps. To this day we drive on W.P.A.-built roads and send our children to W.P.A.-built schools. Didn’t all these public works amount to a major fiscal stimulus?
Well, it wasn’t as major as you might think. The effects of federal public works spending were largely offset by other factors, notably a large tax increase, enacted by Herbert Hoover, whose full effects weren’t felt until his successor took office. Also, expansionary policy at the federal level was undercut by spending cuts and tax increases at the state and local level.
And F.D.R. wasn’t just reluctant to pursue an all-out fiscal expansion — he was eager to return to conservative budget principles. That eagerness almost destroyed his legacy. After winning a smashing election victory in 1936, the Roosevelt administration cut spending and raised taxes, precipitating an economic relapse that drove the unemployment rate back into double digits and led to a major defeat in the 1938 midterm elections.
What saved the economy, and the New Deal, was the enormous public works project known as World War II, which finally provided a fiscal stimulus adequate to the economy’s needs.
This history offers important lessons for the incoming administration.
The political lesson is that economic missteps can quickly undermine an electoral mandate. Democrats won big last week — but they won even bigger in 1936, only to see their gains evaporate after the recession of 1937-38. Americans don’t expect instant economic results from the incoming administration, but they do expect results, and Democrats’ euphoria will be short-lived if they don’t deliver an economic recovery.
The economic lesson is the importance of doing enough. F.D.R. thought he was being prudent by reining in his spending plans; in reality, he was taking big risks with the economy and with his legacy. My advice to the Obama people is to figure out how much help they think the economy needs, then add 50 percent. It’s much better, in a depressed economy, to err on the side of too much stimulus than on the side of too little.
In short, Mr. Obama’s chances of leading a new New Deal depend largely on whether his short-run economic plans are sufficiently bold. Progressives can only hope that he has the necessary audacity.
http://www.nytimes.com/2008/11/10/opinion/10krugman.html?_r=1&oref=slogin&pagewanted=print
Copyright 2008 The New York Times Company
----------------------------------------------------------
The Obama Agenda
By PAUL KRUGMAN
Tuesday, Nov. 4, 2008, is a date that will live in fame (the opposite of infamy) forever. If the election of our first African-American president didn’t stir you, if it didn’t leave you teary-eyed and proud of your country, there’s something wrong with you.
But will the election also mark a turning point in the actual substance of policy? Can Barack Obama really usher in a new era of progressive policies? Yes, he can.
Right now, many commentators are urging Mr. Obama to think small. Some make the case on political grounds: America, they say, is still a conservative country, and voters will punish Democrats if they move to the left. Others say that the financial and economic crisis leaves no room for action on, say, health care reform.
Let’s hope that Mr. Obama has the good sense to ignore this advice.
About the political argument: Anyone who doubts that we’ve had a major political realignment should look at what’s happened to Congress. After the 2004 election, there were many declarations that we’d entered a long-term, perhaps permanent era of Republican dominance. Since then, Democrats have won back-to-back victories, picking up at least 12 Senate seats and more than 50 House seats. They now have bigger majorities in both houses than the G.O.P. ever achieved in its 12-year reign.
Bear in mind, also, that this year’s presidential election was a clear referendum on political philosophies — and the progressive philosophy won.
Maybe the best way to highlight the importance of that fact is to contrast this year’s campaign with what happened four years ago. In 2004, President Bush concealed his real agenda. He basically ran as the nation’s defender against gay married terrorists, leaving even his supporters nonplussed when he announced, soon after the election was over, that his first priority was Social Security privatization. That wasn’t what people thought they had been voting for, and the privatization campaign quickly devolved from juggernaut to farce.
This year, however, Mr. Obama ran on a platform of guaranteed health care and tax breaks for the middle class, paid for with higher taxes on the affluent. John McCain denounced his opponent as a socialist and a “redistributor,” but America voted for him anyway. That’s a real mandate.
What about the argument that the economic crisis will make a progressive agenda unaffordable?
Well, there’s no question that fighting the crisis will cost a lot of money. Rescuing the financial system will probably require large outlays beyond the funds already disbursed. And on top of that, we badly need a program of increased government spending to support output and employment. Could next year’s federal budget deficit reach $1 trillion? Yes.
