More proof this morning that the economy needs a new jolt of government intervention to keep it growing out of the Great Recession: The Commerce Department announced this morning a 2.2 percent increase in gross domestic product during the third quarter of 2009. CNBC reports:
The U.S. economy grew at a much slower pace than initially thought in the third quarter, restrained by weak business investment and a slightly more aggressive liquidation of inventories. ... Growth was boosted by government stimulus programs, including the popular cash for clunkers and tax credit for first-time home buyers..."
That report follows a dire prediction from economist Joseph Stiglitz that there is "a significant chance" that the U.S. economy will slip back into decline in 2010, bringing into reality the dreaded "W-shaped" recession.
Stiglitz, a professor at Columbia University, called on Washington to make more funds available to state governments who face a drop in tax revenue. The U.S. economy, the world's largest, must grow at least 3 percent to create enough jobs for new entrants into the labor force, he said. ... "If you don't prepare now, and the economy turns out to be as weak as I think it's likely to be, then you'll be in a very difficult position," he said.
President Obama meets this morning with about a dozen smaller banks, following up on a meeting he did earlier this month with some of the nation's largest financial institutions. This meeting, like the one he did with the too-big-to-fail behemoths, is intended to encourage more lending to small businesses and to homeowners so that the faltering economic recovery can gain some momentum. The Associated Press story notes that "cccording to the Federal Reserve, loans by the nation's 8,000 banks fell 8 percent to $6.7 trillion in the past year, and some analysts expect them to keep falling at least through next year."
Other news on the economic recovery front:
- "Banks and government agencies are ramping up their efforts to save troubled home loans, but not fast enough to keep the wave of foreclosures from rising," reports The Christian Science Monitor. During the third quarter of 2009, 6.2 percent of mortgages were 60 days or more past due, and an additional 3.2 percent of loans were in the process of foreclosure.
- Banks are still playing Grinch with overdraft fees during the Christmas shopping season, personal finance writer Kathy Kristof writes in the Los Angeles Times. (H/T CJR's "The Audit") She tells the story of one shopper who thought she could squeeze an expensive restaurant meal out of her Chase checking account because a deposit would arrive into her account to cover it before the charge would actually be recorded. Wrong. The deposit did come through on time, but before posting the deposit "Chase bank not only put through the dinner charge, it also "reordered" every one of her pending transactions," ultimately turning one $35 overdraft charge into six, for a total of $210. The fact that this continues is a direct consequence of the chokehold banks had earlier this year on financial regulations that Congress passed earlier this year, which allowed banks to continue practices into the new year that should have been outlawed immediately.
- An ill wind on economic health from New Jersey: Bloomberg reports today: "Bond ratings of New Jersey towns and cities are being reduced faster than in any other state as property values slide 11 percent and Governor Jon Corzine lowers municipal aid to cope with a $1 billion budget deficit. ... [T]he downgrades in New Jersey, the most- densely populated state, may be the start of a national trend, according to Richard Ciccarone, chief research officer at McDonnell Investment Management in Oak Brook, Illinois. Nine of 10 finance officers polled by the National League of Cities in September said it would be difficult to meet their fiscal needs in 2010, the worst outlook in 24 years. "
- Analysts interviewed by Reuters caution against reading too much into what will appear to be good news about the housing market in government reports this week. "It's not at all clear that the market is on a recovery path," James Diffley, a managing director at research group IHS Global Insight, is quoted by Reuters as saying.
Tallying Health Reform Wins and Losses
The Senate started the morning with a second major procedural cloture vote on health-care reform, The Washington Post reports, and Democrats went into this morning's vote with an endorsement of the bill from the American Medical Association but with criticism of the deals that were cut to bring Democrats on board. Those deals—some of which are detailed by Politico—have "acquired an unhelpful nickname: 'Cash for Cloture,'" says Washington Post columnist Dana Milbank.
Speaking of "cash for cloture," USA Today delves into Center for Responsible Politics records on political action committee contributions to the Senate leaders overseeing the health care bill. Senate Finance Committee Chairman Max Baucus has received $2.5 million in political contributions from health care interests, the paper reports. His Republican counterpart, Sen. Charles Grassley, has received $1.3 million.
The blogosphere battle over the merits of the Senate health care bill, and how to respond, continues.
Jacob Hacker, the Yale University professor dubbed the father of the public option, writes in Politico today that the early Monday morning cloture vote was "bittersweet" and advises:
[W]hile the public option is gone, it has not been forgotten. To compensate for its loss, Senate Majority Leader Harry Reid’s manager’s amendment puts a series of stronger regulatory checks on the insurance industry. The manager’s amendment sets a floor on the number of premium dollars insurers must spend on care and requires insurers to issue rebates to policyholders if they do not live up to this standard — a strong new regulatory check on insurer behavior.
And, for the first time, the federal government will require insurers to disclose many of their claims-payment policies and related practices, allowing consumers to understand more about the insurance products they are buying than ever before.
All of these steps represent a good beginning — but only a beginning. The gaping hole left by the removal of the public option must be filled, at least partially before the final bill is passed and more fully every year thereafter.
Health-care bill critic Jon Walker lists "35 Ways to Fix The Bad Senate Health Bill," including changes widely supported by progressives. The Wonk Room's Igor Volsky responds to "kill-the-bill" progressives with his own chart of what even the weakened bill will accomplish, concluding that "the Senate health care bill provides an adequate foundation for transforming the system in the years to come."
