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Wonkbook: Financial portion of TARP makes $25 billion; Fidelity abandoning shoddy mortgages; Case for QE2 gets stronger, weaker; Orszag on malpractice


The $309 billion the government pumped into the banks and AIG has, so far, earned the government -- and taxpayers -- $25.2 billion. That's an 8.2 percent return over two years -- better than you would've gotten by investing in Treasury bills or money-market funds, though worse than you would've gotten from the stock market over the same period. And it kept the financial market from collapsing. Not bad, right?

That's not how the voters see it. TARP is among the least popular policies in recent memory. It has already lost some politicians -- like Utah's Sen. Bob Bennet -- their jobs, and will doubtless take more in November. Pollsters and politicians will tell you that part of the reason for the stimulus's unpopularity is that many voters confuse it with TARP. And yet, TARP may be the highest-return policy the government has implemented in decades. When you add up the benefits of the financial system not melting down, and then the direct returns to the investment, the bang-for-the-buck has been astounding. But good policy does not always make good politics.

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TARP is providing a better payoff for the government than Treasury bills, report Yalman Onaran and Alexis Leondis: "The government has earned $25.2 billion on its investment of $309 billion in banks and insurance companies, an 8.2 percent return over two years, according to data compiled by Bloomberg. That beat U.S. Treasuries, high-yield savings accounts, money-market funds and certificates of deposit. Investing in the stock market or gold would have paid off better...The $25 billion TARP return could fund the SEC for more than 20 years, based on the agency’s proposed 2011 fiscal year budget. It could pay for all farm subsidies in the U.S. for more than two years."

But focus groups suggest voters may not like that, either:

This Ben Smith article is still relevant:

Fidelity National Financial will withdraw support from mortgages with shoddy paperwork, report Zachary Goldfarb and Jia Lynn Yang: "If there proves to be any problem with the accuracy of a title because of shoddy paperwork, the lenders would be responsible for losses under Fidelity National's new policy...A major insurer, Old Republic National Title Insurance, said this month that it would not back homes foreclosed on by J.P. Morgan Chase, which halted seizures in some states after paperwork problems surfaced...In Washington, federal officials addressing problems posed by the flawed foreclosure process said Wednesday that they did not think it presented a grave danger to the financial system, though they had not completed their assessment."

The case for a foreclosure moratorium:

The case against a foreclosure moratorium:

The new "Beige Book" report from the Fed predicts slow growth ahead, reports Neil Irwin: "The new survey gave little evidence that the job market is picking up, saying that 'hiring remained limited, with many firms reluctant to add to permanent payrolls given economic softness.' The latest report comes ahead of a Nov. 2-3 meeting of Fed policymakers, at which they are likely to approve new, unconventional efforts to stimulate growth. The findings in the beige book - a weak labor market, modest growth and few signs of inflation - offer support for these new steps, which would include major new purchases of bonds to pump more money into the economy."

Most economists are not hopeful about quantitative easing, writes Annie Lowrey: "From late 2008 through 2009, the Fed created about $1.7 trillion and used the funds to purchase debt in housing-finance firms like Fannie Mae, Treasury bonds, and a whole lot of mortgage-backed securities--tripling the size of its balance sheet to $2.3 trillion. That helped clean some bad assets from the banks' books and reassured spooked markets. But in 2009, the government was trading cash for mortgage-related assets nobody wanted. In 2010, it wants to try to trade cash for an asset that is essentially as safe as cash. If QE2 is to work, it will have to work differently than QE did--and probably won't work as well."

Peter Orszag says health-care reform doesn't go far enough on malpractice: "The traditional way to reform medical malpractice law has been to impose caps on liability — for example, by limiting punitive damages to something like $500,000. A far better strategy would be to provide safe harbor for doctors who follow evidence-based guidelines. Anyone who could demonstrate that he has followed the recommended course for treating a specific illness or condition could not be held liable."

"The health care reform act that Congress passed earlier this year included a modest set of state pilot projects, including one in Oregon that is intended to experiment with this approach. But these pilots are small; the project in Oregon, for example, has only $300,000 in financing. What’s needed is a much more aggressive national effort to protect doctors who follow evidence-based guidelines. That’s the only way that malpractice reform could broadly promote the adoption of best practices."

Got tips, additions, or comments? E-mail me.

Math-rock video interlude: Battles' "Atlas".