But standard textbook economics says that it’s O.K., in fact appropriate, to run temporary deficits in the face of a depressed economy. Meanwhile, one or two years of red ink, while it would add modestly to future federal interest expenses, shouldn’t stand in the way of a health care plan that, even if quickly enacted into law, probably wouldn’t take effect until 2011.
Beyond that, the response to the economic crisis is, in itself, a chance to advance the progressive agenda.
Now, the Obama administration shouldn’t emulate the Bush administration’s habit of turning anything and everything into an argument for its preferred policies. (Recession? The economy needs help — let’s cut taxes on rich people! Recovery? Tax cuts for rich people work — let’s do some more!)
But it would be fair for the new administration to point out how conservative ideology, the belief that greed is always good, helped create this crisis. What F.D.R. said in his second inaugural address — “We have always known that heedless self-interest was bad morals; we know now that it is bad economics” — has never rung truer.
And right now happens to be one of those times when the converse is also true, and good morals are good economics. Helping the neediest in a time of crisis, through expanded health and unemployment benefits, is the morally right thing to do; it’s also a far more effective form of economic stimulus than cutting the capital gains tax. Providing aid to beleaguered state and local governments, so that they can sustain essential public services, is important for those who depend on those services; it’s also a way to avoid job losses and limit the depth of the economy’s slump.
So a serious progressive agenda — call it a new New Deal — isn’t just economically possible, it’s exactly what the economy needs.
The bottom line, then, is that Barack Obama shouldn’t listen to the people trying to scare him into being a do-nothing president. He has the political mandate; he has good economics on his side. You might say that the only thing he has to fear is fear itself.
http://www.nytimes.com/2008/11/07/opinion/07krugman.html?pagewanted=print
Copyright 2008 The New York Times Companyda
By Paul Krugman
Suddenly, everything old is New Deal again. Reagan is out; F.D.R. is in. Still, how much guidance does the Roosevelt era really offer for today’s world?
The answer is, a lot. But Barack Obama should learn from F.D.R.’s failures as well as from his achievements: the truth is that the New Deal wasn’t as successful in the short run as it was in the long run. And the reason for F.D.R.’s limited short-run success, which almost undid his whole program, was the fact that his economic policies were too cautious.
About the New Deal’s long-run achievements: the institutions F.D.R. built have proved both durable and essential. Indeed, those institutions remain the bedrock of our nation’s economic stability. Imagine how much worse the financial crisis would be if the New Deal hadn’t insured most bank deposits. Imagine how insecure older Americans would feel right now if Republicans had managed to dismantle Social Security.
Can Mr. Obama achieve something comparable? Rahm Emanuel, Mr. Obama’s new chief of staff, has declared that “you don’t ever want a crisis to go to waste.” Progressives hope that the Obama administration, like the New Deal, will respond to the current economic and financial crisis by creating institutions, especially a universal health care system, that will change the shape of American society for generations to come.
But the new administration should try not to emulate a less successful aspect of the New Deal: its inadequate response to the Great Depression itself.
Now, there’s a whole intellectual industry, mainly operating out of right-wing think tanks, devoted to propagating the idea that F.D.R. actually made the Depression worse. So it’s important to know that most of what you hear along those lines is based on deliberate misrepresentation of the facts. The New Deal brought real relief to most Americans.
That said, F.D.R. did not, in fact, manage to engineer a full economic recovery during his first two terms. This failure is often cited as evidence against Keynesian economics, which says that increased public spending can get a stalled economy moving. But the definitive study of fiscal policy in the ’30s, by the M.I.T. economist E. Cary Brown, reached a very different conclusion: fiscal stimulus was unsuccessful “not because it does not work, but because it was not tried.”
This may seem hard to believe. The New Deal famously placed millions of Americans on the public payroll via the Works Progress Administration and the Civilian Conservation Corps. To this day we drive on W.P.A.-built roads and send our children to W.P.A.-built schools. Didn’t all these public works amount to a major fiscal stimulus?
Well, it wasn’t as major as you might think. The effects of federal public works spending were largely offset by other factors, notably a large tax increase, enacted by Herbert Hoover, whose full effects weren’t felt until his successor took office. Also, expansionary policy at the federal level was undercut by spending cuts and tax increases at the state and local level.
