The Wonk Room

The Pros And Cons Of Jaime Dimon As Treasury Secretary

Last week, Treasury Secretary Tim Geithner had a much-publicized spat on Capitol Hill with Rep. Kevin Brady (R-TX), who told Geithner that “the public has lost all confidence in your ability to the do the job,” and asked if Geithner would “step down.” Geithner responded by telling the Republicans calling for his head that “I can’t take responsibility for the legacy of crises you bequeathed the country.”

Democrats have been critical of Geithner’s performance in recent weeks as well, with Rep. Peter DeFazio (D-OR) also calling for him to resign. And according to the New York Post, as Geithner gets battered, “JPMorgan Chase CEO Jamie Dimon is emerging as a potential replacement”:

Sources tell The Post that a number of policy makers have begun mentioning Dimon as a successor to Geithner, whose standing in Washington has suffered…[Dimon] has achieved rock star status during the financial crisis, having navigated JPMorgan through the recession and being a go-to guy when Uncle Sam last year needed Wall Street’s help during the collapses of Bear Stearns and Washington Mutual.

The Post cites “people familiar with Dimon’s thinking” as saying he “would love to serve his country.” No source in the article was willing to go on the record though, so who knows what their motivation for floating Dimon’s name was. As Laura Tara LaCapra wrote at The Street, “[Dimon's] name has been tossed about speculatively — and at times jealously — by those in the industry for some time.”

But politically, if such a personnel switch did come to pass, it would strike me as odd. Geithner’s problem is that he is perceived as being too cozy with Wall Street, and is blamed for the dichotomy between Wall Street’s resurgence and Main Street’s continued time in the doldrums. The failure of the “bailout” to translate into wider recovery is, fairly or not, laid on his doorstep, with 42 percent of Americans saying that “has done a poor job handling the credit crisis and federal bailout programs.”

If that is the case, how would the problem be assuaged by plucking a CEO directly from Wall Street to take over? For his part, Dimon has been very careful to applaud efforts at regulatory reform (aside from panning the idea of a Consumer Financial Protection Agency), and even penned a Washington Post op-ed fully supporting a robust resolution authority for taking apart failed financial institutions. He is also supportive of efforts to help troubled homeowners receive mortgage modifications, telling investors who were bashing the administration’s effort to that “they should get over it.”

Dimon has also said that “tax cuts should go to lower paid citizens, not the wealthy.” But he does not support limits on bank size, and JP Morgan is part of a Wall Street trifecta (including Goldman Sachs and Morgan Stanley) that is on pace to pay out $30 billion in bonuses, an increase of 60 percent from last year.

So if the perception is that Geithner is coddling the banks, would that change with Dimon, as opposed to someone without ties to Wall Street? I’m not sure that case can be made. But on the plus side, Dimon hasn’t characterized anything that he’s done as “God’s work.”

Financial Services Industry Warns That Transactions Tax Will Cause ‘Stalling Of The Stock Market’

With House Democrats seriously considering proposing a financial transactions tax (FTT) to pay for a new jobs creation package, the financial services industry has gone on the defensive. The premise behind a financial transactions tax is that it is so small (a fraction of a percentage point) that a normal investor who is buying a stock to hold is barely going to notice it. But an investment bank like Goldman Sachs, which is involved in lots of high-frequency trading, is going to pay a pretty penny. It’s estimated that an FTT can raise about $150 billion annually.

The Securities Industry and Financial Markets Association, a leading lobbying organization for banks and securities firms, said that such a tax would literally stall the stock market:

Imposing a tax on financial transactions is the wrong idea at the wrong time. Such a tax would likely result in a stalling of the stock market, cutting off companies’ ability to raise capital to fund new investments in plants and equipment, and thus create jobs. Furthermore, it would directly and detrimentally affect millions of Americans by imposing a tax on their savings such as mutual funds, just as they are seeing their investment assets regain value.

An analyst in Washington at Concept Capital, which advises brokers and dealers, told clients that “we cannot completely dismiss the slight possibility it could be part of a House jobs bill,” but vowed that it has “virtually no chance in the Senate.” Even right-wing tea party organizers Americans for Prosperity got into the act, saying that the FTT would be a “disaster.”

Contrary to SIFMA’s assertion, under the proposed plan, the tax would be refunded “for those involving assets kept in individual retirement accounts, education savings accounts and health savings accounts” and the first $100,000 in annual transactions. So “millions of Americans” would not see their savings accounts slammed.

But furthermore, an FTT will make the financial system allocate capital more efficiently, as trading for the simple sake of trading will be more expensive. Center for Economic and Policy Research co-director Dean Baker estimates that an FTT could free up more than $60 billion a year in capital and labor for productive uses.

Finally, I’m not sure where SIFMA gets off suggesting that an FTT would stall the stock market, as the United Kingdom already has both a tax on stock trades and a vibrant stock exchange. Wall Street was saved by taxpayers to the tune of $700 billion dollars, plus untold amounts of guarantees against losses and cheap money from the Federal Reserve. An FTT — the revenues from which could be put towards programs or deficit reduction — seems only fair.

DeLauro: Chamber of Commerce ‘Ignoring The Needs’ Of 57 Million Workers Without Paid Sick Days

In response to the threat posed by the H1N1 virus (swine flu), Rep. Rosa DeLauro (D-CT) and Sen. Chris Dodd (D-CT) have proposed legislation that would require all businesses with more than 15 employees to provide seven days of sick leave. As I’ve noted before, the Centers for Disease Control has advised workers who contract the virus to stay home, to prevent them from infecting other workers, but nearly half of the private sector workforce has no paid sick leave — and the number increases to 78 percent of hotel workers and 85 percent of food service workers.

