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Wonkbook: Geithner gives Fannie and Freddie clues; major health care regs announced; future Fed action unlikely


The Obama administration opened its conference on the future of housing policy yesterday with Treasury Secretary Tim Geithner promising both an overhaul of Fannie and Freddie and a continued federal role in backstopping mortgages. Meanwhile, the national insurance commissioners' organization has released rules governing what insurers can count as medical costs, one of the first decisions made under health care reform. And despite its mild actions last week, the Fed's forecast suggests it will likely not adopt more aggressive measures. In fact, some Fed leaders worry that the market overinterpreted last week's mild actions as, well, I don't know: Moderate? Lukewarm? Vaguely engaged? The Fed may be strange, but the market is even stranger.

Due to electrical problems, the Red Hook Lobster Pound Truck is still not on the streets. Sigh. At least Wonkbook is still here for you.

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The administration's housing policy conference offered some clues as to their likely direction on Fannie and Freddie, reports Zachary Goldfarb: "The Cabinet secretaries, who are leading the housing overhaul effort, said they envision a hybrid system that relies far more on private companies to provide funding for home loans but still features a government backstop for those loans. The remarks by Geithner and Donovan -- and their selection of like-minded panelists from industry, think tanks and other sectors -- suggested that the administration is not prepared to embrace more radical proposals offered by a few of the conference participants. Bill Gross, who runs the world's biggest bond firm, Pimco, argued that the mortgage market should be completely nationalized."

The Fed's economic forecast suggests that further action is unlikely, reports Neil Irwin: "Some economists outside the Fed -- and a handful inside it -- are advocating that the central bank respond to the weaker economic outlook by undertaking more unconventional efforts, such as resuming major asset purchases. The Fed's leadership, however, has set the bar higher for using less-conventional measures than it has for using the better-understood federal funds rate. That's because policymakers aren't sure exactly how much impact, if any, buying $500 billion of Treasury bonds would have on the economy."

The Minneapolis Fed chair worries that the markets misread the Fed's modest asset buy as more interventionist than it actually was, writes Catherine Rampell:

Joseph Gagnon, a former associate director of monetary affairs at the Fed, lays out a plan for what the Fed could do if it felt like actually being interventionist:

The National Insurance Commissioners of America has adopted rules governing medical-loss ratios under health care reform, reports Sarah Kliff: "The National Association of Insurance Commissioners approved Tuesday morning a preliminary outline of what insurers will be able to count as medical costs, a document necessitated by the health reform bill’s requirement that insurers spend at least 85 percent of subscriber premiums on medical costs in the large group market and 80 percent for small group and individual plans."

Glasgow pop interlude: Belle & Sebastian play "Lazy Line Painter Jane".

Still to come: Warren meets with bank lobbyists; experts dispute the spill's impact; DOJ may sue Arpaio; and 2010 midterm election stories presented with CGI animation, in Mandarin.


Perhaps preparing for a future appointment, Elizabeth Warren has been meeting with banking lobbyists, reports Brady Dennis: "Warren and Roundtable President Steve Bartlett spoke at length in his office about the role of the new regulatory agency, which -- despite the group's objections -- was included in the far-reaching financial legislation signed into law by President Obama last month...Neither Roundtable officials nor Warren were eager to publicize last week's encounter. 'We don't confirm or deny any meetings,' said Scott Talbott, the group's chief lobbyist. Through a spokesman, Warren also declined to comment."

Tom Friedman thinks the US economy faces structural problems, and he suggests some structural solutions:

St. Louis Fed chair James Bullard is suggesting more aggressive Fed action, reports Jon Hilsenrath: "Mr. Bullard noted that many measures of core inflation - which exclude volatile food and energy prices - are running around 1%, which is below the Fed’s informal target of 1.5% to 2%. To bring inflation up to that target, such purchases might be necessary. He said there was a 50-50 chance such a program will be needed."

A study suggests state jobs agencies are underperforming:

Investment firms are buying mortgages and helping homeowners avoid foreclosure, reports James Hagerty: "Selene buys loans to make a profit on them, not as a public service, but company officials say it is often more profitable to keep the borrower in the home than to foreclose. If a delinquent loan can be turned into a 'performing' loan, with the borrower making regular payments, the value of that loan rises, and Selene can turn around and either refinance it or sell it at a profit."