And F.D.R. wasn’t just reluctant to pursue an all-out fiscal expansion — he was eager to return to conservative budget principles. That eagerness almost destroyed his legacy. After winning a smashing election victory in 1936, the Roosevelt administration cut spending and raised taxes, precipitating an economic relapse that drove the unemployment rate back into double digits and led to a major defeat in the 1938 midterm elections.
What saved the economy, and the New Deal, was the enormous public works project known as World War II, which finally provided a fiscal stimulus adequate to the economy’s needs.
This history offers important lessons for the incoming administration.
The political lesson is that economic missteps can quickly undermine an electoral mandate. Democrats won big last week — but they won even bigger in 1936, only to see their gains evaporate after the recession of 1937-38. Americans don’t expect instant economic results from the incoming administration, but they do expect results, and Democrats’ euphoria will be short-lived if they don’t deliver an economic recovery.
The economic lesson is the importance of doing enough. F.D.R. thought he was being prudent by reining in his spending plans; in reality, he was taking big risks with the economy and with his legacy. My advice to the Obama people is to figure out how much help they think the economy needs, then add 50 percent. It’s much better, in a depressed economy, to err on the side of too much stimulus than on the side of too little.
In short, Mr. Obama’s chances of leading a new New Deal depend largely on whether his short-run economic plans are sufficiently bold. Progressives can only hope that he has the necessary audacity.
http://www.nytimes.com/2008/11/10/opinion/10krugman.html?_r=1&oref=slogin&pagewanted=print
Copyright 2008 The New York Times Company
----------------------------------------------------------
The Obama Agenda
By PAUL KRUGMAN
Tuesday, Nov. 4, 2008, is a date that will live in fame (the opposite of infamy) forever. If the election of our first African-American president didn’t stir you, if it didn’t leave you teary-eyed and proud of your country, there’s something wrong with you.
But will the election also mark a turning point in the actual substance of policy? Can Barack Obama really usher in a new era of progressive policies? Yes, he can.
Right now, many commentators are urging Mr. Obama to think small. Some make the case on political grounds: America, they say, is still a conservative country, and voters will punish Democrats if they move to the left. Others say that the financial and economic crisis leaves no room for action on, say, health care reform.
Let’s hope that Mr. Obama has the good sense to ignore this advice.
About the political argument: Anyone who doubts that we’ve had a major political realignment should look at what’s happened to Congress. After the 2004 election, there were many declarations that we’d entered a long-term, perhaps permanent era of Republican dominance. Since then, Democrats have won back-to-back victories, picking up at least 12 Senate seats and more than 50 House seats. They now have bigger majorities in both houses than the G.O.P. ever achieved in its 12-year reign.
Bear in mind, also, that this year’s presidential election was a clear referendum on political philosophies — and the progressive philosophy won.
Maybe the best way to highlight the importance of that fact is to contrast this year’s campaign with what happened four years ago. In 2004, President Bush concealed his real agenda. He basically ran as the nation’s defender against gay married terrorists, leaving even his supporters nonplussed when he announced, soon after the election was over, that his first priority was Social Security privatization. That wasn’t what people thought they had been voting for, and the privatization campaign quickly devolved from juggernaut to farce.
This year, however, Mr. Obama ran on a platform of guaranteed health care and tax breaks for the middle class, paid for with higher taxes on the affluent. John McCain denounced his opponent as a socialist and a “redistributor,” but America voted for him anyway. That’s a real mandate.
What about the argument that the economic crisis will make a progressive agenda unaffordable?
Well, there’s no question that fighting the crisis will cost a lot of money. Rescuing the financial system will probably require large outlays beyond the funds already disbursed. And on top of that, we badly need a program of increased government spending to support output and employment. Could next year’s federal budget deficit reach $1 trillion? Yes.
But standard textbook economics says that it’s O.K., in fact appropriate, to run temporary deficits in the face of a depressed economy. Meanwhile, one or two years of red ink, while it would add modestly to future federal interest expenses, shouldn’t stand in the way of a health care plan that, even if quickly enacted into law, probably wouldn’t take effect until 2011.
Beyond that, the response to the economic crisis is, in itself, a chance to advance the progressive agenda.
Now, the Obama administration shouldn’t emulate the Bush administration’s habit of turning anything and everything into an argument for its preferred policies. (Recession? The economy needs help — let’s cut taxes on rich people! Recovery? Tax cuts for rich people work — let’s do some more!)