In response to the new legislation, the big business community — led by the Chamber of Commerce — has voiced its opposition to the very notion of paid sick days, by downplaying the extent of the problem. The Chamber said that “the problem is not nearly as great as some people say,” while the National Association of Manufacturers claimed that employers who don’t provide sick leave are “clearly the exception.”

The Wonk Room sat down with DeLauro today to discuss her bill. She said that by steadfastly opposing paid sick leave, the Chamber and its allies are simply ignoring the 57 million working Americans who currently have no paid sick days:

[The Chamber of Commerce] is just ignoring the needs of a bulk of a workforce, people who get up every day, go to work, want to work, but you know what? They get sick. People get sick and to not have the opportunity to take a day or two days, nobody’s talking about two weeks…What we are trying to do is address the issue of 57 million people — who are hard-working people — who today have not one paid sick day.

Watch it:

DeLauro noted that the arguments coming from the Chamber are the same that the group employed to oppose the Family and Medical Leave Act of 1993:

They said at that time that business was going to crash, that this country was going to go to hell in a handbasket, that we couldn’t survive this kind of an act. Well, they were proven wrong, and they are wrong in this instance.

Watch it:

DeLauro correctly noted that the U.S. economy loses $180 billion in productivity annually due to sick employees attending work and infecting other workers. DeLauro is also a sponsor of the Healthy Families Act, which would permanently require seven paid sick days for workers (again, at firms with more than 15 employees). In both bills, leave could be used to care for a sick child or elderly relative.

Gregg: Kanjorski Amendment Allows Gov’t To Break Up Wal-Mart ‘Because They Don’t Have A Union’

Can Kanjorski break them up?

Though regulatory reform legislation has been moving in the House for weeks, the Senate only started today, with members of the Senate Banking Committee giving their opening statements regarding Chairman Chris Dodd’s (D-CT) reform bill. Republicans, who have already said that they will lend the regulatory reform effort zero support, were unanimously opposed to the bill, particularly the provision to create a Consumer Financial Protection Agency (CFPA).

But Sen. Judd Gregg (R-NH) also took a few minutes to criticize the Kanjorski amendment, stating that it was too “European,” and that it empowers the government to break apart Coca-Cola and Wal-Mart, the latter because “they don’t have a union“:

The Kanjorski amendment that was dealt with yesterday on the House side was an exercise in European politics where there was some belief that a group of thoughtful people can choose winners and losers in the marketplace that are still doing well, that aren’t at risk, and decide how those winners and losers should be structured. Well where does that stop? Is Coca-Cola, should they be broken up under the House bill? Wal-Mart, maybe, because they don’t have a union, should be broken up under the House bill? This is undermining the American advantage, especially relative to our European neighbors.

Watch it:

While Wal-Mart’s lack of unionization is a shame, Kanjorski’s amendment clearly states that it only pertains to financial institutions, which can be broken apart only for threatening the financial system, and only after more stringent capital requirements have proven ineffective in removing the threat:

Scott Valentin, the banking analyst at FBR Capital Markets, told DealBook that he expects the Kanjorski’s push will meet its demise in the Senate, as “Wall Street’s objections…will win out in the end.” Valentin “based his opinions partly on meetings he had with Senate Republican staffers the day before the final language of the bill was released.”

GOP Blocks Credit Card Bill, Endorses Skyrocketing Interest Rates

Back in May, Congress approved and the President signed legislation reforming the credit card industry, ensuring that credit card companies couldn’t raise rates for no reason or retroactively increase rates on existing balances. However, most of the new rules don’t go into effect until February, 2010.

In the interim, banks have been jacking up rates left and right. In fact, half of Americans report that their credit card rates have been raised in the past six months. According to Pew Charitable Trusts’ Safe Credit Cards Project, the lowest interest rates offered on most bank cards “jumped by more than 20 percent” in that time.

To deal with this problem (which is significantly of their own making), Democrats crafted a bill bumping up the implementation date of the new regulations and freezing interest rates until the new laws come into effect. The bill was approved by the House on a vote of 331-92 earlier this month.

Due to a packed floor schedule, there was no stomach in the Senate for a prolonged fight over credit cards. So, as Ryan Grim noted “the only way Democrats could pass the bill in time for the holidays would be with the support of the GOP.”

Sen. Chris Dodd (D-CT) tried to do just that yesterday, with the support of Sen. Mark Udall (D-CO), by asking for unanimous consent to bring the bill to the floor. However, Sen. Thad Cochran (R-MS) objected “on behalf of several senators on this side of the aisle,” killing the whole effort. Watch it:

According to Pew, none of the credit cards currently offered online by the 12 largest U.S. banks “would meet requirements of new federal curbs on the industry’s rates and fees.” But Republicans still saw fit to allow the credit card companies to do whatever they want until the new rules comes into effect next year.

As the Coloradoan reported, “Republicans didn’t explain their decision to block a vote…beyond Cochran’s short objection.” Dodd, clearly expecting an objection, lamented that a bill “that would really have allowed us to do something meaningful” was being derailed.

This is, sadly, exactly how the rest of the financial regulatory reform debate is going. Yesterday, Senate Republicans said that “there is no support within the GOP for the financial overhaul plan outlined last week by Democrats.” “My understanding is that it’s not acceptable to any of the Republicans on the [banking] committee as it now stands,” said Minority Leader Mitch McConnell (R-KY).

