Friday Animations–Bush Tax Cuts

Still no strength in this rebound – The new news looks to me like the same old news. The brightest economic indicators continue to come from surveys of managers. The ISM manufacturing PMI held up at 56.6 for November. Any reading above 50 signifies that more responders reported improving conditions than reported deterioration, and a reading this high suggests manufacturing continues to do quite well. ISM nonmanufacturing PMI was also at a very healthy 55. U.S. auto sales for November were up 16.8% from a year ago, sustaining the kinds of year-over-year gains that we saw over the previous two months, but still stuck at a level far below what we used to think of as normal. A more troubling important economic summary is the Chicago Fed National Activity Index. Its 3-month average continued its recent slide, falling to -0.46 for October.
What is the real problem for most of us? –  We have an economy scarred by mass unemployment, falling wages, and growing insecurity. In the downturn, a staggering 40 percent of American households have been afflicted by unemployment, negative home equity, mortgage payment arrears, or foreclosure. In November 2008, one quarter of Americans aged 50-59 reported that they’d lost more than 35 percent of their retirement savings. But this devastation caused by the collapse of the financial bubble and resulting recession is but the foul expression of an economy that has suffered long-term decline. We were hemorrhaging manufacturing jobs when the economy was growing before the bubble burst. Wages fell for most Americans over the course of the last decade, which suffered the worst job creation of any period since the end of World War II. The imbalances were obscene before the recession, with finance capturing 40 percent of corporate profits, the wealthiest 1 percent capturing half of the benefits of economic growth, the US running soaring trade deficits, even in high technology products, with China and the world. Our decaying infrastructure, broken health care system, declining educational performance in relation to the industrial world all preceded the fall.


EU in context – Ten years ago the PIIGS and others were desperate to get into the EU and use the Euro because they had depreciated the hell out of their currencies for decades and were unable to borrow money at reasonable rates anymore, if at all.  The EU architects weren’t as stupid as our brilliant economists make them out to be. They imposed limits on fiscal and trade deficits on EU members. It is a well known fact that a stable currency is good for business, and the idea was to create a larger regional market with a single currency and more common regulations and import duties between members.  Where the problem came in is fiscal and trade deficits rules either weren’t enforced, or like Greece, some countries cooked the books and hid the problem. So the only good thing about having their own currency is the PIIGS would have gone bankrupt 10 years ago, and maybe would have partially recovered by now. But only maybe.
Economy and Debt – US States Face More Financial Stress… Legislatures around the country may have to make more spending cuts over the next couple of years because of dwindling help from the federal government and a slow recovery in tax revenue, according to a new report. States will spend about $43 billion in economic stimulus funds during the current fiscal year, which ends June 30. After that, they’ll probably have to get by with less federal funding. The report from the National Governors Association and the National Association of State Budget Officers warned of "extremely tight fiscal conditions for states" as federal support winds down. Critics of the economic stimulus legislation note that it failed to prevent a large jump in the unemployment rate. But the report credited the money with helping states avoid "draconian cuts" to Medicaid, education and other programs.


What Does $60 Billion Buy? – In today’s Week in Review section, I look at how else Congress could spend $60 billion a year — the annual cost of extending the Bush tax cuts on income above $250,000 a year. This post provides details on the calculations. First, a few specifics about the tax cut itself: Less than 2 percent of households will be affected by this extension, according to the Tax Policy Center, a Washington research group. The great majority of these households will be earning $300,000 or more (because of exemptions that reduce taxable income below $250,000). On average, each household in this group will save more than $25,000 a year because of the extension of the high-end cuts. And they will save even more than that from the extension of the Bush tax cuts, because they will also benefit from the extension of the tax cuts that apply to their first $250,000 of taxable income.
What Else Would $60 Billion Buy? –$60 Billion: The approximate amount that extending the Bush tax cuts on income above $250,000 a year — which Congress seems on the verge of doing — will cost a year, in inflation-adjusted terms. On average, the affluent households that benefit from these cuts will save $25,000 annually. What else might that $60 billion a year buy?
  • •As much deficit reduction as the elimination of earmarks, President Obama’s proposed federal pay freeze, a 10 percent cut in the federal work force and a 50 percent cut in foreign aid — combined.
  • •A tripling of federal funding for medical research.
  • Universal preschool for 3- and 4-year-olds, with relatively small class sizes.
  • •A much larger troop surge in Afghanistan, raising spending by 60 percent from current levels.
  • •A national infrastructure program to repair and upgrade roads, bridges, mass transit, water systems and levees.
  • •A 15 percent cut in corporate taxes.
  • •Twice as much money for clean-energy research as suggested by a recent bipartisan plan.
  • Free college, including room and board, for about half of all full-time students, at both four- and two-year colleges.
  • •A $500 tax cut for all households.

Off Message Watch: "I Don’t Know That for Sure" – The administration just cannot admit that it made a mistake in proposing a stimulus package that was too small. This is from a Q&A with Austan Goolsbee:: Q. Would our economy be in better shape right now if the initial stimulus when the administration took office had been bigger? A. I don’t know the answer to that for sure. There’s a bit of a crystal ball in that. It obviously depends on what the things were. The right answer here is "of course if would have been better," and to then talk about how Republicans blocked any hope of additional stimulus once it was clear the economy was doing much worse than anticipated. But because the administration refuses to admit its mistake and concede that the stimulus was too small, it cannot bring itself to argue that the economy needs more help from fiscal authorities. There were nods in this direction now and again, but the administration never really tried to make this argument, a strong push for a job creation program for example, and it has thus given up the chance to make clear which party is standing in the way of providing more help for distressed households.

