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Posted at 7:13 AM ET, 12/29/2010

Wonkbook: GOP's Fannie flip-flop; WH thinking on Summers' replacement; 157 banks failed in 2010

By Ezra Klein


Top Stories

House Republicans have shifted to opposing Fannie/Freddie privatization, reports Alan Zibel: "Earlier this year, leading House Republicans proposed to privatize mortgage giants Fannie Mae and Freddie Mac or place them in receivership starting in two years. Now, as Republicans prepare to assume control of the House next week, they aren't in as big a rush, cautioning that withdrawing government support in the housing market should be gradual. 'We recognize that some things can be done overnight and other things can't be,' said Rep. Scott Garrett (R., N.J.), incoming chairman of the House Financial Services subcommittee, which oversees Fannie and Freddie. 'You have to recognize what the impact would be on the fragile housing market as it stands right now.'"

The president's thinking on how to replace Larry Summers has changed, reports Julie Pace: "The administration's thinking on how to fill the job has evolved since Summers announced his resignation. The initial view - both inside and outside the White House - was that Obama should name a business leader to the post, in an attempt to give the private sector a greater voice in the administration and ease the perception that the president is anti-business. But the administration now believes the relationship between Obama and the business community has started to thaw. For example, both sides praised each other following Obama's meeting with CEOs earlier this month. The White House has grown more willing to find another prominent job for a private sector appointee while leaving the council post to an economic heavyweight who can coordinate the advice Obama is receiving from throughout the administration."

Real talk: This means they couldn't find a CEO who they thought good enough for the job, and who also wanted to take it. That said, the administration is right to try to pick the best person for the job rather than the best symbol for it. Ultimately, what'll make corporate America happy is effective economic policy.

More banks failed in 2010 than in any year since the savings & loan crisis, reports David Hilzenrath: "More banks failed in the United States this year than in any year since 1992, during the savings-and-loan crisis, according to the Federal Deposit Insurance Corp. Amid high unemployment, a struggling economy, and a still devastated real estate market, the nation is closing out the year with 157 bank failures, up from 140 in 2009. As recently as 2006, before the bubble burst, there were none. Now, there are more on the horizon. The FDIC's list of 'problem' banks - those whose weaknesses 'threaten their continued financial viability'- stood at 860 as of Sept. 30, the highest since 1993. Historically, about a fifth of banks on the watch list end up failing."

Famed deregulator Alfred Kahn has died, reports Stephen Miller: "The economist Alfred Kahn was considered the father of airline deregulation. He was also a notorious Washington wag, who once responded to White House criticisms for warning of a depression by changing 'depression' to 'banana.' As chairman of the Civil Aeronautics Board, or CAB, under President Jimmy Carter, Mr. Kahn eliminated restrictions on prices and allowed airlines to choose their own routes. The move has been credited with lowering airfares--estimates of annual savings range up to $20 billion--and dramatically expanding flying. It also caused industry turmoil, as old airlines went bankrupt and new discount carriers, like Jet Blue and Southwest, emerged."

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Let's be honest interlude: Things people never, ever say about restaurant web sites.

Still to come: Budget negotiations will begin after the State of the Union; insurers are competing to run states' expanded Medicaid programs; US schools may do better than often thought; the Interior Department is considering developing wind energy off the Massachusetts coast; and Conan learns to perform stunts the hard way.


Obama and Congress will begin budget negotiations after the State of the Union address, reports Russell Berman: "Lawmakers and the White House are set for serious budget negotiations that will begin immediately after the president’s State of the Union address. Fights over healthcare, spending and the national debt could result in grand bargains like the tax-cut deal Obama struck with Republicans, or they could lead to a government shutdown, as when President Clinton went toe to toe with the GOP in 1995.
Emerging fights over environmental and Internet regulation also loom, as do scuffles over troop levels in Afghanistan, national security policies and GOP-led investigations of the Obama administration."

Consumer confidence is down:

The housing market is near a double-dip, reports Robin Harding: "According to the widely followed Case-Shiller index, house prices dropped by 1.3 per cent between September and October, the fourth consecutive month in which prices have fallen. Prices across 20 US urban areas stood 0.8 per cent below the level of October 2009, a sharper fall than economists had expected. The Case-Shiller measure showed house prices in six markets - Atlanta, Charlotte, Miami, Portland, Seattle and Tampa - hitting their lowest level since they began to fall in 2006 and 2007. 'The double-dip is almost here, as six cities set new lows for the period since the 2006 peaks,' said David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s, which produces the index."