Households are continuing to reduce their debt levels:

Neil Irwin extends the farm-in-a-drought metaphor for the economic recovery: "If they pipe water in, they're not sure how much will get to the fields--it might be too little to do much good, and it might be so much as to cause flooding. They're not sure about the impact of helicopter airlifts either; they might be effective at getting more water onto the fields, but there's a small chance they'll crash and burn and thereby set the fields on fire. (That's what would happen if quantitative easing by the Fed caused global investors to believe they would continue printing money to fund budget deficits indefinitely, which could cause a big rise in inflation expectations and a long-term loss of confidence in the U.S. economy)."

Simon Johnson and James Kwak propose their fiscal plan for the US:

Allan Sloan argues letting the Bush tax cuts expire wouldn't wreak havoc on the markets: "Bush 43, during whose administration the market lost 34 percent, took office just before the Internet stock bubble burst and left in the middle of a market-destroying financial panic. Thus, stocks were artificially high when he assumed office and artificially low when he left. It makes no sense to attribute the market's losses to his tax policy. It's possible that higher rates on investment income kept stocks lower than they otherwise would have been, and lower rates kept them higher. But someone would need to prove that to me -- and I'm not sure it's provable."

Interdisciplinary lecture interlude: Walter Lewin explains how to look at 20th century art like a physicist.


Scientists disagree on the effect of the Gulf oil spill, reports John Collins Rudolf: "A team of Georgia researchers has codified that dissent, using the government’s own data to craft a report estimating that as much as 79 percent of the oil spilled from the Deepwater Horizon well in fact remains at large in the Gulf of Mexico, where it still poses a threat to the marine ecosystem. The estimates, by researchers with the University of Georgia and Georgia Sea Grant, are difficult to contrast with those in the federal report as they do not take into account the roughly 800,000 barrels of oil captured by BP directly at the wellhead. And the Georgia report, unlike the federal analysis, was not subject to peer review."

Global warming is increasing the frequency of extreme weather events:

Hurricane Katrina is still wreaking ecological havoc, reports Nina Shen Rastogi: "Anderson suspects that fisheries in the Gulf are likely to be the long-term victims of the oil. That's ironic, he notes, because fish populations had been doing rather well, post-Katrina. Certain seafood species, like oysters and some kinds of shrimp, were harmed by the hurricanes, but these populations bounced back relatively quickly. Fish actually got a bit of a break after Katrina: Since the storm wrecked the fishing industry's human infrastructure, marine animals enjoyed five years of reduced fishing pressures. This was supposed to be the year that the industry ramped back up to its pre-2005 catch capacity--but the BP spill has probably put the kibosh on that."

The military is moving to reduce its emissions footprint:

Laura Vanderkam makes the environmental case against the lawn: "Mowing itself requires fuel, just like our cars, with a similar impact on the environment. And all these woes are before you even get to the issue of water. According to Kress, maintaining non-native plants requires 10,000 gallons of water per year per lawn, over and above rainwater. That water doesn't just show up by itself; it requires energy to get to your hose. In California, for example, the energy required to treat and move water amounts to 19% of total electricity use in the state."

The EPA is outlining its global greenhouse gas emissions plans:

Sharon Begley believes that the public is dangerously ignorant on energy efficiency: "The scientists next asked people to estimate how much energy different appliances used and how much different behaviors saved. More said line-drying clothes saves more than changing the washing-machine settings (the reverse is true). Most people also think trucks and trains that transport goods use about the same energy; in fact, trucks use 10 times more to move one ton of goods one mile."

Foreign press interlude: Taiwan's Apple News animates the biggest 2010 midterm stories.

Domestic Policy

The Justice Department may sue anti-immigration Arizona sheriff Joe Arpaio, report Jerry Markon and Stephanie McCrummen: "The civil rights division's investigation began in March 2009 and focuses on whether Arpaio's department engaged in 'discriminatory police practices and unconstitutional searches and seizures,' along with allegations that his jail discriminated against Hispanic inmates, according to letters the division sent to Arpaio. A complaint to the Justice Department said that even bilingual jail guards are required to speak to inmates only in English and that the rule could endanger prisoners' medical care."

