The Wonk Room

Education: A Good Investment in a Bear Market»

Skeptics argue that the United States’ mounting budget deficits are a reason to put off public investments and reign in ambitious reforms. They’re wrong.

It is more imperative than ever to make targeted public investments that will yield high returns and lay the foundation for 21st century growth.

One set of savvy investments is in education, which recent research suggests would grow the economy and earn the government significant positive returns.

With investors around the world scrambling for a safe haven for their money, U.S. treasury bills are in high demand, meaning low yields for investors, but cheap money for the U.S. government.

At the same time, too many of America’s students are stuck in failing schools without quality teachers, test scores in key subject areas are woefully behind the rest of the world, huge gaps persist between students of different races and incomes, and more and more high schoolers are finding college out of reach.

This isn’t just a tragedy for young people and their families, it represents a huge missed opportunity.

High quality universal pre-school, improved efficiency, accountability and funding for grades K-12, and broader access to college, would address these festering educational problems and earn dividends on the taxpayer’s dime.

The fiscal benefits of these reforms aren’t abstract or aspirational. Conservative projections on the real fiscal rate of return on public educational investments are high: 10% for high quality preschool programs, 15% for innovative K-12 reforms like First Things First, and 10.3% for investments to encourage college access and graduation.

By contrast, the CBO’s projected real 10-year treasury bond yield (the cost of borrowing by the United States government) over the next decade is just 3.2% (after inflation).

The source of these potential returns isn’t complicated: better educated people are more productive, get sick less often, are less likely to require public assistance, commit fewer crimes, make more money, and pay more in taxes. Creating more of them is a good idea.

Of course, as a group of researchers at Columbia Teachers College write, “a society that provides fairer access to opportunities, that is more productive and with higher employment, and that has better health and less crime is a better society in itself. It is simply an added incentive that the attainment of such a society is also profoundly good economics.”

Read CAP’s education plans here.

Paulson Says The Banking System Is ‘Stabilized,’ Then Citigroup Loses Half Its Value In Four Days»

As the Wonk Room has documented, Treasury Secretary Henry Paulson has repeatedly called the the banking system “safe and sound,” only to see those statements followed by the collapse of the banking system. Now, Paulson has added one more instance to the list.

In an appearance on NPR last week, Paulson announced that, due to the effects of the $700 billion Troubled Assets Relief Program (TARP), the banking system “has been stabilized“:

I believe the banking system has been stabilized. No one is asking themselves anymore, is there some major institution that might fail and that we would not be able to do anything about it.

As the LA Times noted, “So, after Bear Stearns, IndyMac Bank, Fannie Mae, Freddie Mac, Lehman Bros., Washington Mutual and American International Group — no more major surprises. Write it down, folks.”

Paulson must be stunned, then, to see the news that the major bank Citigroup is not stable at all. As the New York Times reported, Citigroup’s “precipitous stock-market plunge accelerated on Thursday, sending shock waves through the financial world.” In the last four days, Citigroup has lost half of its value.

Throughout the implementation of the TARP program, Paulson has been content to throw money at the banking system, provide assurances that everything is going as planned, and refuse to use TARP funds for addressing anything outside of the financial sector. On NPR today, Sen. Chris Dodd (D-CT) called Paulson’s refusal to help homeowners facing foreclosure the “most frustrating” aspect of the bailout process:

Here was a condition we actually wrote in…to provide at least the option of providing a guarantee in the area of foreclosure mitigation. And I say this respectfully, but the Treasury’s refusal to move on this is maybe the most frustrating piece of all, Steve. And yet we’re still dragging our feet on whether or not the government ought to be more aggressive.

Just yesterday, Paulson said that Treasury has been “proactively addressing the problems we saw coming.” But he is not proactively addressing the housing crisis, instead choosing to offer false assurances that the bailout has effectively muted the country’s economic woes.

As Jobless Claims Hit 16-Year High, Congress Mulls Extending Unemployment Benefits»

The Labor Department reported today that new claims for unemployment jumped to a 16-year high last week, with 542,000 new claims for jobless benefits filed. Unemployment is currently at a 14-year high of 6.5 percent.

The Senate will vote this week — “and very likely today,” according to Bob Geiger — on “legislation already passed by the House that would extend unemployment insurance for those whose benefits have run out.” In an about-face, the White House announced today that it would support the extension.