The US-China current account deficit could disappear this year:

The biggest derivatives clearinghouse is refusing to register with regulators, reports Ben Protess: "The world’s largest clearinghouse for credit-default swaps, ICE Trust, has had second thoughts about registering with regulators, citing concerns over new rules devised to bring transparency to the $600 trillion derivatives market.

There is reason for optimism about the economy in 2011, writes David Leonhardt: "The reasons for optimism about 2011 come from both Washington and the private sector. The Federal Reserve and Congress have finally taken more action to lift economic growth, and the latest data -- on consumer spending and jobless claims, among other things -- has been good. The housing market remains weak, but sales and prices are no longer plunging. On the longer-term issues, the recent work by President Obama’s bipartisan deficit commission suggested that Democrats and Republicans might eventually find some common ground on the issue. And the health care overhaul passed in March -- assuming it survives legal challenges -- is likely to cut the number of uninsured sharply and to reduce cost growth modestly. The one issue that offers little reason for optimism is climate change."

The stimulus isn't being spent fast enough:

We shouldn't worry too much about municipal bankruptcy, writes Annie Lowrey: "For the most part, municipal bonds make safe, low-risk, low-reward investments...Historically, their rates of default come in around one-third of 1 percent, far lower than the rates for, say, corporate bonds...Defaults on non-GO debt--for things like hospitals and housing projects, debt already considered more risky--are happening at a slower rate than in years past. The National League of Cities notes that there have been at least 72 defaults this year, down from 204 in 2009 and 162 in 2008. Considering the thousands of bonds issued in the last decade by the 50 states, 19,000 cities, 4,000 counties, 15,000 school districts, and tens of thousands of individual projects--that's not too bad."

Late night hosts under attack interlude: Stuntman Steven Ho gives Conan O'Brien a few lessons.

Health Care

Health insurers are fighting for the ability to run state Medicaid expansions, reports Avery Johnson: "Health insurers are preparing to capitalize on $40 billion of new opportunities to run privately managed Medicaid plans for the states, which would position insurers to benefit from the health overhaul's expansion of Medicaid in 2014. Medicaid, the state and federal program for the poor, has become a growth area for big insurers such as UnitedHealth Group Inc. and more specialized plans such as Molina Healthcare Inc. Texas and Georgia will solicit new contracts for their private Medicaid plans early next year, while California, Florida and others are likely to meaningfully expand their programs, companies and states have said."

The administration and Congressional Democrats think the new HHS end-of-life regulation has killed the "death panel" attack:

Sens. Ron Wyden and Scott Brown are forming an odd couple on health policy, reports Jason Horowitz: "The reaction in the Democratic caucus, according to some of Wyden's Senate colleagues, was grumbling. There is a feeling among some in the Senate that Wyden is the 'King of Policy Wonks,' taking up creative positions that please think tanks but rarely go anywhere. The White House, sounding less than enthusiastic, has said only that it will look at the bill. Wyden depicted the bill as indicative of 'principled bipartisanship.' His brand of bipartisanship has been perilous for other Republican partners, however...Conservatives in Utah attacked Bennett over his work with Wyden, and in May, Bennett lost his bid for renomination at his party's state convention, making him the first incumbent of the cycle to become a tea party casualty."

Real talk: There are a lot of senators who are jealous of the coverage Wyden and his partners get for their policy proposals.

Republicans are considering forcing a vote on the end-of-life regulation:

Baltimore rock interlude: Wye Oak play "Civilian".

Domestic Policy

US schools do better than commonly thought, writes Tino Sanandaji: "In the case of America, 99% of the population originates from other countries, be they England, Italy, Sweden, India, Africa, Hong-Kong or Mexico. If we want to isolate the effect of the United States public school system, we should compare the immigrant groups with their home country. For those majority of Americans whose ancestors originate from Europe, we obviously want to compare them with Europe. For some groups, such as Indians, this is inappropriate. The reason is that mainly the most gifted Indians get to migrate to America to work or study...The results are astonishing at least to me. Rather than being at the bottom of the class, United States students are 7th best out of 28, and far better than the average of Western European nations where they largely originate from."