But it would be fair for the new administration to point out how conservative ideology, the belief that greed is always good, helped create this crisis. What F.D.R. said in his second inaugural address — “We have always known that heedless self-interest was bad morals; we know now that it is bad economics” — has never rung truer.
And right now happens to be one of those times when the converse is also true, and good morals are good economics. Helping the neediest in a time of crisis, through expanded health and unemployment benefits, is the morally right thing to do; it’s also a far more effective form of economic stimulus than cutting the capital gains tax. Providing aid to beleaguered state and local governments, so that they can sustain essential public services, is important for those who depend on those services; it’s also a way to avoid job losses and limit the depth of the economy’s slump.
So a serious progressive agenda — call it a new New Deal — isn’t just economically possible, it’s exactly what the economy needs.
The bottom line, then, is that Barack Obama shouldn’t listen to the people trying to scare him into being a do-nothing president. He has the political mandate; he has good economics on his side. You might say that the only thing he has to fear is fear itself.
http://www.nytimes.com/2008/11/07/opinion/07krugman.html?pagewanted=print
Copyright 2008 The New York Times Companyda
Thursday, November 6, 2008
Thank You to Everyone who helped the Campaign
We got 111, 649 votes and the highest Democratic Candidate Congressional vote total in North Texas (only Eddie B Johnson & Chet Edwards got higher percentages and we spent 5.58 cents per vote). We had a dedicated team of volunteers. Thank you.
Japanese researchers make brain tissues from stem cells
Thu Nov 6, 3:36 am ET
TOKYO (AFP) – Japanese researchers said Thursday they had created functioning human brain tissues from stem cells, a world first that has raised new hopes for the treatment of disease.
Stem cells taken from human embryos have been used to form tissues of the cerebral cortex, the supreme control tower of the brain, according to researchers at the government-backed research institute Riken.
The tissues self-organised into four distinct zones very similar to the structure seen in human foetuses, and conducted neuro-activity such as transmitting electrical signals, the institute said.
Research on stem cells is seen as having the potential to save lives by helping to find cures for diseases such as cancer and diabetes or to replace damaged cells, tissues and organs.
The team's previous studies showed stem cells differentiated into distinct cells but until now they had never organised into functioning tissues.
"In regenerative therapy, only a limited number of diseases can be cured with simple cell transplants. Transplanting tissues could raise hopes for greater functional recovery," the institute said in a statement.
"Cultivated tissues are still insufficient and too small to be used to treat stroke patients. But study of in-vitro cultivation of more mature cortex tissues, such as those with six zones like in the adult human brain, will be stepped up," it said.
The tissues could also serve as "a mini organ" for use in studying the cause of the Alzheimer's disease and developing vaccines, it said.
Embryonic stem cells are harvested by destroying a viable embryo, a process that some people find unacceptable.
Riken said cortex tissues were also obtained from "induced pluripotent stem cells," which are similar to embryonic stem cells but artificially induced, typically from adult cells such as skin cells.
The research was led by Yoshiki Sasai at Riken Centre for Development Biology in western Japan's Kobe.
The cultivated tissues look like minature mushrooms two millimetres (0.08 inches) in diametre.
The team also succeeded in making cortex tissues from the embryonic stem cells of mice.
Using mouse tissues, scientists confirmed they had formed a network of neurons that properly respond to stimulus.
The tissues can also be selectively induced to different cortex types controlling memories, visual sensation and other tasks.
The findings of the study were published in the November 6 online journal Cell Stem Cell in the United States.
Copyright © 2008 Agence France Presse. All rights reserved
TOKYO (AFP) – Japanese researchers said Thursday they had created functioning human brain tissues from stem cells, a world first that has raised new hopes for the treatment of disease.
Stem cells taken from human embryos have been used to form tissues of the cerebral cortex, the supreme control tower of the brain, according to researchers at the government-backed research institute Riken.
The tissues self-organised into four distinct zones very similar to the structure seen in human foetuses, and conducted neuro-activity such as transmitting electrical signals, the institute said.
Research on stem cells is seen as having the potential to save lives by helping to find cures for diseases such as cancer and diabetes or to replace damaged cells, tissues and organs.
