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Time for a “Holiday” from Accounting Gimmicks

e21 Staff Editorial | 03/11/2010

For many years, there has been a robust debate about whether the Social Security and Medicare Trust Fund balances actually mean anything if the payroll taxes collected for them were spent rather than saved (as seems intuitive in a trust fund). Today, unfortunately, there appears to be a bipartisan embrace of an even more problematic concept: persistently crediting the Trust Funds with tax revenue that has never even been collected. The latest example of this is the so-called “jobs bill” that just passed both chambers in Congress. A centerpiece of that legislation is the Schumer-Hatch “Hire Now Tax Cut,” known colloquially as a “payroll tax holiday.” Read more...

FDIC Report and Banks

e21 Staff Editorial | 03/08/2010

The Federal Deposit Insurance Corporation (FDIC) released its Quarterly Banking Profile (QBP) for year-end 2009. Things have never been worse for the banking system: bad loans (loans that are 90 days or more past due) account for 5.37% of all loans and leases, an all-time record; net charge-offs (NCOs) – losses taken on bad loans – totaled $53.0 billion, or 2.89% (annualized), in the fourth quarter which is also the highest rate ever recorded in the QBP’s 26 year history. Read more...

Reconciliation and the Misuse of Senate Procedures

Jennifer Pollom | 03/05/2010

On Wednesday, President Obama gave a heavily anticipated speech about his vision for the future of health care reform, both in terms of substance and procedure. One of the primary takeaways (that has those inside the beltway chattering) is that the President’s suggested using reconciliation procedures to pass the health care legislation – a move that would require only a simple majority vote rather than the seemingly insurmountable 60-vote hurdle faced by “regular” legislation. Read more...

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Reconsidering Reconciliation

e21 team | March 2, 2010

In this morning’s Washington Post, Senator Hatch highlights the misuse of reconciliation procedures that the President and Senate Democrats are considering in order to pass a health care bill that cannot muster 60 votes. As we previously discussed here, reconciliation procedures were designed as a set of specific rules to facilitate passage of legislation to reduce the deficit. Read more...

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Shakeups on the Senate Banking Committee

e21 team | February 17, 2010

Last week’s surprise announcement by Senator Evan Bayh (D-IN) that he will not seek reelection is yet another shift in the future make-up of the Senate Banking Committee. Bayh’s retirement comes only two months after the Committee’s Chairman, Senator Chris Dodd announced he would not seek reelection. Read more...

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Senate Finance Committee releases discussion draft of next stimulus

e21 team | February 11, 2010

Although most of official Washington remains buried under the recent snow, the Senate Finance Committee today released a discussion draft and summary of the latest stimulus bill (dubbed a “jobs” bill by some). Read more...

Senate Clears Hurdle to Aiding Unemployed

Wall Street Journal

March 10, 2010

The Senate on Tuesday cleared a hurdle to extending unemployment benefits and health-care subsidies for the jobless until year's end, the latest modest bipartisan success on jobs and the economy. The vote was 66-34, with eight Republicans, including newly-elected Sen. Scott Brown of Massachusetts, joining the Democrats. One Democrat, Sen. Ben Nelson of Nebraska, voted against the measure.

How to Head Off a Health Reform Bloodbath

Zogby in Financial Times

March 10, 2010

In surveying American opinion just before and a week after President Barack Obama’s healthcare summit, we found a third of respondents more supportive of his plan, a third less so and a third unchanged. This would seem to confirm that the summit achieved nothing. But looking deeper into our March 3 data reveals some surprises. These may give second thoughts to those Republicans who want some type of health reform but are under orders to vote no on Obamacare.

Why Obama Can't Move the Health Care Numbers

Rasmussen in Wall Street Journal

March 10, 2010

One of the more amazing aspects of the health-care debate is how steady public opinion has remained. Despite repeated and intense sales efforts by the president and his allies in Congress, most Americans consistently oppose the plan that has become the centerpiece of this legislative season. For every person who strongly favors it, two are strongly opposed. Why can't the president move the numbers? One reason may be that he keeps talking about details of the proposal while voters are looking at the issue in a broader context.

