If This Is Working Together, I’ll Take Gridlock

Report: General Agreement on Taxes for next two years – The NY Times has the details: Pact on Bush Tax Cuts Trims Payroll Levy A few points: Extend Bush income tax cuts for two years, including for high income earners.  13-month extension of jobless aid for the long-term unemployed.   Reducing the Social Security payroll tax by two percentage points for a year:  For a family earning $50,000, the two percentage point cut would mean a savings of $1,000.  For workers paying the maximum, the two percentage point cut would mean a savings of $2,136.  Estate tax exemption of $5 million per person and a maximum rate of 35 percent. This is expected to increase the budget deficit by $900 billion over two years.

Guest Post: Does Bernanke Look Like a Man Who is Confident About the State of the Economy and the Prospects for Recovery?– There is a lot to say about Bernanke’s comments on 60 Minutes today. Bernanke’s statement that unemployment is the biggest impediment to economic recovery is ironic, given that Bernanke’s policies have increased unemployment. See this and this. Harry Blodget notes that Bernanke implied that inequality is destroying America. Tyler Durden hones in on Bernanke’s statements that the economic recovery may not be self-sustaining, and that the Fed may buy even more bonds. Daily Bail picks on Bernanke’s claim that the Fed is not printing money. There are certainly a lot of interesting things to say about Bernanke’s words. But I think the real story is how nervous Bernanke appears.Listen to his voice, and watch his lips quaver. Ignore his words … does this look like a man who is confident about the state of the economy and the prospects for recovery? Does this sound like a man who is sure that history will judge his actions kindly?

Mirabile Dictu: The Treasury Flexes Some Muscle on the Volcker Rule? –  Yves Smith – As readers know, this blog has LOOONG been a critic of the Treasury Department’s stance towards big dealer banks, both in the Paulson era and from the very get-go of Geithner’s tenure. So on those all-too-rare occasions when Treasury seems willing to meddle in a real way with the “heads we win, tails you lose” arrangement the financial services industry has managed to devise with broader society, it’s important to applaud those efforts. Admittedly, it is premature to declare victory, but the fact that Treasury is even taking a serious stance on the so-called Volcker rule is a surprise. Conventional wisdom on financial reform, and it is being borne out in the backroom wheeling and dealing on derivatives regulation, is that despite the length of the Dodd-Frank bill, numerous key details remained to be worked out in detailed provisions which were to be negotiated with industry incumbents. That looked to be a way to retrade the deal, since the legislation could be interpreted as narrowly as possible, with the end result that the industry incumbents would be merely inconvenienced, as opposed to required to do business in fundamentally different ways.

Some Lenders Sell Foreclosed Homes Without Obtaining Title Yves Smith – When you thought you’d seen every possible stuff-up in mortgage land, a new one comes to light.  When the housing market correction started, most savvy observers pointed out that prices needed to revert to long-term relationships with rentals and income levels. The powers that be have been trying to forestall the inevitable that by using super low interest rates and purchases of mortgage backed securities to keep mortgage borrowing rates low, making housing more affordable. But with these ongoing large-scale subsidies, and the almost certain prospect of banks pressing for continuing favored treatment (recall, for instance, the “securitization market is TBTF” argument by American Securitization Forum president Tom Deutsch), it’s disturbing to see members of the financial services industry continue, through incompetence and an undue focus on cost containment, take actions that are detrimental to the housing market.  Evidence of the latest self-inflicted wound comes via e-mail from Lisa Epstein of ForeclosureHamlet.org, namely that some lenders, such as Fannie Mae, had not obtained title to foreclosed properties before selling them out of foreclosures.

Lender Processing Services Produced More Bogus Foreclosure Documents Than It ‘Fessed To – Yves Smith – Readers may recall that this site broke the story of litigation against Lender Processing Services, the biggest player in foreclosure management on behalf of mortgage servicers. These cases, launched earlier in the fall, accused the company of taking impermissible legal fees. These class action lawsuits were joined by the US bankruptcy trustee for the Northern District of Mississippi, both for herself and on behalf of all US bankruptcy fees, which meant she felt the issues set forth in the case had merit and were serious. In November, an additional class action case was filed against LPS, this time securities litigation, charging the company with making false and misleading statements to investors, including “deceptive and improper document execution and preparation related to foreclosure proceedings.” Subsequently, as our Richard Smith detailed earlier today, Housing Wire’s Paul Jackson attacked critics of LPS, including this blogger, of going off half baked in accusing the company of engaging in document fabrication. A Reuters investigation published today supports the critics’s case, revealing that document creation was far more extensive that the company has suggested.