    Fisking the American Securitization Forum’s Congressional Testimony – Tom Deutsch, the Executive Director of the American Securitization Forum (ASF) testified before the Senate Banking Committee this past week about chain of title problems in securitization.  I was fascinated to see how much attention the ASF spent in attempting to rebut my testimony from a pair of previous hearings (here and, in a more polished form, here). My first thought was "gosh, ASF’s awfully defensive. They sure seem spooked." And on looking at the details of the ASF’s rebuttal, my sense is they’re on very shaky ground if these are the best arguments they have.  

    Below I review some of the ASF’s arguments and show why they’re just wrong. In particular, note the PSA language that I quote that demolishes the ASF’s claim that PSAs do not require an endorsement from every party in the securitization chain: "the original Mortgage Note bearing all intervening endorsements showing a complete chain of endorsement from the originator to the last endorsee" If there’s any doubt about what that language means (more discussion below), I’d love to hear it in the comments.  There’s a very specific method of transfer required in securitization by PSAs and if it wasn’t followed, then under New York law, the transfers are void.  And it is sure looking like many deals didn’t comply with the PSA terms.

     EU’s Bailout Fund May Be Increased, Reynders Says in a Break With Merkel – Belgian Finance Minister Didier Reynders said the euro region could increase the size of its 750 billion-euro ($1 trillion) bailout fund, breaking ranks with German Chancellor Angela Merkel and France’s Nicolas Sarkozy. Reynders told reporters in Brussels that the current cash pool could be increased if governments decide to create a larger fund as part of a permanent crisis mechanism in 2013. “If we decide this in the next weeks or months, why not apply it immediately to the current facility?” While Sarkozy and Merkel rejected expanding the fund on Nov. 25, European Central Bank President Jean-Claude Trichet yesterday indicated governments should consider just such a move.
    Age of Cheap Oil Is Over: IEA’s Chief Economist (Video) – The age of cheap oil is over, International Energy Agency Chief Economist Fatih Birol tells MarketWatch’s Steve Goldstein as he also discusses the extended U.S. deepwater drilling ban, the possible direction of oil prices and climate change reduction efforts.

    States Want Their Cap-and-Trade Plans Added to U.S. EPA’s Carbon Limits – U.S. states with cap-and-trade laws want the Obama administration to add their carbon markets into new federal greenhouse-gas regulations, a California environmental official said.  State-run carbon-trading programs should be “treated as equivalents or substitutes” for Environmental Protection Agency regulations for emissions tied to global warming from power plants, oil refineries and factories, Mary Nichols, chairman of the California Air Resources Board, said yesterday in a telephone interview.  “It would be a way to make sure that industries in our state are not being penalized by being regulated by EPA on top of what the state is doing,”

    Friday Animations–Bush Tax Cuts – It might be worth reminding everbody about now that the Bush tax cuts were a poor idea even when they were first proposed. Like so much else done by the Bush administration (and pushed by the right generally), they amounted to yet another means of redistributing from the have-less to the have-mores that Bush called his base. The following is a good animation depicting the interrelationship of distributional issues and the tax cuts, showing visually how the riches from the last few decades went to the wealthy and then the tax cuts added to the problem by favoring them over ordinary folk. One can only wish that those GOP voters in the Senate and House this week had gone back to reiew these points and then listen to their own guru, John McCain, who thought that the projected 2003 deficit of 246 billion (without tax cuts and war costs) was scandalously high. He called "alarming" the 10-year deficit prediction for the cost of the Bush tax cuts of $1.8 trillion, especially when it didn’t even include the war costs, and that such a deficit could "lower the standard of income" for generations of Americans.
    The New Robosigning – First there was robosigning.  Now there’s illegal practice of law.  It seems that one of the major Pennsylvania foreclosure mills, Goldbeck, McCafferty & McKeever, was routinely using non-lawyers to do all the paperwork in foreclosure cases without any review by attorneys.  (See here for Yves Smith’s take.)   That works in most small claims courts, but raises real problems in a foreclosure context.  Perhaps related to the apparent lack of attorney oversight, every Pennsylvania foreclosure filing that I’ve looked at by Goldbeck, McCafferty, & McKeever appears to be facially defective because of a failure to include the note with the complaint.  Pennsylvania law requires that an action based on a writing include a copy of the writing.  A foreclosure action is necessarily based on two writings–a note and a security instrument.  This means that a well-pleaded foreclosure case in Pennsylvania should include the note, the mortgage, and any assignments thereof as part of the complaint.  (There’s even case law on this, not just statute.)  Many Pennsylvania foreclosure filings properly include all of the required writings, but I have never seen any notes included in Goldbeck, McCafferty & McKeever foreclosure filings. 

    The Bond Vigilantes Have Moved to Dublin – DURING the Reagan administration’s experiment with supply-side economics, the United States budget deficit swelled and bond buyers were appalled. They punished the government by pushing down the price of Treasuries.  Ed Yardeni, then an economist with Prudential-Bache Securities, dubbed the informal posse of outraged investors “the bond vigilantes,” writing in 1983: “If the fiscal and monetary authorities won’t regulate the economy, the bond investor will.”  Now an independent economist and market strategist, Mr. Yardeni says that over the last few years, the American vigilantes have been asleep at the switch — lulled by the Federal Reserve’s seductive monetary policies. While the budget deficit has mushroomed to previously unimaginable, $1 trillion-plus dimensions, bond traders have been buying Treasuries with gusto, keeping prices rich and yields extremely low.  But in Europe, where a series of credit crises have sent the euro plummeting, the situation is quite different. There, he says, “the bond vigilantes are very, very active.”

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