That’s right. In the wake of the financial crisis, not one Republican is prepared to vote for regulatory reform. And the reason is that “they think the plan goes too far by putting onerous restrictions on Wall Street that could limit the availability of credit.” So by preventing the credit card bill from going forward — and by uniting in opposition against wider regulatory reform — the GOP is endorsing the credit card companies’ actions and the wider return to rampant risk on Wall Street.

Goldman Sachs Apologizes, Pledges ‘Equivalent Of One Good Trading Day’ To Small Businesses

Goldman Sachs CEO Lloyd Blankfein

And to show us that they really mean it, Goldman is devoting $500 million over the next five years to scholarships for business education and loans to small businesses:

Goldman Sachs said late Tuesday that it would provide $500 million to support small businesses, hours after its CEO Lloyd Blankfein apologized for the group’s role in the global financial crisis…The group said it will provide $100 million a year over the next five years, including a total of $200 million to provide scholarships for business and management educations and $300 million in the form of “loans and philanthropic support” to increase access to capital for small businesses.

Not that I want to in any way discourage big businesses from undertaking such efforts, but, really? As Daniel Indiviglio wrote, “maybe I’m crazy, but I don’t think this initiative, though a pleasant effort, will have many angry Americans putting down their pitchforks currently pointed at Goldman. If Goldman really wants to impress anyone, they’re going to have to do a little better than this.”

For some perspective, Goldman has already set aside $17 billion for bonuses this year, which could climb to $23 billion by year’s end. So the five-year program amounts to 2 percent of this year’s bonus pool. The Financial Times pointed out that “the $100 million annual cost is the equivalent of one good trading day” and that Goldman “had 36 days in the third quarter where it made more than $100 million.” And loans account for part of the $500 million, which presumably have to be paid back, while Goldman will get a write-off for any charitable giving, thus reducing their tax exposure.

And its not just Goldman that’s having a lot of good trading days recently. According to a report from the New York City Comptroller, “Wall Street profits in 2009 are on track to exceed the record set three years ago, at the height of the credit bubble”:

The report noted that the four largest investment firms in Manhattan — Goldman Sachs, Merrill Lynch, Morgan Stanley and the investment banking arm of JPMorgan Chase — earned $22.5 billion in the first nine months…Net revenue at the four firms, which excludes interest expenses, reached a high of $57.7 billion in the second quarter.

Of course, instead of $500 million, Goldman could up its small business program to, say, $23 billion (or whatever the entirety of its bonus pool turns out to be). After all, that money was earned, in large part, by Goldman’s access to cheap money from the Federal Reserve.

Barring that development, Democrats in Congress are reportedly looking quite seriously at a financial transactions tax, which is an excellent idea, unless we want to count on further charity from Blankfein and co. to boost the country towards economic recovery

Big Business And Republicans Downplay Threat Of H1N1 Spreading Due To Lack Of Paid Sick Leave

Yesterday, the House Education and Labor committee took a look at sick leave policies and their contribution to the spread of the H1N1 virus (swine flu). Public health experts have been voicing concerns that H1N1 is going to be transmitted by ill employees attending work, so Rep. George Miller (D-CA) has crafted a bill that would give employees five paid sick days if their employer sends them home due to H1N1.

Earlier this month, the Chamber of Commerce downplayed the extent to which lack of guaranteed paid sick leave could spread disease, saying that “the problem is not nearly as great as some people say.” And now the rest of the big business community is piling on:

Testifying on behalf of the National Association of Manufacturers Tuesday, A. Bruce Clarke, who runs his own 1,000-member business lobby in North Carolina, told Miller’s committee that most businesses already have comparable or more generous paid leave programs, so why bother? “While some employers may not have taken specific action in response to the H1N1 outbreak, these employers are clearly the exception to the widespread practices taking place today,” Clarke said in his prepared testimony.

And its not only business downplaying the extent of the problem. Rep. John Kline (R-MN), the ranking member on the Ed. and Labor committee, also tried to claim that the “vast majority” of workers have paid sick leave:

“With so many workers already having access to a variety of sick leave options, we need to look very carefully at proposals to add a new layer of federal leave mandates,” the 2nd District Republican said in a prepared statement during a House Education and Labor Committee hearing…According to Kline, the vast majority of workers in the United States already have access to paid sick leave.

Actually, nearly half of private sector workers have no paid sick leave. This includes 78 percent of hotel workers and 85 percent of food service workers, even though they are among the most likely to come in contact with other individuals. 68 percent of workers not eligible for paid sick days say that they have gone to work with a contagious illness.

According to the Centers for Disease Control, an employee with H1N1 will infect one in 10 co-workers if he or she attends work. But without any paid sick leave, many workers can’t afford to take a day off, or fear for their job if they request time off to recover.

Miller’s bill, as it is, would address the immediate threat of swine flu, but would continue to give employers the choice regarding whether or not workers receive sick leave. It also doesn’t provide time off to care for a sick child. The Healthy Families Act, sponsored by Rep. Rose DeLauro (D-CT), would guarantee seven paid sick days to all workers at firms with more than 15 employees. Enacting HFA would be an important step to ensuring that workers don’t have to place their job and their co-workers at risk when they come down with an illness.