“Because of the tight job market, the President believes it would be appropriate to further extend unemployment benefits, and he would sign the legislation now pending in Congress,” White House spokeswoman Dana Perino said. Previously, the White House’s position was that the “the best way to help” the economy and unemployed people is for the unemployed to simply “get back to work.”

Extending unemployment benefits is a crucial step that Congress must take. The National Employment Law Project estimates that more than 800,000 people have already exhausted their benefits, and that “more than one million will do so by the end of the year.” Without benefits, “the Congressional Budget Office finds that about 50% of the long-term unemployed fall under the poverty line.”

As the Wonk Room has noted before, extending unemployment benefits is also a vital first step towards getting the economy back on track. The Center for American Progress Action Fund has found that extending benefits “would significantly boost the economy in those communities hardest hit by layoffs while also investing in a 21st-century economic security system“:

[A] major study of several recent recessions found that unemployment benefits contribute $2.15 in economic growth for every dollar of benefits circulating in the economy. With the health of the U.S. economy so dependent on consumer spending, unemployment benefits are especially important to maintain purchasing power and to boost spending in those communities hit hard by unemployment.

Longer-term reform to the unemployment system is also necessary, as eligibility laws are unfair and outdated. Currently, “only an average of 37 percent of unemployed workers actually collect benefits at all, with low-wage, part-time, and female workers particularly harmed by outdated state eligibility rules.”

Thus, Congress and the administration should work to enact the Unemployment Insurance Modernization Act. The Act “would provide $7 billion in incentive funding for states to cover more than 500,000 workers who now fall through the cracks of the unemployment program and to support those states already doing a better job with coverage.”

There are both immediate and long-term advantages to altering unemployment insurance benefits. There is a lot of hoopla being generated about auto industry bailouts and TARP reversals, but something aimed at helping Americans weather the current economic storm is also in order.

Home Depot Founder: Retailers Who Are Not Fighting The Free Choice Act ‘Should Be Shot’»

In the Wall Street Journal today, Thomas Frank wrote that — in light of the new progressive mandate — “it is likely that we really do want universal health care and some measure of wealth-spreading, and even would like to see it become easier to organize a union in the workplace.”

To this end, Frank makes the case for the Employee Free Choice Act, which would enable workers to form a union by signing cards of consent, instead of having to undergo a full unionization campaign and vote, which often ends in employer intimidation or a simple denial of the right to vote.

The Wonk Room has noted before the widespread public support for the Free Choice Act, and the conservative fearmongering about the results the bill would have. In his piece, Frank lays out one of the more virulent reactions, courtesy of Home Depot founder and former CEO Bernie Marcus:

“This is the demise of a civilization,” moaned Bernie Marcus, cofounder and former CEO of The Home Depot, during an Oct. 17 conference call about card check. “This is how a civilization disappears. I’m sitting here as an elder statesman, and I’m watching this happen, and I don’t believe it.” Mr. Marcus sketched out the doomsday scenario for his listeners, with unions going after what he called the “low hanging fruit” and proceeding to organize workers in industry after industry.

Marcus allegedly added that “If a retailer has not gotten involved with this, if he has not spent money on this election, if he has not sent money to Norm Coleman and these other guys,” who oppose the Free Choice Act, then the retailers “should be shot; should be thrown out of their goddamn jobs.”

But easing the path toward unionization is hardly the end of civilization, unless Marcus deems increased wages along with better health and pension benefits for America’s workers to be civilization’s death knell.

As Michael Whitney explained on the SEIU blog:

CEO-types like Home Depot’s Bernie Marcus and Wal-Mart’s Lee Scott have their hands on the steering well, and anyone who fails to heed their battle cry to block attempts by workers to take control of the wheel ’should be shot.’ It’s too bad that for the last several decades, this cavalier attitude has led these greedy CEOs to drive the car off the economic cliff.

Indeed, as corporate profits have been going up in recent years, workers wages have stagnated. Shared prosperity through increased unionization, not the end of civilization, is what backers of the Employee Free Choice Act are looking to create.

Congress Dismayed By The Direction Of Paulson’s ‘$700 Billion Plane’»

Today, Treasury Secretary Henry Paulson appeared before the House Financial Services Committee — alongside Federal Reserve Chairman Ben Bernanke and FDIC Chairman Sheila Bair — to explain his implementation of the $700 billion Troubled Assets Relief Program (TARP).