Still to come: Paul Ryan's roadmap would cut Social Security benefits by more than half for some beneficiaries; the next Congress will likely be highly skeptical of global warming; the White House is still fighting lobbyists over health care; Tennessee governor Phil Bredesen says health-care reform will unravel the employer-based market; and a vending machine that dispenses live crabs.


Some Social Security beneficiaries will see more than half of their benefits cut under Republican Rep. Paul Ryan's plan, reports Lori Montgomery: "The plan, by Rep. Paul Ryan (R-Wis.), would reduce benefits by gradually raising the retirement age and gradually trimming benefits for the top 70 percent of earners. Together, the two provisions would slice initial benefits by about a quarter for middle-income Americans who turn 65 in 2050, according to the analysis. Wealthier retirees would see even deeper cuts, losing about a third of scheduled benefits in 2050 and more than half of scheduled benefits if they turn 65 in 2080."

A small activist group broke open the foreclosure scandal, reports Ariana Eunjung Cha: "In addition to trying to educate the public about the issue, the group had also been quietly passing along stacks of problematic documents to state and federal regulators, lawmakers, judges and law enforcement officials. They pointed out that document processors such as Stephan had admitted in sworn depositions that they had signed off on up to 10,000 foreclosure documents a month, even though they had not reviewed them as legally required. They also shed light on foreclosure cases in which the paperwork appeared to have been backdated, forged or improperly notarized."

Wells Fargo insists it's unaffected by the foreclosure mess:

Higher commodity prices are pushing retail prices upward, report John Shipman and Anjali Cordeiro: "Across corporate America, more companies are wrestling with when and how much to raise prices as raw materials costs climb. The increases pose new hurdles to profits as consumers continue to resist increases...Corn is up 44%, milk is up 6.5%, hot rolled coil steel is up 4%, copper up 29%, and oil up 14% from a year ago. At this point it's difficult to quantify how broadly these price increases will affect future earnings. The big unknown is not only how much further commodity prices will rise, but how much of that added cost companies will be able to pass along in the form of higher prices."

Foreclosure defense is now a booming legal specialty:

New Basel III regulations will triple bank liquidity requirements, reports Howard Schneider: "The committee, based in Basel, Switzerland, wants governments to roughly triple the amount of capital banks set aside, to an amount equal to 7.5 percent of their deposits and other liabilities. That requirement and other measures proposed by the committee will be reviewed by finance ministers of the G-20 group of nations when they meet in South Korea this week and is expected to be endorsed by G-20 heads of state at a summit next month...U.S. officials plan to integrate the Basel proposals into the financial regulations approved earlier this year by Congress. Other countries are expected to follow suit, Cecchetti said, so that the new capital rules are in place by 2013 across major financial markets."

Seeking mortgage modifications shouldn't subject homeowners to scorn, writes Michelle Singletary:

Chinese capitalism interlude: A vending machine that dispenses live crabs.


Tea party candidates are highly skeptical of global warming science, reports John Broder: "Whatever the party composition of the next Congress, cap and trade is likely dead for the foreseeable future. If dozens of new Republican climate skeptics are swept into Congress, the prospects for assertive federal action to control global warming gases, including regulation by the Environmental Protection Agency, will grow dimmer than they already are...More than half of Tea Party supporters said that global warming would have no serious effect at any time in the future, while only 15 percent of other Americans share that view, the poll found."

GM will pay millions to clean up old plant sites:

We're on the cusp of a tidal energy boom, reports Elisabeth Rosenthal: "While previous test projects tended to be operated by small, boutique firms, the giants of hydropower, which have decades of experience drawing power from rivers, are now getting into the ocean business. Tides are particularly attractive sources of power because they are predictable, unlike sunshine and wind. Not surprisingly, countries with rough seas like Britain and Portugal are leading the way in exploring ocean power...The European Energy Association estimates that, globally, the oceans could yield more than 100.000 terawatt hours a year if the technology to harness that power can be perfected. That is more than five times the electricity the world uses in a year."

The United Steelworkers are upholding free market principles by challenging China on clean energy, writes Tim Fernholz:

Biodiversity yields economic benefits, writes Thomas Lovejoy: "A major reason the biology of the planet is largely ignored in human affairs, is that its critical contributions to human wellbeing are not taken into account in the formal economy. The world’s poor, for example, derive 40 to 89 percent of their annual 'income' from nature, both directly through the goods it provides (e.g., food and fiber) and indirectly through its services...On a larger scale, the TEEB project reckons the annual value contributed by global wetlands at $3.4 billion. On land the project calculates the annual loss of natural capital from natural ecosystems like forests at $2 trillion to $4.5 trillion."