Student college preparedness is stagnating:

Even with stimulus funds, schools are waiting before rehiring, reports Motoko Rich: "Though preserving jobs will be good for the economy, it will disappoint out-of-work teachers and parents who have been expecting a surge in rehiring. Many districts, like Kansas City, Kan., face the likelihood of midyear cuts, and administrators will count themselves lucky to save jobs. In the nation’s fifth-largest district in Clark County in Las Vegas, administrators are eager to hire some teachers, though they wonder what they will do when the federal money runs out."

Alyssa Katz explains how Section 8 rental subsidies is helping the housing market: "Americans irked by the idea of tenants getting a free ride from taxpayers would do well to remember that renters overall receive far less in federal aid than homeowners, who benefit from generous help like the home-mortgage interest deduction. And far from being a big government program, the vouchers were championed by the Nixon and Reagan administrations as a way to redirect public housing funds to stimulate the private real-estate market. "

Steven Pearlstein makes the case for liquor store privatization:

Ken Terry explains how low cost, low benefit plans could kill the exchanges:: "A restrictive approach would mean that most plans offered outside of the state exchanges would have to be similar to those inside of them. This offers the best chance for the exchanges to survive...But if HHS takes a looser stance, and mini-plans endure, many healthy people and firms with healthy employees will buy their insurance outside the exchanges, even without subsidies. If so, the exchanges will become unprofitable for insurance companies to participate in

Closing credits: Wonkbook compiled with the help of Dylan Matthews and Mike Shepard. Photo credit: Pete Souza/White House.

By Ezra Klein  |  August 18, 2010; 6:33 AM ET
Categories:  Wonkbook  
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   StumbleUpon   Technorati   Google Buzz   Previous: Unreconciled
Next: Best fundraiser ever


Ezra, Is the relationship between Fannie/Freddie and the Democrats based on empiricism or ideology?

Posted by: soma_king | August 18, 2010 9:36 AM | Report abuse

i'd be interested to see a detailed list of what was and wasn't in the MLR adopted regs. Ridiculous if they want to force insurers to pay for current state and Federal taxes (not related to reform) within their admin expenses. Does Medicare do that? NO.

Posted by: visionbrkr | August 18, 2010 9:52 AM | Report abuse

The link for the Laura Vanderkam article is missing.

Posted by: frankiannuzzi | August 18, 2010 10:02 AM | Report abuse

"Americans irked by the idea of tenants getting a free ride from taxpayers would do well to remember that renters overall receive far less in federal aid than homeowners, who benefit from generous help like the home-mortgage interest deduction."

Is this actually true?

The article references a potential rental going for $895/mo, and also mentions that the typical portion of rent due from the low income family is $360/mo. The spread is $535/mo, or $6,420/yr.

At the 25% bracket, a household would need to deduct $25,680 to receive the same subsidy (and married couples would get a standard deduction of $11,400 in any case, and so they would net to deduct $37,080 to receive a net benefit of $25,680).

While I can see that a household with a $500,000 or $600,000 mortgage might get there (not sure why the subsidy should grow with larger mortgages but whatever), I don't see how your average middle class homeowner is going to receive anywhere near as much in terms of tax benefits.

That all being said, I'm not irked by the program - at least compared to the drive to get people into homes - though I'd rather provide a guaranteed minimum income and let people decide for themselves how to allocate their money.

Posted by: justin84 | August 18, 2010 10:23 AM | Report abuse

*Large consensus forming over the last several around johnson/kwak four steps --> i say mix in large payroll tax cuts

*you guys don't talk much high-speed rail

Posted by: jackjudge4000yahoocom | August 18, 2010 10:48 AM | Report abuse

*Large consensus forming over the last several months around johnson/kwak four steps --> i say mix in large payroll tax cuts

*you guys don't talk much high-speed rail

Posted by: jackjudge4000yahoocom | August 18, 2010 10:49 AM | Report abuse

Best place to find quality quality bankruptcy info online is

Posted by: dalejohn19 | August 19, 2010 6:11 AM | Report abuse

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