An incoming Republican Senator supports abolishing the filibuster on judicial nominations:

The lame duck session doesn't necessarily indicate the next Congress will be productive, writes Neera Tanden: "On the one hand, we are still two years from the next election, and so moderate Republicans may feel that they have a window to continue acting as they did during the lame duck, at least for the next few months. What’s more, now that Republicans control the House, they may believe they will be held responsible for any gridlock to a degree they weren’t before. Taken together, these two factors could lead to a productive start to the next Congress. Or maybe not. Republican presidential candidates will want to keep attacking Obama and any legislation his party proposes--and the GOP ranks on the Hill might fall in behind them."

Republicans' new House rules encourage deficit-raising tax cuts, write Robert Greenstein and James Horney:

Even modest filibuster reform could help the Senate, writes Katrina vanden Heuvel: "Sens. Udall and Merkley have put forward what has become known as the "constitutional option," a basic two-step process in which 51 senators first agree to adopt new rules, and then 51 senators agree on a reform package. Their package probably would not end the filibuster altogether. But it wouldn't need to. Procedural changes - such as preventing a filibuster on the motion to proceed, shortening the amount of debate allowed between cloture motions and ending the unconscionable practice of anonymous holds - have the potential to remake the Senate. These reforms would prevent a single senator from wielding the filibuster against the entire body and would allow the majority to challenge the minority without wasting precious floor time."

Adorable animals pretending to be other animals interlude: A cat putting on a bunny hat.


Start-ups are trying to use natural gas as an oil substitute, reports Matthew Wald: "Sasol, a South African company that produces diesel fuel and naphtha from coal, is considering building a similar plant to take advantage of the natural gas fields of Canada. The conversion would turn a profit, but the conversion itself, even before the fuel is used, can be a major source of carbon dioxide emissions. A San Francisco start-up company, Siluria Technologies, is pursuing an alternative method of converting natural gas to an oil substitute that would also involve releasing less carbon dioxide into the atmosphere. The challenge is to take a molecule of methane, the main component of natural gas consisting of one carbon atom and four hydrogen atoms, and turn it into something bigger."

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

By Ezra Klein  | December 29, 2010; 7:13 AM ET
Categories:  Wonkbook  
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Next: Monetary policy in fiction


"Ultimately, what'll make corporate America happy is effective economic policy."

Seriously? Have you been living in this country the past 35 years? Have you not noticed the whinging of the U.S. Chamber of Commerce all year despite the business-friendliness of the Obama administration? The absolutely ONLY thing that makes corporate America happy is to make sure they can do as they please by controlling the thinking of the 3 branches of government, and the laws and deregulating that result.

Posted by: Riggsveda | December 29, 2010 8:11 AM | Report abuse

"The housing market is near a double-dip, reports Robin Harding: "According to the widely followed Case-Shiller index, house prices dropped by 1.3 per cent between September and October, the fourth consecutive month in which prices have fallen. Prices across 20 US urban areas stood 0.8 per cent below the level of October 2009, a sharper fall than economists had expected. The Case-Shiller measure showed house prices in six markets - Atlanta, Charlotte, Miami, Portland, Seattle and Tampa - hitting their lowest level since they began to fall in 2006 and 2007."

Is anyone surprised that if you create a program which pays people to buy houses, both sales and prices will subsequently fall after the program ends?

Posted by: justin84 | December 29, 2010 9:43 AM | Report abuse

"Ultimately, what'll make corporate America happy is effective economic policy."

Effective economic policy for corporate America is high unemployment (lower wages/weaker unions). Of course, this makes workers unhappy, but I have yet to see much concern from the White House over workers' happiness.

Posted by: stonedone | December 29, 2010 10:16 AM | Report abuse

Interesting article! I just now got Coupons of my Favorite Brands for free from "Printapons" you should search for them online

Posted by: elsiedlewis | December 30, 2010 3:12 AM | Report abuse

The Refi Plus program will waive the normal credit score requirement for a refinance; it will have reduced documentation standards for proof of income; and it will allow for computer-based appraisals, which tend to inflate the value of a home and make it easier to qualify for a refinance. Search online for "123 Mortgage Refinance" they are the best and fast.

Posted by: janiceperry123 | December 30, 2010 4:51 AM | Report abuse

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