Thai street vending interlude: Extreme iced tea making.

Domestic Policy

A war over health care regulations is brewing, writes Jonathan Cohn: "The issue at hand is how insurance companies spend their money. All insurance carriers have what is known as the 'medical-loss ratio.' It refers to the amount of revenue that insurers eventually devote to actual patient care. Wall Street and the industry like that number to be as low as possible, because, among other things, a low MLR leaves more room for profits. Consumer advocates prefer the MLR to be as high as possible, because it rewards social responsibility and, to some extent, efficiency...Representatives for industry groups have been lobbying furiously to weaken the regulations. Potter, in his Huffington Post dispatch, says 'the insurance industry and other special interests are represented here by more than a thousand lobbyists'--compared to less than 30 on the consumer side."

Michelle Rhee may take over New Jersey schools:

The FCC wants to free up broadcast airwaves for mobile device use, reports Cecilia Kang: "Genachowski said he planned to introduce a proposal at the agency's Nov. 30 meeting that would lay the groundwork for broadcasters to voluntarily release airwaves for sale to mobile carriers, which have been struggling to keep up with consumer demand for Internet-capable wireless devices...Genachowski declined to comment on whether the meeting would include a vote on his controversial net-neutrality proposal, which would essentially require Internet service providers to treat all Web traffic equally...The agency has instead been focused on mobile broadband regulations."

Putting healthy foods in vending machines is a difficult engineering problem:

Health care reform gives employers an incentive to drop coverage, writes Phil Bredesen: "Now that we've protected our employees, we'll also have to pay a federal penalty of $2,000 for each employee because we no longer offer health insurance; that's another $86 million. The total state cost is now about $200 million. But if we keep our existing insurance plan, our cost will be $346 million. We can reduce our annual costs by over $146 million using the legislated mechanics of health reform to transfer them to the federal government...The consequence of these generous subsidies will be that America's health reform may well drive many more people than projected out of employer-sponsored insurance and into the heavily subsidized federal system."

Frequent flyer systems could be adapted to promote preventative health care, writes Esther Dyson:

Republican anti-health care reform suits will backfire, writes Matt Miller: "Republicans used to understand these economics perfectly. That's why Bob Dole, Howard Baker, John Chaffee and Mitt Romney (among others) have all supported individual mandates. Are all these Republicans constitutional rogues? No one disputes that the federal government has the power to stop insurers from denying coverage based on preexisting conditions. Under the Constitution, the feds thus have the corresponding power to enact reasonable measures to assure that this reform actually works. For seven decades the Supreme Court's reading of the commerce clause has made this permissible."

Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews, Mike Shepard, and Michelle Williams.

By Ezra Klein  | October 21, 2010; 6:46 AM ET
Categories:  Wonkbook  
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Next: The government's pretty-good investment, cont'd


"The United Steelworkers are upholding free market principles by challenging China on clean energy, writes Tim Fernholz"

Really? Let's check the article.

"If Kirk finds violations, the United States will seek redress through the World Trade Organization, which could include new tariffs on Chinese goods."

"Correction begins with currency revaluation to create export parity and also includes efforts to promote exports and saving domestically." tariffs... efforts to promote exports...

You think this is what an advocate of free market principles would suggest?!

While one may rightfully criticize China for interfering with trade, advocating that the U.S. respond in kind is not the free market position.

This is equivalent to someone twenty years ago suggesting the U.S. use poison gas on Baghdad in response to Saddam's atrocities against the kurds, and trying to sell it as upholding pacifist principles.

Posted by: justin84 | October 21, 2010 8:20 AM | Report abuse

"Most economists are not hopeful about quantitative easing"

Please write that on the back of your hand, so that the next time you start to write one of your posts bashing Bernanke for not saving the world you will see those words and stifle yourself.

Posted by: ostap666 | October 21, 2010 8:38 AM | Report abuse

where was Peter Orszag with this (on the surface) very good idea on medical malpractice reform during the YEAR LONG healthcare debate? Oh yeah I forgot liberals think medical malpractice doesn't have an impact.

The truth is no one knows how much of an impact revising best practices will do but this is another option to a good start. how much of the unnecessary care is due to doctors having perverse profit motives (ie FFS) and how much is fear of not doing everything possible and thus being open to lawsuit. Well there's only one way to find out.