During the hearing, Congress voiced its displeasure with Paulson. Rep. Gary Ackerman (D-NY) told Paulson, “you seem to be flying a $700 billion plane by the seat of your pants.” Both Rep. Barney Frank (D-MA) and Rep. Maxine Waters (D-CA) chastised Paulson for not providing aid to homeowners, even though he could under the TARP legislation. Watch a compilation:

Paulson defended himself by saying, “The purpose of the financial rescue legislation was to stabilize our financial system and to strengthen it. It is not a panacea for all our economic difficulties.” But the TARP legislation does have clear language allowing the Treasury to facilitate home loan modification; Paulson has just shown no inclination to do so.

Underscoring the extent of the housing crisis, currently “one in 11 mortgages is delinquent or in foreclosure”:

In the second quarter of 2008, the share of mortgages that were delinquent reached 6.4%, and the share of mortgages that were in foreclosure hit 2.7%. The share of new mortgages going into foreclosure continues to new record highs, with 1.1% in the second quarter.

In her testimony, Bair said that “more than 4.4 million non-GSE mortgages are estimated to become delinquent” by the end of 2009. Paulson, though, has proposed buying up just about everything but mortgages, including credit card debt. But as Andrew Jakabovics explained, “it is certainly questionable to promote increased lending for credit cards. Outstanding revolving consumer debt is approaching a trillion dollars. Encouraging further household indebtedness is hardly responsible.”

Bair has put forth a plan that — for $24.4. billion — could prevent 1.5 million foreclosures, which Bernanke called a “very promising approach.” If Paulson would come around as well, then some of the bailout funds might actually be directed at the root cause of the financial crisis.

Huckabee Joins Chambliss To Stump For The Fair Tax»

During his unsuccessful campaign for the Republican presidential nomination, former Arkansas Governor Mike Huckabee was a vocal supporter of the fair tax, a plan which would abolish the Internal Revenue Service and replace the federal income tax and most other federal taxes with a 30 percent sales tax.

According to the Atlanta Journal-Constitution, Huckabee was in Georgia last weekend to support Sen. Saxby Chambliss (R-GA), another fair tax advocate, who is headed into a December 2nd run-off election with challenger Jim Martin. Huckabee “joined about 2,000 people Sunday afternoon at the Gwinnett Civic Center in what became not just a fair-tax rally, but a major campaign stop”:

“This race is our best chance to keep the fires burning for the fair tax,” said Huckabee. “And we are not going to squander this opportunity.”

However, as Matthew Yglesias has documented, even conservatives think that the fair tax is a crazy idea. In The New Republic, Jonathan Chait explained why the plan is unworkable:

Tax experts believe that a sales tax above around 10 percent is impossible to enforce because the incentives for cheating are so great. The fair tax would impose a 30 percent sales tax–so high that it would no doubt begin a cycle of black-market sales, resulting in escalating rates to capture the lost revenue, resulting in even more cheating, to the point of total collapse.

Even if the system was sustainable, as Megan McArdle pointed out “It will end up being quite regressive, with the highest effective burden falling on the lower tiers of the middle class.”

The American tax code is, admittedly, a mess, and one that actively encourages income disparity. However, enacting a cockamamie scheme that entirely scraps the current system would just make matters worse. Instead — as explained in Change for America — the U.S. needs to find its way back to a more progressive tax code that helps build “a sustainable, inclusive economy that benefits all.”

Tavis Smiley: We’ve Been ‘Talking About Bailing Out Wall Street…But No Conversation About The Side Street’»

This week, Congress returns for a lame-duck session, and at the top of the agenda is a proposal to aid America’s ailing auto industry. During Meet the Press’ roundtable yesterday, much of the discussion centered on the auto bailout, and the effect it would have on the economy at-large.

PRI and PBS’ Tavis Smiley, though, lamented that bailout-mania has removed from the political picture “the working poor” and any discussion of poverty. “We’ve been talking about bailing out industry, talking about bailing out Wall Street. Every now and then, some conversation about Main Street. But no conversation about the side street, and that’s where too many Americans live these days,” he said. Watch it:

It’s easy to forget during the battle of the bailouts, but nearly 40 million Americans live in poverty. And there are several steps the new administration can take to alleviate poverty, even in light of the financial crisis. As the Center for American Progress Action Fund laid out in Change for America: A Progressive Blueprint for the 44th President:

The White House’s domestic policy agenda should make it a priority to address the challenges faced by nearly 40 million Americans living in poverty. Critical policies to achieve these ends include: raising and indexing the minimum wage; improving government support programs such as the Earned Income Tax Credit, Child Tax Credit, and food stamps; removing the barriers to union organizing to allow parents to earn more; and making health care available to all.

