Monday, November 24, 2008

Another Look At Obama's Team

HuffPo's Robert Kuttner takes a pretty detailed look at Obama's economic plan from a progressive's point of view.
As progressives, we can view President-Elect Obama's emerging economic team in one of two ways. Either he has disappointed us by picking a group of Clinton retreads--the very people who brought us the deregulation that produced the financial collapse; the fiscal conservatives who in the 1990s put budget balance ahead of rebuilding public institutions. Or we can conclude that he has very shrewdly named a team of technically competent centrists so that he can govern as a progressive in pragmatist's clothing--as he moves the political center to the left.
My fears of course are of the former, especially with Tim Geithner as SecTreas. He's constrained of course by *not* having Hank Paulson's job right now, and still having to deal with Bush's plans. But to fix this problem both Geithner and the rest of Obama's economic team are going to have to completely change gears.

I just don't see that happening. As Kuttner says, these are the same people that worked to come up with the Gramm-Leach-Bliley Act, the legislation that massively deregulated the financial industry. Clinton signed it into law and it passed with broad bipartisan support in both houses of Congress.

To his credit, Geithner has been a voice for more regulation. But nobody's talking about repealing GLB, which should be among the first of the major consequences the financial sector should have to accept for taking trillions of taxpayer dollars in corporate welfare.

Still, Kuttner has more confidence than I do.

In fairness, adults are not merely tools of their patrons. In recent months, Larry Summers has disagreed with Rubin on the scale of the needed stimulus. Tim Geithner is for far more regulation than Rubin. Jason Furman, though suggested by Rubin for his campaign post of economic policy director, actually spent more of his career working for Joseph Stiglitz than for Robert Rubin. Peter Orszag has done a fine job as director of the Congressional Budget Office, and is not averse to large scale public spending.

Obama is the president, and he will do what he deems necessary. In my writings during the campaign, I sometimes found myself second-guessing Obama's strategy--and he invariably turned out to be smarter than I was.

Obama is also famous for listening to a wide variety of views. Others among his senior staff, such as legislative director Phil Schiliro, are further to the left. But this economic team will have influence--in posing options, playing the role of gatekeeper, writing position papers, and serving as an echo chamber of each other's advice.

Obama is intelligent enough to reach his own conclusions, and they are likely to produce far more heartburn for conservative Republicans than for those who worked so hard to elect him. But it would be helpful if his senior economic team included even one person who was not a member of the same centrist club - a Joseph Stiglitz, a Jamie Galbraith, a Jared Bernstein or a Sheila Bair. We shall soon see whether the most interesting team of rivals in the Obama White House will be the president and his own economic advisers.

We'll see, indeed. Radical, earthshaking action will be needed to save our economy from depression over the next several months. Will Obama's team, as Obama has said, "do what will be necessary" to save the US economy?

I'm still not so sure. Obama will have to pleasantly surprise me.

Home, Home I'm Deranged

Where the fear and the antipathy play...
The pace of sales of existing homes in the United States fell 3.1 percent in October to a 4.98 million-unit annual rate, while the median home price dropped to its lowest in more than four years, a National Association of Realtors report showed on Monday.

Economists polled by Reuters were expecting home resales to set a 5.00 million-unit pace. September's figure was revised downwards to 5.14 million from 5.18 million.

"Many potential home buyers appear to have withdrawn from the market due to the stock market collapse and deteriorating economic conditions,'' said Lawrence Yun, NAR chief economist.

The inventory of existing homes for sale slipped 0.9 percent to 4.23 million from 4.27 million in September. The median national home price declined 11.3 percent from a year ago to $183,300, the lowest since March 2004 when the median price was $183,200.

The percentage drop in prices was the biggest since the NAR started keeping records in 1968.

"We have favorable affordable conditions, but we need more than that to give buyers with jobs the confidence they need. Without home price stabilization, there will not be an economic recovery,'' Yun told reporters.

Ding ding ding!

Smartest piece of economic analysis you'll hear all year, right there.

Without home price stabilization, there will not be an economic recovery.

And as long as home prices continue to fall month after month, we're trapped in a deflationary spiral. Who's going to buy a home if the price is falling at 15-20% per year, guaranteeing negative equity in a few months and seeing an underwater mortgage in a year?