Posted by: visionbrkr | October 21, 2010 8:58 AM | Report abuse

"But the reason for the banks' current stinginess has little to do with the size of their reserves—banks are sitting on excess capital, as are the big companies they like to lend to. Banks are not making loans because they don't see anyone or thing worth lending money to."

It's true that reserves don't matter much for lending. Lending depends on profitable lending opportunities and available capital.

That said, banks are issuing plenty of loans. Just not as many as they did during the peak of the credit bubble.

While banks may have excess capital compared to current regulatory standards, the excess is not much compared to future regulatory standards and for that matter what banks themselves would like to have in the aftermath of the financial crisis.

Another consideration is that reduced bank loan issuance isn't only due to supply constraints - demand for loans has also fallen.

Posted by: justin84 | October 21, 2010 9:20 AM | Report abuse

visionbrkr, I agree that on their face I think there's something to the malpractice reforms presented by Orszag. I think there's every possibility that if a single Republican Senator wanted to trade their vote to get this in the bill, it would have been added in a second. I don't think Dems are so against malpractice reform that they couldn't be convinced on this, but I also think Dems have, over the last few years, started to clue in to the fact that there's little to no political benefit to finding clever ways to implement Republican policy priorities with good policies.

Posted by: MosBen | October 21, 2010 9:53 AM | Report abuse

Ezra, as I pointed out to you yesterday, if the government has MADE money on TARP, (which viewed strictly in a vaccuum, it has) why is the Fed suing Bank of America to take bank mortgage backed securities it got from AIG in the deal? Could it be because those securities have LOST money?

As I pointed out before, I'm a fan of TARP as necessary to avoid complete destruction of the credit system. However, when will you address the REAL cost of TARP, which is all those securities STILL in the hands of the government?

C'mon kid, you don't know a whole lot about finance so you keep talking to college professors and Obama administration economists. Prove to me you're a fast learner by getting up to speed on the Fed's Maiden Lane action this week!

Posted by: 54465446 | October 21, 2010 9:55 AM | Report abuse

Oh I forgot to add, we haven't even BEGUN to address that the WAY the corporations paid off the money from TARP was by the Fed lowering the discount rate effectively to 0. This would be similar to you owing me money that you can't possibly pay back, so I loan you money at no interest, which you then loan back to me in a spread from .05% to 2% interest, which enables you to pay me back the original debt!

Take a look at the tranactions for yourself.

Posted by: 54465446 | October 21, 2010 10:05 AM | Report abuse


in thinking about that I agree that if Republicans would have traded their vote they'd have gotten this in but again I'm wondering if their fears may have been if we agree to this step will Dems try to take it steps further? While the Senate Dems are obviously more conservative teh House Dems led by a large contingent from Northern CA would be a proponent of single payer given their druthers. That's somewhere that no Republican wants to go now or ever. They're all trying to move the starting line in these negotiations so that when its negotiated from there it ends up closer to where they want to be.

Posted by: visionbrkr | October 21, 2010 10:17 AM | Report abuse

In what kind of la la land has TARP made money? $100 billion of the $300 billion hasn't even been paid back. If you lose more in principal than you gain in income, you haven't made money. Ask Bernie Madoff's customers.

Posted by: bgmma50 | October 21, 2010 10:27 AM | Report abuse

"Whatever the party composition of the next Congress, cap and trade is likely dead for the foreseeable future. If dozens of new Republican climate skeptics are swept into Congress, the prospects for assertive federal action to control global warming gases, including regulation by the Environmental Protection Agency, will grow dimmer than they already are...More than half of Tea Party supporters said that global warming would have no serious effect at any time in the future, while only 15 percent of other Americans share that view, the poll found."

This was well known a long time ago.

Senate Democrats decided that minor political gains were worth screwing over the one Republican willing to work with them, effectively trading away the only chance to do something about climate change at the federal level.

So it doesn't really matter that tea partiers don't accept the science. The Democrats do consider climate change real and dangerous, but they don't consider tackling it to be a higher priority than scoring political points.

Posted by: justin84 | October 21, 2010 11:10 AM | Report abuse


I do believe in global warming, but cap and trade was an excuse to create another Enron type trading scam. Good riddance!

Posted by: 54465446 | October 21, 2010 11:15 AM | Report abuse

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