Nearly 50 Million People — And Almost One In Four Children — Went Hungry At Some Point Last Year

According to the latest data released by the U.S. Department of Agriculture, nearly 50 million people, and almost one in four children, did not have enough to eat at some point in 2008:

In 2008, nearly 17 million children, or 22.5 percent, lived in households in which food at times was scarce — 4 million children more than the year before. And the number of youngsters who sometimes were outright hungry rose from nearly 700,000 to almost 1.1 million. Among Americans of all ages, more than 16 percent — or 49 million people — sometimes ran short of nutritious food, compared with about 12 percent the year before. The deterioration in access to food during 2008 among both children and adults far eclipses that of any other single year in the report’s history.

President Obama characterized the data as “unsettling,” and reiterated his campaign pledge to end child hunger by 2015. “These numbers are a wake-up call…for us to get very serious about food security and hunger, about nutrition and food safety in this country,” added Agriculture Secretary Tom Vilsack.

These numbers will only get worse in the short-term, as 2009’s increase in unemployment will negatively impact the food situation of even more families. This is just one more reason that any jobs package that Congress puts together should include further aid to states, so that they don’t cut back on services providing food to the hungry, or lay off even more people that will have to join lines at the soup kitchen.

But, since Obama is remaining committed to his 2015 goal, this could also be a time to look at poverty-fighting measures more widely. The Senate Agriculture Committee held a hearing today on reauthorization of U.S. Child Nutrition Programs, which is one more opportunity to combat hunger, if dollars are put in the right places. As Vilsack told the committee “this legislation is an opportunity to in one stroke confront both the challenges of obesity and hunger – with the prospect of better health and well-being in the years to come. Investing in meal quality and access to these critical programs will help support the capacity of our young people to learn and acquire the tools necessary to become the leaders of tomorrow.”

Hawaii Governor Ends ‘Mind-Boggling’ Furloughs After Being Called Out By Education Secretary

Gov. Linda Lingle (R-HI)

The decision to impose furloughs drew the ire of Education Secretary Arne Duncan, who said last week that Hawaii’s decision was “mind-boggling,” and added that the furloughs all but disqualified Hawaii from competing for the $4 billion in Race to the Top funds that were included in the American Recovery and Reinvestment Act:

“I don’t know anyone who can make a case that eliminating 10 percent of your school days is good for the children of Hawaii,” he said. Moreover, Hawaii faces “a heck of a challenge” to make a compelling case that it qualifies for between $20 million to $75 million in federal “Race to the Top” competitive grants next year, he said.

Yesterday, Hawaii Governor Linda Lingle (R) saw the light and decided to end Furlough Fridays:

Gov. Linda Lingle plans to eliminate 27 Furlough Fridays at Hawaii’s public schools by tapping the so-called rainy day fund and switching teacher training days to class time…Under Lingle’s plan, furlough days would be restored starting Jan. 1 by using $50 million from the fund, formally the Emergency and Budget Reserve Fund, and converting non-instructional hours to instructional hours, totaling 15 school days.

First, this episode highlights that more aid to states should be part of any job creation package that Congress might consider. Letting states slash their primary education systems to smithereens serves no one’s interest — not the teachers who see their purchasing power diminish, the parents who need to find alternative arrangements for their children during the day, or the students whose education has been compromised.

But even given the budget situation, Lingle’s furloughs were an extraordinarily bad idea. Lawmakers really need to rethink their knee-jerk impulse to reduce time in the classroom when faced with budget problems, as expanding time — particularly discarding the outdated 180 day model — and trying to integrate schools into the wider community is a necessary part of revitalizing America’s education system. As Duncan told The Wonk Room last month, schools that are following the traditional model of six hours per day, five days per week, for nine months “don’t serve anyone well.”

As CAP pointed out in a new report examining leaders and laggards in terms of innovation in education, “Hawaii does a below-average job managing its schools in a way that encourages thoughtful innovation. Ninety-four percent of teachers report that routine duties and paperwork interfere with their teaching, and only 22% of teachers like the way their school is run.” Let’s hope that this controversy over the furloughs causes Hawaii’s administration to take a deeper look at its education policies.

Is Work Sharing A Viable Solution To The Unemployment Problem?

As the unemployment rate stubbornly refuses to come down, Congress has rightfully begun looking at ways to spur job creation or, if nothing else, prevent further job loss. One of the ideas that has gained a bit of traction is work sharing, or subsidizing employers who reduce workers’ hours (and maintain their pay) instead of laying some of them off:

A bill sponsored by Sen. Jack Reed (D-R.I.) would give unemployment compensation to employees who accept a reduced work schedule to allow their companies to avert layoffs or to hire more employees…Democratic Sens. John Kerry (Mass.), Paul Kirk (Mass.) and Patrick Leahy (Vt.) have signed on as co-sponsors. Reed’s plan calls for up to $600 million for the program, which would last for up to two years.

The Hill noted that “Rhode Island and 16 other states already have their own work share programs, which have saved more than 146,000 jobs this year so far, according to the Labor Department.” According to Reed’s office, “if all 50 states participated in work share programs, between 400,000 and 500,000 jobs a year could be saved.”

The most outspoken advocate of work sharing has been Dean Baker, co-director of the Center for Economic and Policy Research, who pointed out that the process is cheap, simple, and quick:

In principle, the government can go this route to save jobs at a cost of a bit more than $20,000 per job – far less than the cost per job saved through the stimulus package…Approximately 4 million people leave their jobs every month, half involuntarily. We have job growth if we either create more than 4 million jobs or reduce the number of jobs lost below 4 million. If a work share program reduced involuntary job loss by 20 percent, or 400,000 per month, it would have the same effect as adding 400,000 new jobs.