A Center for American Progress analysis has found that a $90 billion yearly investment could cut poverty in half, and that the money could be raised “by bringing better balance to the federal tax system and recouping part of what has been lost by the excessive tax cuts of recent years.”

It won’t be on the agenda this week, but while Congress is bailing out (or not bailing out) America’s industries, it needs to turn its attention to the working poor, who could sure use a bailout as well.

Transcript: More »

Kucinich: In ‘What Country’ Is The Treasury Secretary ‘Passionate’ About Helping Homeowners?»

Yesterday, the Wonk Room noted Treasury Secretary Henry Paulson’s reversal in regards to the aim of the $700 billion Troubled Assets Relief Program (TARP). Today, the Domestic Policy Subcommittee of the House Oversight Committee — chaired by Rep. Dennis Kucinich (D-OH) — held a hearing to find out whether TARP is being used to prevent home foreclosures, “as Congress intended.”

Kucinich questioned Interim Assistant Secretary for Financial Stability Neel Kashkari — who is charged with administering the $700 billion — as to why the Treasury has not focused more on helping homeowners facing foreclosure. When Kashkari replied that the Treasury Secretary is “passionate” about helping homeowners, Kucinich asked “He is? Where? What country?” Watch it:

Kucinich was absolutely right to be skeptical. As Andrew Jakabovics explained, Paulson “yesterday made it absolutely clear that he had no intention of using the authority granted to him by Congress” to stem foreclosures. “The message was clear to homeowners facing foreclosure and their neighbors watching the value of their homes plummet — drop dead,” wrote Jakabovics.

It’s not as if legitimate plans to help homeowners don’t exist. Today, Federal Deposit Insurance Corp. Chairman Sheila Bair released a plan that could “prevent 1.5 million foreclosures in the next year by offering financial incentives to companies that agree to sharply reduce monthly payments on mortgage loans. ”

The estimated cost of this program is $24.4 billion, a drop in the bucket relative to the entire $700 billion program. Treasury and the White House, though, have made it clear that they are not interested.

In testimony before the subcommittee, Center for American Progress Action Fund Senior Fellow Michael Barr explained what Treasury needs to do to aid homeowners:

Under Section 109 of the [Emergency Economic Stabilization Act], the Treasury secretary is authorized to ‘use loan guarantees and credit enhancements to facilitate loan modifications to prevent avoidable foreclosures.’ Under Section 101 of the act, the secretary is authorized to ‘make and fund commitments to purchase’ troubled assets, including home mortgage loans. These authorities can be deployed now to help homeowners and stabilize our markets.

As Jakabovics wrote, “The solution is simple: Focus on the mortgages. Gain access to home mortgages and restructure them. Now.”

Saxby Chambliss Bailed Out Wall Street, But ‘Will Not Support’ Any Relief For Detroit»

Sen. Saxby Chambliss (R-GA) today announced his opposition to “any additional relief” for the auto industry, a little more than a month after voting for the troubled $700 billion bailout for the financial industry. In an online chat with the readers of the conservative website RedState, Chambliss was asked where he stands on the auto industry bailout. He responded:

The automobile industry has systemic, deep-rooted problems that money will not solve and I will not support funding any additional relief to the auto industry.

Despite the “systemic, deep-rooted problems” in the financial industry “that money will not solve,” Chambliss voted Yea in both of the Senate votes on October 1st for the $700 billion Wall Street bailout package [Vote #212, Vote #213]. The Treasury has since disbursed hundreds of billions of taxpayer dollars to investment firms and banks, but “few are rushing to make the loans that companies and consumers need to cushion the economic slump.”

It is true that the auto industry needs to be retooled to be a leader in America’s green recovery. But inaction now could mean irrevocable damage to jobs, businesses, and communities that would make industry reform exponentially more difficult. The implosion of the auto industry would be catastrophic for thousands, if not millions, of American families. As Center for American Progress fellows Bracken Hendricks and Dan Weiss, with Ben Goldstein, explain:

The auto industry is a bedrock of the economy, with “one in 10 American jobs related to auto manufacturing.” Its survival is essential for the future of advanced clean vehicle and energy manufacturing. What’s more, this extra help is imperative to preserve jobs.

