In Tax Deal with GOP, Obama Didn’t Win as Many Concessions as Advertised – President Obama seems remarkably proud of himself for the many “concessions” he won from Sen. Mitch McConnell (R-KY) as part of their deal to extend all the Bush tax cuts for two years. The administration has really tried to spin the “success” of this deal by claiming Obama got $238 billion in spending while the Republicans got only $114 billion of spending on what they want. Yet, it seems almost all of the “concessions” Obama claims to have won were ideas actually promoted by Republicans. The amount of money allocated for things Obama wanted that didn’t have bipartisan support is much smaller. Looking at the entire package, it is a very pro-Republican proposal. Many of the items in the package that Obama and other Democrats have bragged about winning already had Republican support or were originally Republican ideas. Republicans have long pushed for a payroll tax cut, expanding the child tax credit, and special tax treatment for business investment. Congress probably could have passed all of these even without Obama giving in on the estate tax, so you can’t really count them as real concessions. Even the extension of unemployment benefits, which is a win for Obama, is only a partial cocession, given that the White House would have been able to get a shorter extension, separate from this deal.
Cancun climate summit agrees deal – UN talks in Cancun have reached a deal to curb climate change, including a fund to help developing countries. Nations endorsed compromise texts drawn up by the Mexican hosts, despite objections from Bolivia. The draft documents say deeper cuts in carbon emissions are needed, but do not establish a mechanism for achieving the pledges countries have made. BBC environment correspondent Richard Black said the meeting did not achieve the comprehensive, all-encompassing deal that many activists and governments want. But he said it was being "touted as a platform on which that comprehensive agreement can be built".
Is It Verboten to Talk About the Securitization Buyers’ Strike? – Yves Smith – There is a perfectly fine article up at the Wall Street Journal on the current, probably weakening, state of the housing market, save that it fails to discuss the elephant in the room, that of the continuing moribund conditions in the so-called private label securitization market. The piece, “Housing Shaky as Lenders Tighten,” gives a straightforward recitation: housing sales have fallen markedly in the second half of 2010 as housing tax credits expired, even with record low interest rates. (And that tailwind may no longer be behind housing as mortgage rates moved up last week). The piece also gives macro implications: that housing has normally provided a significant boost in all past postwar expansions (yes, Virginia, this is not a normal “recovery”). And it does acknowledge the way that lending is now dominated by government entities, which are not being terribly generous with credit now. This picture is woefully incomplete. Before the crisis, Fannie and Freddie provided roughly 40% of residential lending. Their outsized role now is in large measure due to the collapse of the so-callled private label securitization market.
EU Permanent Bailout Mechanism Leaked to BBC – Bad Outcome for PIIGS Gov’t Bondholders? – The BBC has obtained a leaked copy of the EU draft communique on the so-called permanent bailout mechanism. Attentive readers may recall that current programs extend only to 2013, leaving a big question mark as to what would happen next, given the high odds that the countries perceived to be at risk would not be out of the woods by then.The result, which is not out of line with previous ideas that have been voiced, may nevertheless rattle the relevant bond issues further. Key points:New bailout funds would be senior to existing government debt (this is a standard feature of IMF rescues and bankruptcy financings) – Restructuring is a requirement in the “unexpected” instance the government in question is determined to be insolvent – Future government bonds (from 2013) will need to include terms that make restructuring less difficult. Note that these changes would require an change in the EU treaty, which in turn means a referendum in Ireland. In addition, the treaty wording change is broad, and would allow for the creation of senior e-bonds. In other words, it would represent a major step towards fiscal union.
Alexander Gloy: Funeral music for the Euro? – This week, EU leaders will try to agree on limited EU treaty changes at a summit (December 16-17). The aim is to establish a permanent rescue mechanism for countries in financial difficulties. On Monday and Tuesday (December 13-14) foreign affairs ministers will meet in Brussels to prepare draft conclusions. The BBC claims to have obtained a draft communiqué. We will analyze if a new European Stability Mechanism (ESM) has any chance to save the Euro. It will be interesting to see how far the idea of eBonds (supra-national bonds issued by the EU to funnel money towards countries in difficulties) will get amidst opposition from the two largest contributors – Germany and France. It is unclear why it took a French-German summit to state the obvious, namely that bankrupt entities, including sovereigns, should be allowed to go bankrupt. “Bankrupt” not as in “the end of the world”, but rather as a way of making a debt problem manageable by restructuring it. Orderly bankruptcy proceedings, by the way, are in the interest of creditors (since otherwise creditors would create more damage in a “first-come-first-served” rush to secure collateral at the detriment of others).