Both Baker and Paul Krugman point to the example of Germany, which has a work sharing program, along with strong labor protections. As Krugman wrote, the measures “didn’t prevent a nasty recession, but Germany got through the recession with remarkably few job losses.” Plus, as Peter Dorman at EconoSpeak noted, work sharing helps preserve human capital, as firms don’t have to re-hire and re-train workers down the line — they just increase their hours back to where they were previously.

All that said, this is still only a B- idea. (Krugman acknowledges this, calling it the “third-best” economic policy available, after committing to moderate inflation to lower interest rates or further fiscal stimulus.) In the absence of stronger stimulus measures, such as aid to states or a direct job program, it will do some good — and it may be the only thing that a deficit-crazed Congress is willing to consider. But it is inefficient, has the potential to be wasteful, and obviously does nothing for those already out of work. Work sharing isn’t terrible, but I’d like to think that we can do better.

Wall Street Enlists Murdoch’s News Corp. In Fight Against ‘Frightening’ Bank-Busting Bills

Yesterday, Bloomberg News reported that seven Wall Street lobbyists “trooped to Capitol Hill,” in an attempt to talk Rep. Paul Kanjorski (D-PA) out of proposing legislation that would allow the government to break up any financial firm deemed systemically risky. According to Bloomberg, the lobbyists left with the “sobering conclusion” that Kanjorski isn’t backing down.

Of course, that setback won’t end the banks’ effort to stop such legislation from going forward. In fact, next week they will be calling on some of their friends from around the business world to try to convince New York’s congressional delegation that such legislation “would undermine the Big Apple’s economy and its reputation as a world financial hub”:

Among roughly 20 business leaders slated to come to a meeting called by Rep. Charles Rangel (D-N.Y.) are: Rupert Murdoch, CEO of News Corp.; Lloyd Blankfein, CEO of Goldman Sachs; Larry Fink, CEO of BlackRock; and William Lauder, CEO of The Estee Lauder Companies Inc.…“If the U.S. dismantles our leading institutions, then it will destroy the American financial center, which is largely anchored in New York,” said Kathryn Wylde, president and CEO of the [Partnership for New York City]. “It’s just frightening.”

Of course, the UK has already begun breaking up firms that were deemed “too big to fail,” and the financial sector is arguably more important to London than it is to New York.

This isn’t the first time that large corporations have gone to bat for the banks when it comes to regulatory reform. When the House Financial Services Committee was working on a bill reforming the derivatives market, a coalition of business groups came in to pressure lawmakers, despite the fact that 97 percent of derivatives are held by just five large financial firms.

The details of these provisions — particularly what constitutes an undue amount of risk and who gets to ultimately pull the trigger to break up a firm — have yet to be ironed out, and I would hope that Rupert Murdoch and William Lauder don’t have enough sway over regulatory policy to make much of a difference. (Since they’re joining with Goldman Sachs CEO Lloyd Blankfein, are they also doing “god’s work”?)

As Kanjorski said, this could be “one of our potentially last chances to get control, particularly of financial institutions in their mega-forms, before they take over the world.” It’d be a shame if News Corp. took that chance away.

How Does Obama Plan To ‘Focus Extensively’ On Cutting The Deficit In 2010?

The Politico reported today that, in his 2010 State of the Union address, President Obama is going to announce a serious focus on deficit reduction:

President Barack Obama plans to announce in next year’s State of the Union address that he wants to focus extensively on cutting the federal deficit in 2010 – and will downplay other new domestic spending beyond jobs programs, according to top aides involved in the planning. The president’s plan, which the officials said was under discussion before this month’s Democratic election setbacks, represents both a practical and a political calculation by this White House.

As Andrew Sullivan wrote, “this classic Politico piece — in as much as it regurgitates almost comically process-oriented Beltway wisdom — fails to mention a few things about Obama’s spending in his first year,” including: the recession, that health care reform is paid for, and that “there’s a big big difference between spending on green and infrastructure investment and slashing taxes or increasing Medicare entitlements.” Chris Hayes added “there’s one big maddening conceptual error at the heart of this piece…which is to confuse relatively substantial pieces of domestic legislation with a spending ‘binge.’”

But if true, what does the administration mean by “focus extensively” on deficits next year? And what will that entail for the domestic agenda? I certainly hope that no one is thinking of making a 1937-style haul back on recovery efforts. Judging by the public statements of Treasury Secretary Tim Geithner and Office of Management and Budget Director Peter Orszag, they aren’t, but if the administration is quaking over the political ramifications of the deficit now, how long until they head in that direction?

This week, we’ve already seen a group of senators threaten to force the U.S. to default on its debt (by refusing to increase the federal debt ceiling), if they don’t get a bi-partisan commission that will be tasked with cutting Social Security and Medicare. This deficit-mania comes despite a stubbornly weak labor market, and at the same time that Congress is insisting that more must be done in terms of job creation.

Of course, there’s nothing wrong with wringing waste from the system, and there are surely some ineffective or duplicative programs in the various federal agencies that can afford to go by the wayside. And if that’s what the administration means, more power to them.

But as Paul Krugman wrote, “conventional wisdom in Washington seems to have congealed around the view that budget deficits preclude any further fiscal stimulus — a view that’s all wrong on the economics, but that doesn’t seem to matter.” It’d be a shame to see the administration turn this particular bit of conventional wisdom into policy that doesn’t provide more support to the job market, and at worst, could choke off economic recovery.