The problem is deflation now, not inflation. Particularly on long-term borrowing, deflation is going to be a killer on the markets. Less demand leads to price deflation, leading to higher unemployment as people are laid off, leading to even lower demand: the classic deflationary spiral.

The housing collapse is leading to trillions in deflationary pressure. Until housing stops falling, we're in trouble. The housing depression has gone on so long it's becoming self-perpetuating now, and that's the real danger.

Unless Obama can stabilize housing prices, everything else is spitting in the wind.

Team Obamanomics

Obama officially named his economic team today.
President-elect Barack Obama said Monday that the country is facing an "economic crisis of historic proportions," and unveiled the team he has chosen to help get the economy back on track.

Obama said he sought leaders who share his fundamental belief that "we cannot have a thriving Wall Street without a thriving Main Street."

Obama has tapped New York Federal Reserve President Tim Geithner as treasury secretary and former Treasury Secretary Larry Summers as chief of the National Economic Council.

Geithner helped manage Wall Street's financial meltdown earlier this year, overseeing the acquisition of Bear Stearns by JPMorgan Chase, the bailout of AIG and the collapse of Lehman Brothers. He was appointed as the New York Federal Reserve president in November 2003.

Summers served as treasury secretary in the Clinton administration. He was the chief economist of the World Bank from 1991 through 1993. Prior to his career in government, Summers taught economics at Harvard.

University of California-Berkeley economics professor Christina Romer has been chosen to be the chair of the President's Council of Economic Advisers.

The Council of Economic Advisers is a group of economists --including three who are appointed by the president and need Senate confirmation -- that advise the president on economic policy.

Obama also announced Melody Barnes as director of the Domestic Policy Council and Heather Higginbottom as deputy director of the Domestic Policy Council.

So far, nothing about this team makes me think they can handle this crisis any better than the current administration.

I fully expect to see bailout after bailout over the next several months. With today's Citigroup bailout, we're already approaching the $5 trillion $7.7 trillion mark in total loan guarantees, direct intervention, and stock purchases for the financial sector alone.

Citigroup: The Morning After

As noted, Citigroup will get $20 billion in cash and $300 billion more in guarantees.
Citigroup Inc., facing the threat of a breakup or sale, received $306 billion of U.S. government guarantees for troubled mortgages and toxic assets to stabilize the bank after its stock fell 60 percent last week.

Citigroup also will get a $20 billion cash injection from the Treasury Department, adding to the $25 billion the company received last month under the Troubled Asset Relief Program. In return for the cash and guarantees, the government will get $27 billion of preferred shares paying an 8 percent dividend. Citigroup rose as much as 41 percent in German trading today.

The Treasury, Federal Reserve and Federal Deposit Insurance Corp. said in a joint statement that the move aims to bolster financial-market stability and help restore economic growth. The decision came after New York-based Citigroup’s tumbling share price sparked concern that depositors might pull their money and destabilize the company, which has $2 trillion of assets and operations in more than 100 countries.

“It really was a must-do thing,” said Nader Naeimi, a Sydney-based strategist at AMP Capital Investors, which manages about $85 billion. “If they’d let Citigroup go, that would’ve been disastrous.”

Citigroup’s stock plunged 83 percent this year and dropped below $5 last week for the first time since 1995. The shares were up $1.26 at $5.03 in Germany in recent trading.

If the government had not taken action last night, Citigroup stock would have likely dropped to under $2 a share. Citibank's major depositors would have lined up around the block today to get money out of the bank.

The one thing we've been able to avoid so far is a confidence breaking and very visible public bank run on one of these financial institutions. Imagine what video of Citibank customers lined up around to block to get their money would do to the markets and to the country, when every bank in the country has less than 1% of deposits available on hand as a business decision.

Imagine what would happen if Citibank branches were turning people away, saying "we don't have any more cash right now." Imagine ATMs emptied out across the country.

Panic. Pure, adrenaline fueled national panic.

And it would get worse from there.

That's why Citigroup gets $20 billion in a weekend, and the auto industry will most likely go under as the Big 3 are forced to reorganize under Chapter 11.


Related Posts with Thumbnails