The team's previous studies showed stem cells differentiated into distinct cells but until now they had never organised into functioning tissues.
"In regenerative therapy, only a limited number of diseases can be cured with simple cell transplants. Transplanting tissues could raise hopes for greater functional recovery," the institute said in a statement.
"Cultivated tissues are still insufficient and too small to be used to treat stroke patients. But study of in-vitro cultivation of more mature cortex tissues, such as those with six zones like in the adult human brain, will be stepped up," it said.
The tissues could also serve as "a mini organ" for use in studying the cause of the Alzheimer's disease and developing vaccines, it said.
Embryonic stem cells are harvested by destroying a viable embryo, a process that some people find unacceptable.
Riken said cortex tissues were also obtained from "induced pluripotent stem cells," which are similar to embryonic stem cells but artificially induced, typically from adult cells such as skin cells.
The research was led by Yoshiki Sasai at Riken Centre for Development Biology in western Japan's Kobe.
The cultivated tissues look like minature mushrooms two millimetres (0.08 inches) in diametre.
The team also succeeded in making cortex tissues from the embryonic stem cells of mice.
Using mouse tissues, scientists confirmed they had formed a network of neurons that properly respond to stimulus.
The tissues can also be selectively induced to different cortex types controlling memories, visual sensation and other tasks.
The findings of the study were published in the November 6 online journal Cell Stem Cell in the United States.
Copyright © 2008 Agence France Presse. All rights reserved
Saturday, November 1, 2008
TARP; the Troubled Asset Recovery Program
From Wikipedia, the free encyclopedia
(Redirected from Troubled Asset Relief Program)
This article is about the Treasury fund. For the legislative bill and subsequent law, see Public Law 110-343. For the legislative history and the events leading to the law, see Emergency Economic Stabilization Act of 2008.
The authority of the United States Department of the Treasury to establish and manage a Troubled Assets Relief Program (TARP) managed by a newly created Office of Financial Stability became law October 3, 2008, the result of an initial proposal that ultimately was passed by Congress as H.R. 1424, enacting the Emergency Economic Stabilization Act of 2008 and several other acts.[1][2] The law which created the fund authorized the Treasury to draw up to $250 billion for immediate use, then requires the President to certify that an additional $100 billion in funds are needed; a final $350 billion are subject to Congressional approval.[3]
Contents [hide]
1 TARP administrative structure
2 TARP participation restrictions
3 Reorientation of TARP to bank equity investments
3.1 Similar historical federal banking investments
4 References
5 External links
6 See also
[edit] TARP administrative structure
The program is run by the Treasury's new Office of Financial Stability. According to a speech made by Neel Kashkari[4], the fund will be split into the following administrative units:
"1) Mortgage-backed securities purchase program: This team is identifying which troubled assets to purchase, from whom to buy them and which purchase mechanism will best meet our policy objectives. Here, we are designing the detailed auction protocols and will work with vendors to implement the program.
2) Whole loan purchase program: Regional banks are particularly clogged with whole residential mortgage loans. This team is working with bank regulators to identify which types of loans to purchase first, how to value them, and which purchase mechanism will best meet our policy objectives.
3) Insurance program: We are establishing a program to insure troubled assets. We have several innovative ideas on how to structure this program, including how to insure mortgage-backed securities as well as whole loans. At the same time, we recognize that there are likely other good ideas out there that we could benefit from. Accordingly, on Friday we submitted to the Federal Register a public Request for Comment to solicit the best ideas on structuring options. We are requiring responses within fourteen days so we can consider them quickly, and begin designing the program.
4) Equity purchase program: We are designing a standardized program to purchase equity in a broad array of financial institutions. As with the other programs, the equity purchase program will be voluntary and designed with attractive terms to encourage participation from healthy institutions. It will also encourage firms to raise new private capital to complement public capital.
5) Homeownership preservation: When we purchase mortgages and mortgage-backed securities, we will look for every opportunity possible to help homeowners. This goal is consistent with other programs - such as HOPE NOW - aimed at working with borrowers, counselors and servicers to keep people in their homes. In this case, we are working with the Department of Housing and Urban Development to maximize these opportunities to help as many homeowners as possible, while also protecting taxpayers.