‘Fiscal Peril’: State Budget Crises Could Lead To 900,000 Lost Jobs Next Year

Back during the stimulus debate, one of the items that was pared back in order to get the overall package under an arbitrary $800 billion price tag was fiscal aid to states and local governments. $40 billion that would have gone to help states weather the economic downturn was lopped off of the bill to placate moderate senators.

As it turns out — and as many economists said at the time — this was not a very good idea. A new report from the Pew Center on the States warns of “fiscal peril” in 10 states which, if unaddressed, will hamper the nation’s economic recovery:

These states’ budget troubles can have dramatic consequences for their residents: higher taxes, layoffs or furloughs of state workers, longer waits for public services, more crowded classrooms, higher college tuition and less support for the poor or unemployed. But they also pose challenges for the country as a whole. The 10 states account for more than a third of America’s population and economic output. And actions taken by state governments to balance their budgets — such as tax increases and drastic spending cuts — can slow down the nation’s economic recovery.

“The problems are evident from coast to coast,” said Mark Zandi, chief economist of Moody’s Economy.com. “Without more help to state and local governments, the resulting budget cuts will become a very significant drag on the economy.” The Center on Budget and Policy Priorities estimates that state budget shortfalls could mean that nearly a million jobs to disappear in the next year:

Presuming they will get no more fiscal relief, states will have to take steps to eliminate deficits for state fiscal year 2011 that will likely take nearly a full percentage point off the Gross Domestic Product. That, in turn, could cost the economy 900,000 jobs next year…Deficits for the current state fiscal year, not all of which states have closed, total more than 25 percent of state general fund budgets, making these the largest shortfalls on record.

As Derek Thompson wrote, those protesting more state aid “must recognize what that entails: hundreds of thousands of state employees joining the ranks of unemployment, and unemployment benefits. Q3 was great, but this thing isn’t close to being over.” And these employees are teachers, police officers, and health care workers — not the kind of employees that it’s easy to make do with less of.

The administration announced today that it is planning a “jobs summit” for December, with Obama calling high unemployment one of the administration’s “great challenges.” If the administration is serious about policies aimed at stemming job loss, more aid to states should certainly be on the table.

It’s Time For The Senate To Confirm Patricia Smith As Department Of Labor Solicitor

On April 20th, President Obama nominated Patricia Smith to the post of Department of Labor Solicitor, the number three spot within DoL and the department’s top law enforcement post. But, nearly seven months later, Smith’s nomination still has not come to the Senate floor for a vote, in part because, in early October, Sen. Mike Enzi (R-WY) placed a hold on it.

Already, one of Obama’s DoL nominees, Lorelei Boylan, withdrew her nomination after a lengthy wait for a confirmation vote. But it’s imperative that Smith’s nomination be brought to the floor and that she get confirmed.

As Solicitor, Smith would be responsible for enforcing all of the nation’s workplace laws, and overseeing the office representing the agency in all enforcement actions. And such actions are clearly necessary, as 16 people die at work every day from employer negligence in America, while 68 percent of low-wage workers report that they have been the victim of wage violations. All told, the typical low-wage worker victimized by wage theft sees an overall 15 percent reduction in pay annually.

Under the Bush administration’s corporate-friendly Labor Department, the solicitor’s office sat on its hands and failed to enforce even the most flagrant labor violations. And Enzi seems to be trying to maintain the status quo. As Thomas Frank wrote, Enzi is coming after Smith “because she is an effective and innovative labor bureaucrat.” Is Enzi motivated by “the dread possibility of a Labor Department that works?” Frank asked. AFL-CIO President Richard Trumka agreed, saying that those in Congress who are holding up the nominees are doing so simply “because they don’t want those positions filled.”

The New York Times has called Smith “one of the nation’s foremost labor commissioners because of her vigorous efforts to crack down on minimum wage and overtime violations at businesses including restaurants, supermarkets, car washes and racetracks.” During her time with the New York State Labor Department, where she is labor commissioner, Smith helped win more than $20 million in back pay for thousands of low-wage workers, including a record $2.3 million settlement with the owner of Ollie’s Noodle Shop and Grill chain in Manhattan.

As David Madland and Karla Walter pointed out, “too often penalties [for labor law violations] are easily reduced or levied for low amounts, and the solicitor’s office has minimized civil and criminal liability for the worst violators.” Smith can change that, if only her nomination could come to a vote.

Dodd Releases Regulatory Reform Bill — How Does It Compare To The House?

Sen. Chris Dodd (D-CT) and Rep. Barney Frank (D-MA)

With this bill, there are now competing versions of regulatory reform in the Senate and the House, where the effort is being led by Financial Services Committee Chairman Barney Frank (D-MA). Unlike Frank, who chose a piece-meal approach, Dodd is moving his legislation as one large package.

Overall, Dodd’s bill is more ambitious, and would go further in terms of blowing up and replacing the current system (but it also hasn’t been through mark-up, which is where some of the changes in the various pieces of House legislation originated). Below is a comparison of the major provisions in the two versions:

Both the House and Senate also have provisions aimed at reining in use of over-the-counter derivatives and regulating hedge funds and other non-bank entities. But politically, the two most contentious issues will likely be reconciling Dodd’s complete consolidation of regulators with Frank’s more limited approach, and trying to garner Republican support for the CFPA on the Senate side.

Why Is Geithner Dead Set Against A Financial Transactions Tax?

At a meeting of the G-20 over the weekend, British Prime Minister Gordon Brown turned some heads by suggesting that the cost of any future bank failures be funded by assessing a financial transactions tax (FTT) on all trades (assuming that other nations agree to implement such a tax).