Guest Post: How Effective Would a Payroll Tax Holiday Be In Spurring Employment and Stimulating the Economy? Obama’s tax deal with Republicans extends the Bush tax cuts for the wealthy for another 2 years.As Bloomberg notes, Obama said that “he still believes the nation can’t afford to permanently extend the top tax rates”. But as Mish points out: Of course the last extension was “temporary” and the next extension will be “temporary” as well. Obama’s plan would also extend aid for the long-term unemployed for another 13 months. And the payroll tax (which funds Social Security and Medicare) would be cut by 2 percentage points during 2011 in an effort to help spur hiring. Will cutting the payroll tax really help to spur hiring?The Center on Budget and Policy Priorities argued in January 2009 that it wouldn’t.

If This Is Working Together, I’ll Take Gridlock – A weak economy is not an excuse to spend money we don’t have on things we don’t need.  I am with Stan on this tax cut deal.  And Paul Krugman, for that matter.  I repeat my view that the Bush era tax cuts should expire on schedule.  The New York Times reports the two-year cost of this tax cut package at $900 billion. What is amazing is how little we have learned in three years.  Quoting from an op-ed I wrote in February 2008, almost nothing has changed (other than the magnitudes, which have all gotten worse): The agreement reached by the House and White House in January addressed two problems that the United States does not have. First, the nation does not have an underconsumption problem. The personal saving rate hovers around zero. The government’s budget has been in surplus in only four of the last 35 years. The nation has run current account deficits with the rest of the world for the last 15 years. If we are looking for additional economic activity, consumption is a poor choice.
Tax Extension Deal A Promising Sign for Future Reform – Last night, the President outlined a bipartisan compromise that has been reached with Congressional Republicans. While the plan may still undergo changes (particularly in response to some Congressional Democrat’s disapproval), the plan the President outlined contains some promising items including: a 2 year extension of all of the 2001 and 2003 tax rates (including for high income earners and an AMT patch); a 2 year extension of the tax provisions included in the ARRA; a 13 month extension of unemployment benefits; a 1 year reduction of the payroll tax by 2%; and a 2 year change to the expiring estate tax rates which would exempt the first $5 million of an estate and implement a 35% tax rate thereafter. According to one source, this compromise package would cost about $900 billion over the next two years, though firmer estimates will be released in the coming days. As we have discussed here before, addressing the uncertainty surrounding the looming tax increase is of the utmost importance and we applaud a 2 year extension of all the rates in order to restore some of that certainty.

Cost of the Tax Cut Deal: $900 Billion – It’s worth pointing out, as Andrew Samwick does, that the deal reached between Obama and the GOP is enormously expensive. As the New York Times puts it simply: The package would cost about $900 billion over the next two years, to be financed entirely by adding to the national debt, at a time when both parties are professing a desire to begin addressing the nation’s long-term fiscal imbalances. This is just mindbogglingly irresponsible.

A Second Stimulus – The apparent deal over the Bush tax cuts highlights why the Democrats probably had to accept the extension of all the Bush tax cuts. No politician is likely to use this word — at least no Democratic politician — but the deal amounts to a second stimulus bill.  Democrats and Republicans agree to extend all the tax cuts and also agree to an extension of unemployment benefits, a cut in the payroll tax and, according to my colleagues, “continuation of a college-tuition tax credit for some families, an expansion of the earned income tax credit and a provision to allow businesses to write off the cost of certain equipment purchases.” The amount of money pumped into the ailing economy: about $900 billion over years. Subtract the $400 billion cost of the Bush tax cuts. Subtract another $140 billion or so, which is the cost of extending the Alternative Minimum Tax patch (and almost certainly would have happened regardless). You’re then left with more than $300 billion in net stimulus over two years. And while that sum will not be enough to fix the economy all by itself, it is serious money.

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