6) Executive compensation: The law sets out important requirements regarding executive compensation for firms that participate in the TARP. This team is working hard to define the requirements for financial institutions to participate in three possible scenarios: One, an auction purchase of troubled assets; two, a broad equity or direct purchase program; and three, a case of an intervention to prevent the impending failure of a systemically significant institution.
7) Compliance: The law establishes important oversight and compliance structures, including establishing an Oversight Board, on-site participation of the General Accounting Office and the creation of a Special Inspector General, with thorough reporting requirements. We welcome this oversight and have a team focused on making sure we get it right."
[edit] TARP participation restrictions
Companies that sell their bad assets to the government must provide warrants so that taxpayers will benefit from future growth of the companies.[3] The President is to submit a law to cover taxpayer losses on the fund, using "a small, broad-based fee on all financial institutions."[3] In order to participate in the bailout program, "companies will lose certain tax benefits and, in some cases, must limit executive pay. In addition, the bill limits 'golden parachutes' and requires that unearned bonuses be returned."[3] The fund has an Oversight Board so that the U.S. Treasury cannot act in an arbitrary manner. There is also an inspector general to protect against waste, fraud and abuse.[3]
Reorientation of TARP to bank equity investments
On October 14, 2008, Secretary of the Treasury Paulson and President Bush separately announced revisions in the TARP program. The Treasury will buy equity stakes in nine American Banks, and potentially thousands of smaller banks, using the first $250 billion dollars allotted to the program.[5]
The banks agreeing to receive equity investments from the Treasury include Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co., Bank of America Corp. (including Merrill Lynch), Citigroup Inc., Wells Fargo & Co., Bank of New York Mellon and State Street Corp.[6][7][8] The Bank of New York Mellon is to serve as master custodian overseeing the fund.[9]
Similar historical federal banking investments
The nearest parallel action the federal government has taken in the was in investments made by the Reconstruction Finance Corporation (RFC) in the 1930s. The RFC, agency, chartered during the Herbert Hoover adminisistration in 1932, made loans to distressed banks and bought stock in 6,000 banks, totalling $1.3 billion. In 2008 dollars, that would amount to $200 billion. When the economy had stabilized, the government sold its bank stock to private investors or the banks, and is estimated to have received approximately the same amount previously invested.[10]
In 1984, the government took an 80 percent stake in nation’s then seventh-largest bank Continental Illinois Bank and Trust. Continental Illinois made loans to oil drillers and service companies in Oklahoma and Texas. The government was estimated to have lost $1 billion because of bad loans purchased as part of the bank Continental Illinois, which ultimately became part of Bank of America.[10]
References
^ "Economic rescue swiftly signed into law". AFP (2008-10-03).
^ Gross, Daniel (2008-10-01). "How the Bailout Is Like a Hedge Fund. It's massively leveraged. It's buying distressed assets. It's taking equity stakes…". Slate.
^ a b c d e Summary of the Emergency Economic Stabilization Act of 2008 United States Senate Committee on Banking, Housing and Urban Affairs. (Retrieved October 2, 2008)
^ http://www.accountability-central.com/single-view-default/article/treasury-update-on-implementation-of-troubled-asset-relief-program-tarp-before-institute-of-intern/?tx_ttnews[backPid]=1&cHash=8702938e7e
^ Landler, Mark; Eric Dash (2008-10-14). "Paulson Says Banks Must Deploy New Capital: Drama Behind a $250 Billion Banking Deal", New York Times. Retrieved on 2008-10-14.
^ Solomon, Deborah; Damian Paletta, Jon Hilsenrath and Aaron Lucchetti (2008-10-14). "U.S. to Buy Stakes in Nation's Largest Banks: Recipients Include Citi, Bank of America, Goldman; Government Pressures All to Accept Money as Part of Broadened Rescue Effort". Wall Street Journal. Retrieved on 2008-10-14.
^ "Bailout: The Rescue Plan & The Largest Recipients", New York times (2008-10-14). Retrieved on 2008-10-14. (Graphic of proposed bank equity investments)
^ "Beneficiary Banks", New York Times (2008-10-14). Retrieved on 2008-10-14.
^ Dash, Eric (2008-10-14). "Bank of New York Will Oversee Bailout Fund", New York Times. Retrieved on 2008-10-14.