While the idea that taxpayers shouldn’t have to foot the bill when a bank fails was widely agreed upon, the FTT proposal ran into a wave of opposition, including from U.S. Treasury Secretary Tim Geithner:

U.S. Treasury Secretary Timothy Geithner on Saturday firmly opposed a proposal by UK Prime Minister Gordon Brown for a global tax on financial transactions. “That’s not something we’re prepared to support,” Geithner said, speaking after meetings of Group of 20 finance ministers and central bank governors in Scotland Saturday. He added that it is an idea that has been around a long time and has received mixed results.

While I don’t think that revenue from an FTT should contribute to the bank failure fund — because that would cause all traders, instead of just systemically-risky banks, to foot the bill — Geithner should be open to looking at an FTT as a general revenue raiser, particularly as Wall Street rebounds to record profits while Main Street stays in the doldrums.

The FTT, in theory, would be a fee of a fraction of a percent imposed on all trades. Regular investors likely wouldn’t notice it at all, but it could raise significant revenue from firms like Goldman Sachs, who are consistently churning paper back and forth.

Consider that, before the economic crash, financial service companies accounted for 41 percent of all domestic corporate profits. And just more than one year after Wall Street’s collapse, they’re back to making 31.5 percent. As Felix Salmon wrote, “financial services companies are meant to be intermediaries, middlemen.” But instead, they’re netting a huge chunk of domestic profit all for themselves, casting serious doubt on whether their activities are actually providing any social benefit.

As Dean Baker, the most outspoken advocate of the FTT, wrote, “if a financial transactions tax reduces the volume of trading, and therefore the resources used by [the financial] sector, without harming the sector’s ability to allocate capital, then it will be making the sector more efficient and freeing up resources for more productive uses”:

This could potentially be a very large benefit from an FTT. If it reduced trading volume by 25 percent (the middle scenario in Pollin et al.), leading to a corresponding reduction in resource use, it would free up more than $60 billion a year in labor and capital for productive uses.

So the tax could raise some deficit-reducing revenue, while giving us a more efficient financial system. That’s something that Geithner should be willing to spend a few moments contemplating.

Goldman Sachs CEO ‘Rejects Any Notion’ That Goldman Is Profiting From Government Support

Goldman Sachs CEO Lloyd Blankfein

Goldman’s CEO, Lloyd Blankfein, told the Times that the firm serves an important social purpose by helping companies grow. He also poo-pooed the idea that Goldman is only able to make such bumper profits thanks to government support:

Blankfein dismisses any suggestion that Goldman needed to be bailed out, and, by extension, rejects any notion that the firm is now profiting from public support. Sure, he took $10 billion from Washington’s Troubled Asset Relief Program (Tarp). But the bank has since repaid the cash, with healthy interest — 23%. Goldman also benefited from the federal bail-out of the huge US insurance firm AIG. Goldman had bought $20 billion worth of insurance from AIG and received billions of dollars — perhaps as much as $13 billion — when Washington pumped $90 billion into the stricken giant. But Blankfein insists Goldman was “hedged” against any AIG losses, in the best possible way — with cash.

Blankfein told the Times that he is just a banker “doing God’s work.”

Whoever’s work he is doing, Blankfein’s assertions that Goldman isn’t benefiting from government support seems to be at odds with history. After all, at the height of the crisis, Goldman was allowed to convert into a bank holding company — and access cheap money from the Federal Reserve — a status which it still holds, despite engaging in no lending activity at all. As Alan Schram, the Managing Partner of the Los Angeles based investment firm Wellcap Partners, wrote, “now that they are a regular commercial bank they actually trade more, which makes sense: if the US Treasury covered my losses, I would also be happy to take major risks.”

Plus, as Daniel Harrison pointed out at bNet, Goldman’s implicit guarantee as a “too big to fail” firm was likely the only thing that enabled it to raise capital last year:

At the time of the collapse of Lehman Brothers, Goldman was forced to raise $10 billion of fresh capital by selling a 15 percent stake in itself to Warren Buffett and other investors…Just days before the share sales — which directly allowed Goldman to stay afloat — the firm received around $12 billion in government aid…Presumably, if Goldman Sachs had been able to privately raise the initial $12 billion provided to it by the U.S. government, it would have done so. What seems much more likely is that the investors — including Buffett — who later agreed to commit an additional $10 billion only did so on the basis that the firm was reasonably supported by government aid.

Blankfein hasn’t hit all sour notes recently. He has been the foremost advocate on Wall Street for restructuring pay packages and he is also supportive of a resolution authority to unwind failing firms. But by living in this fantasy world in which Goldman’s success is due solely to its financial prowess, Blankfein is endorsing Goldman’s rocket-ride back to billion dollar profits on the backs of taxpayers.

Unemployment Hits 10 Percent — Are Tax Credits For Homebuyers And Seniors The Best We Can Do?

Back in June, President Obama predicted that the unemployment rate would eventually hit 10 percent before the recession truly ended. Well, here we are.

Today, the Labor Department announced that the unemployment rate has hit a 26-year high of 10.2 percent, after employers shed 190,000 jobs in October. The wider U-6 measure of underemployment also ticked up to 17.5 percent, from 17 percent last month. The Labor Department also revised September’s losses down to 219,000 from 263,000. At the same time that joblessness continues to increase, productivity — output per hour worked — has soared (as employers make do with fewer employees).

