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.
Welcome to Wonkbook.
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: http://bit.ly/cNqAsM
This Ben Smith article is still relevant: http://politi.co/ddoybE
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: http://wapo.st/dqelo0
The case against a foreclosure moratorium: http://wapo.st/c93Fgy
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."
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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: http://wapo.st/cWgRMu
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: http://bit.ly/9TJWgu
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: http://wapo.st/cr5yIM
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: http://nyti.ms/aRZWoJ
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: http://bit.ly/abGUpA
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.
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: http://wapo.st/958XdL
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: http://bit.ly/cGv6Z2
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: http://bit.ly/ca6uMh
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.
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