^ a b Lohr, Steve (2008-10-13). "Intervention Is Bold, but Has a Basis in History". Retrieved on 2008-10-15. The article relies on the work of New York University Historian and Economist Richard Sylla for historical estimates.
External links
Zumbrun, Josh et al. (October 14, 2008). "The Ownership Society", Forbes. Analysis of the injection of Government equity capital into banks.
See also
H.R. 1424
Emergency Economic Stabilization Act of 2008
Liquidity crisis of September 2008
This United States government-related article is a stub. You can help Wikipedia by expanding it.
This economics or finance-related article is a stub. You can help Wikipedia by expanding it.
eFinancial crisis of 2007–2008
Main issues Economic crisis of 2008 · Financial crisis of 2007–2008
http://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program
(Redirected from Troubled Asset Relief Program)
This article is about the Treasury fund. For the legislative bill and subsequent law, see Public Law 110-343. For the legislative history and the events leading to the law, see Emergency Economic Stabilization Act of 2008.
The authority of the United States Department of the Treasury to establish and manage a Troubled Assets Relief Program (TARP) managed by a newly created Office of Financial Stability became law October 3, 2008, the result of an initial proposal that ultimately was passed by Congress as H.R. 1424, enacting the Emergency Economic Stabilization Act of 2008 and several other acts.[1][2] The law which created the fund authorized the Treasury to draw up to $250 billion for immediate use, then requires the President to certify that an additional $100 billion in funds are needed; a final $350 billion are subject to Congressional approval.[3]
Contents [hide]
1 TARP administrative structure
2 TARP participation restrictions
3 Reorientation of TARP to bank equity investments
3.1 Similar historical federal banking investments
4 References
5 External links
6 See also
[edit] TARP administrative structure
The program is run by the Treasury's new Office of Financial Stability. According to a speech made by Neel Kashkari[4], the fund will be split into the following administrative units:
"1) Mortgage-backed securities purchase program: This team is identifying which troubled assets to purchase, from whom to buy them and which purchase mechanism will best meet our policy objectives. Here, we are designing the detailed auction protocols and will work with vendors to implement the program.
2) Whole loan purchase program: Regional banks are particularly clogged with whole residential mortgage loans. This team is working with bank regulators to identify which types of loans to purchase first, how to value them, and which purchase mechanism will best meet our policy objectives.
3) Insurance program: We are establishing a program to insure troubled assets. We have several innovative ideas on how to structure this program, including how to insure mortgage-backed securities as well as whole loans. At the same time, we recognize that there are likely other good ideas out there that we could benefit from. Accordingly, on Friday we submitted to the Federal Register a public Request for Comment to solicit the best ideas on structuring options. We are requiring responses within fourteen days so we can consider them quickly, and begin designing the program.
4) Equity purchase program: We are designing a standardized program to purchase equity in a broad array of financial institutions. As with the other programs, the equity purchase program will be voluntary and designed with attractive terms to encourage participation from healthy institutions. It will also encourage firms to raise new private capital to complement public capital.
5) Homeownership preservation: When we purchase mortgages and mortgage-backed securities, we will look for every opportunity possible to help homeowners. This goal is consistent with other programs - such as HOPE NOW - aimed at working with borrowers, counselors and servicers to keep people in their homes. In this case, we are working with the Department of Housing and Urban Development to maximize these opportunities to help as many homeowners as possible, while also protecting taxpayers.
6) Executive compensation: The law sets out important requirements regarding executive compensation for firms that participate in the TARP. This team is working hard to define the requirements for financial institutions to participate in three possible scenarios: One, an auction purchase of troubled assets; two, a broad equity or direct purchase program; and three, a case of an intervention to prevent the impending failure of a systemically significant institution.
7) Compliance: The law establishes important oversight and compliance structures, including establishing an Oversight Board, on-site participation of the General Accounting Office and the creation of a Special Inspector General, with thorough reporting requirements. We welcome this oversight and have a team focused on making sure we get it right."