Economist Dean Baker said that he did not expect declining unemployment rates until next spring. “We may be looking at very high levels,” Baker said, “barring a policy response, for several years into the future.” So as Brad DeLong asked “if you had told everyone last election day what would happen, economically, in 2009, what policies would they have adopted then to stem this disaster? And why aren’t we implementing those policies now?”

Indeed, there are positive steps that can be taken, now, that would support the labor market. As Matt Yglesias pointed out, we should probably be deploying more aid to state and local governments, to prevent layoffs and keep infrastructure projects up and running. (Let’s not forget that state aid was significantly reduced during negotiations over the stimulus package.) Paul Krugman, for his part, is advocating a WPA-style direct jobs program — “think of it as the stimulus equivalent of getting the middlemen out of the student loan program.”

Instead, as Steven Pearlstein wrote, “what [lawmakers are] proposing to do is to spend a lot of money that they don’t have in ways that won’t work to help too many people who are neither desperate nor deserving.” These ideas take the form of the badly misguided homebuyer tax credit, and the politically brilliant but economically pointless $250 payment to seniors.

Already, the response that we’ve seen from Congress has been fearmongering about deficits or using the unemployment rate as a nonsensical reason to kill health care reform. Neither of those provide much hope for some productive policy emerging. But if nothing is done, it’s going to be a long, painful slog back to a positive employment situation.

Same EFCA Opponents Claiming To Defend Democracy Oppose Democratization Of Railway Labor Act

Opponents of the Employee Free Choice Act (EFCA) like to portray themselves as the great defenders of democracy, protecting the “secret ballot” for workers everywhere. “There are sacred principles that epitomize American democracy,” wrote Rep. John Kline (R-MN), the ranking member on the House Ed. and Labor committee, while attacking EFCA. “They have private ballots in America, but not in other countries where there are tyrannies and socialism,” agreed Mark McKinnon of the Workforce Fairness Institute (WFI).

But now that the National Mediation Board (NMB) — which oversees labor-management relations for the airline and railroad industries under the Railway Labor Act (RLA) — wants to issue a rule change making unionization elections in those two industries more democratic, Kline and WFI are singing a different tune.

Currently, under the RLA, employees who choose not to vote in a union election are counted as “no” votes, while under the National Labor Relations Act (NLRA), employees who don’t vote simply aren’t counted at all. So, in practice, this means that employees under RLA must get a majority of employees to vote affirmatively, while those under NLRA must get a majority of voting members to do so, just like in an election for a political office.

The NMB wants to change the RLA’s rules, to equalize the two processes. Kline and WFI reacted like this:

Republican Reps. John Kline (Minn.) and John Mica (Fla.) issued a release that called it a radical proposal that adds “to a troubling perception that federal agencies have embraced a culture of union favoritism.” [...] The Workforce Fairness Institute issued a press release titled “Forced Unionization” in response to the proposed rule change, and criticized the NMB for providing a “bailout” to the AFL-CIO.

The NMB has opened its proposed change up to a 60-day comment period, and with their respective responses, Kline and WFI reveal that their opposition has nothing to do with democracy. It’s about preventing unions from gaining more members, at all costs. After all, in what other election do people who don’t vote get counted for one side or the other?

Much like the push in Congress to bring truck drivers for FedEx under the NLRA, this rule change would eliminate an odd inequity in the system that is the product of the antiquated RLA, which was written in 1934. There is no reason to have the deck stacked against railway and airline workers, simply because they are pulled under an older law. But to Kline and WFI, it seems, whichever rules make it harder to form a union are those that epitomize democracy.

Is Senator Shelby A Bank-Buster?

Sen. Richard Shelby (R-AL)

Under Kanjorski’s proposal, “the power to restructure a company could go to the systemic-risk council and involve the Treasury secretary, with a final decision made by the president.” This goes much further than the legislation proposed by either the administration or House Financial Services Chairman Barney Frank (D-MA).

The bill has already “set off alarms across K Street.” “That was a little unexpected,” one bank lobbyist told The New Republic’s Noam Scheiber. “It sort of…threw people for a loop.” However, Kanjorski has at least piqued the interest of one prominent player in the regulatory reform debate: Senate Banking Committee ranking member Richard Shelby (R-AL):

Senator Richard Shelby, the top Republican on the Senate Banking Committee, said today he liked the idea. “I don’t think anything is too-big-to-fail,” said Shelby, of Alabama. “We ought to be looking at legislation to deal with a bank beforehand if we can, or an institution that would cause systemic risk, to make it stronger, or make it smaller.”

Now, Shelby has already toyed with the Democrats, saying that he might be able to support creating a Consumer Financial Protection Agency (CFPA), only to characterize such a move as “folly and dangerous” when legislation started to move.

However, back in 1999, Shelby was the only Republican who voted against the repeal of the Glass-Steagall Act, which separated investment banking from traditional banking. And with the UK beginning to break up large, bailed-out financial institutions and more and more people talking about enacting some sort of wall between depository and investment banking, this seems like an issue that is not going to go away. For his part, Kanjorski said that he’s “getting some good feedback” on his measure. “Most people are coming up to me and saying we should have done this originally, why didn’t we?” he said.

It’s too soon to tell how this will all shake out, especially since Senate Banking Chairman Chris Dodd (D-CT) has yet to release his version of regulatory reform legislation. But Dodd is already planning to deviate from the House and the administration’s reform vision in significant ways. Will Shelby’s willingness to at least talk about breaking up the big banks push Dodd to go even further? And if he does, will Shelby be able to bring any other Republicans along?