Obama Launches Attach On Health Insurance Companies

Washington Post

March 9, 2010

Obama and his health secretary staged a two-pronged attack Monday in a stern letter to health insurance chief executives and a speech in which the president castigated insurance companies 22 times. "How much higher do premiums have to rise," he demanded, "before we do something about it?" The messages are part of a strategy that Obama and those around him have begun to employ lately, to ratchet up the pace and the populist appeal of their rhetoric against the health insurance industry.

Bair Seeks Upfront Levy on Big Banks

Financial Times

March 9, 2010

Sheila Bair, chairman of the Federal Deposit Insurance Corporation, on Monday called for an upfront levy on large financial institutions to pay for the costs of their failure – but she signalled willingness to compromise. As regulatory reform talks grind towards a conclusion in the Senate, Ms Bair told the Financial Times that she was still pushing for a pre-funded “resolution authority” to wind down the next Lehman Brothers-style failure even though the biggest banks faced an additional $90bn tax announced by President Barack Obama.

Okun's Law and the Unemployment Surprise of 2009

Federal Reserve Bank of San Francisco

March 10, 2010

Economists have long known that the overall performance of the economy as measured by GDP has a direct bearing on unemployment. But the relationship between changes in output and changes in the unemployment rate deviated from expectations in 2009. Okun’s law tells us that, for every 2% that real GDP falls below its trend, we will see a 1% increase in the unemployment rate. Since real GDP was almost flat in 2009 while its trend level increased by 3%, the unemployment rate under Okun’s law should have increased by 1½ percentage points.

V, U, and W

Roubini Global Economics

March 10, 2010

Heated debate continues to rage in the United States on whether the economic recovery will be V-shaped (with a rapid return to robust growth above potential), U-shaped (slow anemic, sub-par, below trend growth for at least the next two years) or W-shaped (a double-dip recession). slew of poor economic data over the past two weeks suggests that the U.S. economy is headed for a U-shaped recovery—at best—in 2010.

Preparing for a Smooth (Eventual) Exit

Speech by Vice President of NY Fed

March 9, 2010

When the time comes to tighten monetary policy, the Federal Reserve will be embarking on a tightening cycle like no other in its history. First, this tightening cycle will have two policy dimensions, in that the FOMC will have to decide on the path of its asset holdings in addition to the path of the short-term interest rate. Second, we will be using tools to drain reserves that are new and that will have to be implemented on a scale that the Fed has never before tried. And third, we will be operating in a framework of interest on reserves that has not been fully tested in U.S. markets.

Big Bank Regulation to Stay with Fed

Financial Times

March 8, 2010

Banks with more than $100bn of assets will be overseen by the US Federal Reserve under a regulatory reform plan that represents a partial victory for the central bank after months of attacks in Congress. Chris Dodd, the Senate banking committee chairman, had proposed hiving off all bank supervision to a single regulator but is set to propose this week that the 23 largest institutions stay under the Fed’s oversight, according to people familiar with the plans. The regime is designed to prevent a repeat of the costly bail-out of AIG or the damaging bankruptcy of Lehman Brothers.

Debating Debtflation

Morgan Stanley

March 8, 2010

The Greek crisis has brought sovereign debt to the forefront, capturing markets' attention. We think another dimension of the sovereign issue, the inflation risks inherent in high levels of public debt for economies that can print their own currency, is being overlooked by the markets. High levels of public debt in many advanced economies raise the spectre of inflation, in our view: if high debt is deemed undesirable, but the political will for higher taxes and lower spending is lacking, then ‘soft default' through inflation becomes a possibility.

http://www.economics21.org/files/pdfs/commentary/Reg%20Reform%20Slides%20Swagel%20121809%20v2.pdf

Insights on Financial Regulatory Reform

Phillip Swagel | e21 | December 14, 2009

Phillip Swagel, Former Assistant Secretary for Economic Policy at the Treasury Department publishes exclusive slides outlining key issues of financial regulatory reform ranging from non-bank resolutions to bankruptcy such as the Frank-Dodd-Geithner proposal to tranching as an improvement to non-bank resolution.