[edit] TARP participation restrictions
Companies that sell their bad assets to the government must provide warrants so that taxpayers will benefit from future growth of the companies.[3] The President is to submit a law to cover taxpayer losses on the fund, using "a small, broad-based fee on all financial institutions."[3] In order to participate in the bailout program, "companies will lose certain tax benefits and, in some cases, must limit executive pay. In addition, the bill limits 'golden parachutes' and requires that unearned bonuses be returned."[3] The fund has an Oversight Board so that the U.S. Treasury cannot act in an arbitrary manner. There is also an inspector general to protect against waste, fraud and abuse.[3]
Reorientation of TARP to bank equity investments
On October 14, 2008, Secretary of the Treasury Paulson and President Bush separately announced revisions in the TARP program. The Treasury will buy equity stakes in nine American Banks, and potentially thousands of smaller banks, using the first $250 billion dollars allotted to the program.[5]
The banks agreeing to receive equity investments from the Treasury include Goldman Sachs Group Inc., Morgan Stanley, J.P. Morgan Chase & Co., Bank of America Corp. (including Merrill Lynch), Citigroup Inc., Wells Fargo & Co., Bank of New York Mellon and State Street Corp.[6][7][8] The Bank of New York Mellon is to serve as master custodian overseeing the fund.[9]
Similar historical federal banking investments
The nearest parallel action the federal government has taken in the was in investments made by the Reconstruction Finance Corporation (RFC) in the 1930s. The RFC, agency, chartered during the Herbert Hoover adminisistration in 1932, made loans to distressed banks and bought stock in 6,000 banks, totalling $1.3 billion. In 2008 dollars, that would amount to $200 billion. When the economy had stabilized, the government sold its bank stock to private investors or the banks, and is estimated to have received approximately the same amount previously invested.[10]
In 1984, the government took an 80 percent stake in nation’s then seventh-largest bank Continental Illinois Bank and Trust. Continental Illinois made loans to oil drillers and service companies in Oklahoma and Texas. The government was estimated to have lost $1 billion because of bad loans purchased as part of the bank Continental Illinois, which ultimately became part of Bank of America.[10]
References
^ "Economic rescue swiftly signed into law". AFP (2008-10-03).
^ Gross, Daniel (2008-10-01). "How the Bailout Is Like a Hedge Fund. It's massively leveraged. It's buying distressed assets. It's taking equity stakes…". Slate.
^ a b c d e Summary of the Emergency Economic Stabilization Act of 2008 United States Senate Committee on Banking, Housing and Urban Affairs. (Retrieved October 2, 2008)
^ http://www.accountability-central.com/single-view-default/article/treasury-update-on-implementation-of-troubled-asset-relief-program-tarp-before-institute-of-intern/?tx_ttnews[backPid]=1&cHash=8702938e7e
^ Landler, Mark; Eric Dash (2008-10-14). "Paulson Says Banks Must Deploy New Capital: Drama Behind a $250 Billion Banking Deal", New York Times. Retrieved on 2008-10-14.
^ Solomon, Deborah; Damian Paletta, Jon Hilsenrath and Aaron Lucchetti (2008-10-14). "U.S. to Buy Stakes in Nation's Largest Banks: Recipients Include Citi, Bank of America, Goldman; Government Pressures All to Accept Money as Part of Broadened Rescue Effort". Wall Street Journal. Retrieved on 2008-10-14.
^ "Bailout: The Rescue Plan & The Largest Recipients", New York times (2008-10-14). Retrieved on 2008-10-14. (Graphic of proposed bank equity investments)
^ "Beneficiary Banks", New York Times (2008-10-14). Retrieved on 2008-10-14.
^ Dash, Eric (2008-10-14). "Bank of New York Will Oversee Bailout Fund", New York Times. Retrieved on 2008-10-14.
^ a b Lohr, Steve (2008-10-13). "Intervention Is Bold, but Has a Basis in History". Retrieved on 2008-10-15. The article relies on the work of New York University Historian and Economist Richard Sylla for historical estimates.
External links
Zumbrun, Josh et al. (October 14, 2008). "The Ownership Society", Forbes. Analysis of the injection of Government equity capital into banks.
See also
H.R. 1424
Emergency Economic Stabilization Act of 2008
Liquidity crisis of September 2008
This United States government-related article is a stub. You can help Wikipedia by expanding it.
This economics or finance-related article is a stub. You can help Wikipedia by expanding it.
eFinancial crisis of 2007–2008
Main issues Economic crisis of 2008 · Financial crisis of 2007–2008
http://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program
Subscribe to:
Posts (Atom)