Health Care for America Now's Jason Rosenbaum compares the House and Senate bills, and concludes that "in all of these areas (except some aspects of affordability, to be elaborated upon in the next few days), the House bill does a better job than the Senate bill of standing up for what the American people want and need." The Christian Science Monitor also has a comparison of the House and Senate bill on what it says are the bills' three key differences: the public option, financing and abortion.
Paul Krugman blogs that progressives who are deeply dismayed about the shortcomings of the Senate bill "should hold onto that feeling! History suggests that this reform will get much better over time — but only if people keep demanding improvements." He draws encouragement from the success of the Social Security privatization fight five years ago.
Health-care industry consultant Bob Laszewski points to the positive Wall Street reaction to the health care bill and predicts that the final bill that emerges from a House-senate conference won't be significantly different from what the Senate is voting on now. "Reid’s 60-vote majority is held together with bubble gum and bailing wire and can’t withstand any significant changes. Look for lots of noise from House liberals on how they will demand more but the fact is there will be little if anything for them. And then, just like all the liberals in the Senate who back-peddled on all their bluster about not compromising over things like the public option, they will too."
Meanwhile, as the GOP threatens retribution at the polls for a health care bill largely shaped by conservative obstruction, the AP highlights a polling survey by the Robert Wood Johnson Foundation that shows public support for health-care reform has held steady despite the right-wing assault. "Overall, 82 percent say an overhaul of the is important for recharging the economy," the foundation says, based on polling since April.
Changing The Business Climate On Climate Change
Not all of the news out of Copenhagen was disappointing. At Slate's The Big Money,
The heads of hedge funds, pension funds, asset management firms like F&C, plus insurance companies looking to mitigate their future exposure to risky ventures that could be literally underwater or scorched to a cinder were all there holding meetings on the sidelines of the event. The objective? Deal or no deal, they were intent on figuring out how to make their clients money from the inevitable transition to a more energy-efficient, low-carbon global economy.
Are business schools helping to kill American manufacturing? That's the provocative question posed by Noam Scheiber in an article in The New Republic:
Since 1965, the percentage of graduates of highly-ranked business schools who go into consulting and financial services has doubled, from about one-third to about two-thirds. And while some of these consultants and financiers end up in the manufacturing sector, in some respects that’s the problem. Harvard business professor Rakesh Khurana, with whom I discussed these questions at length, observes that most of GM’s top executives in recent decades hailed from a finance rather than an operations background. (Outgoing GM CEO Fritz Henderson and his failed predecessor, Rick Wagoner, both worked their way up from the company’s vaunted Treasurer’s office.) But these executives were frequently numb to the sorts of innovations that enable high-quality production at low cost. As Khurana quips, “That’s how you end up with GM rather than Toyota.”
While the story is now more than a day old, The Washington Post's look at the record of Federal Reserve Chairman Ben Bernanke bears resurrecting for bolstering the case being made by progressives arguing for a hold on his nomination until he addresses questions regarding his handing of the financial sector bailout.
The article begins with a speech Bernanke made in May 2007 at the Federal Reserve Bank of Chicago annual conference.
[Bernanke] assured the bankers and businessmen gathered at the Westin Hotel on Michigan Avenue that their prosperity was not threatened by the plight of borrowers struggling to repay high-cost subprime loans.
Bernanke, who was in charge of regulating the nation's largest banks, told the audience that these firms were not at risk. He said most were not even involved in subprime lending. And the broader economy, he concluded, would be fine.
"Importantly, we see no serious broad spillover to banks or thrift institutions from the problems in the subprime market," Bernanke said. "The troubled lenders, for the most part, have not been institutions with federally insured deposits."
Of course, Bernanke was profoundly wrong. More fundamentally, as The Post reports,
The Fed's failure to foresee the crisis or to require adequate safeguards happened in part because it did not understand the risks that banks were taking, according to documents and interviews with more than three dozen current and former government officials, bank executives and regulatory experts.
Regulatory agencies exist to lean against the wind. But rather than looking for warning signs, the Fed had joined -- and at times defined -- the mainstream consensus among policymakers that financial innovations had made banking safer. Bernanke said the economy had entered an era of smaller and less frequent downturns, which he and others called "the great moderation."
The Obama movement "gone missing"
Pollster Celinda Lake, in an interview with Time.com this morning, paints a grim electoral scenario for 2010 as the army of supporters that President Obama built during his historic election is now sitting on its hands, disenchanted. Her latest polling shows Republicans now win the generic Congressional ballot by two points, the first time the GOP has outstripped Democrats since January of 2002, according to the George Washington University Battleground Poll.
...[T]he remarkable enthusiasm that greeted Obama's victory in 2008, with record turnout among independents, blacks and young people, had gone away, along with the minions of Obama organizers. "I think that we all thought, and I think that the President thought, that they would stay with it because we would create this movement," explained Lake, at a recent reporter briefing organized by the Christian Science Monitor. In fact, the enthusiasm gap bodes poorly for 2010, when Obama will be trying to minimize losses in the House and the Senate. According to the recent Battleground poll, just under two-thirds of Democrats say they are extremely likely to vote in upcoming elections, compared to 77% of Republicans and Independents.
Naomi Klein in The Nation, after giving Obama low marks for his performance at the climate change summit in Copenhagen, cites "three blown opportunities" to bring transformative change: the economic recovery package, the auto bailouts, and the bank bailouts. "No President since FDR has been handed as many opportunities to transform the U.S. into something that doesn't threaten the stability of life on this planet. He has refused to use each and every one of them."