The implications of a collapse of General Motors, Ford, or Chrysler are beginning to become apparent. On Thursday, “Standard & Poor’s Ratings Service lowered the credit ratings of two big auto suppliers, and put 13 others on watch for possible reductions, because of their ties to car makers.”

In an October 24 debate with his run-off opponent, Jim Martin (D-GA), Chambliss claimed the hundreds of billions in loans made by Treasury Secretary Hank Paulson “went to free up liquidity so that people in Georgia can once again begin to have the- the freeing up of that credit so that they buy automobiles.”

By the time the “freeing up of that credit” actually takes place, there very well may be many fewer automobiles for Georgians to buy. As economist and blogger Duncan Black commented on news that Congress lacks the votes for action on the auto industry, “It’s pretty interesting that we’re propping up the fake economy and letting the real economy wither.”

Paulson Flails About With His TARP»

Yesterday, Treasury Secretary Henry Paulson announced that the Treasury Department has altered the way in which it is going to implement the $700 billion Troubled Assets Relief Program (TARP). Paulson has now “officially abandoned his original plan to buy troubled assets from financial institutions,” and instead aims “to reinforce the stability of the financial system by providing sorely needed capital to banks, and even non-bank institutions that securitize credit card, auto and student loans.”

As Matthew Yglesias noted, “On the policy merits, I think Paulson’s shift into recapitalization was the right idea.” Indeed, this was the path recommended by many economists, including Nobel Laureate Paul Krugman.

But Paulson’s shift does lead to an important question, laid out at Economist’s View: “[W]hy are they still trying to figure out how to design the program? This program shouldn’t be in the design phase, it should already be in place.”

As Joshua Zumbrun wrote in the Financial Times:

Maybe it’s the right way to go, maybe not. But as the government’s efforts to shore up the nation’s economy and financial system continue to balloon, the man running those efforts is putting the most important asset he possesses right now–his credibility–at increasing risk. By changing tactics and communicating poorly, he may be inadvertently recreating the same failed ad-hoc approach to the crisis he’s been trying to escape.

Indeed, in September Paulson told Congress that the original bailout plan was “the single most effective thing we can do to help homeowners, the American people, and stimulate our economy.”

Furthermore, this plan, while potentially better than the original bailout plan, still does nothing to address the root cause of the financial crisis: the failure of the housing market. As Sen. Chris Dodd (D-CT) explained:

[I]t is becoming increasingly apparent that a robust and aggressive program to stem the tide of foreclosures sweeping across the nation is critical to any policy to put our economy back on track…it is my sincere hope that Secretary Paulson collaborates with [FDIC] Chairman Bair to get this program up and running as soon as possible. There is no legitimate reason why they would be unable to do so.

The Wonk Room noted yesterday that Fannie Mae and Freddie Mac took an important first step towards restructuring bad mortgages. Now, an across the board mortgage restructuring plan needs to be implemented, instead of Paulson throwing money at, seemingly, anything that moves.

IRS: Loopholes Let Corporations Pay 25% Tax Rate, Not 35%»

John McCain and other conservatives spent the last year railing against the United States’ 35 percent corporate tax rate.

What they never mentioned is that this 35 percent corporate rate is so riddled with loopholes and shelters that the United States collects less in corporate taxes as a percentage of GDP than most other industrialized countries.

Now, new IRS data shows typical American companies paid only 25.3 percent of their U.S. book income in federal corporate taxes in 2005, despite a statutory corporate tax rate of 35 percent, by using loopholes and shelters.

U.S. companies “reported about $1.35 trillion in pretax U.S. book income to their investors in 2005, but about $1.03 trillion to the IRS — a difference of about 23%.”

A quick back of the envelope calculation shows that the difference between paying 35 percent on $1.03 trillion in income and $1.35 trillion in income is approximately $112 billion — enough to finance more than half of CAP’s ambitious “Green Recovery” plan to jumpstart a clean energy economy.

Some differences between book and reported income are legal and legitimate, but they can also be a sign of sheltering and abuse. Effective tax reform would first broaden the tax base by closing loopholes and eliminating shelters, before considering a lower statutory corporate rate.

Gene Sperling: ‘We Need To Take A Powell Doctrine Approach To Economic Stimulus’»

Yesterday, during an event entitled Progressives Have a Mandate - Now What?, Center for American Progress Action Fund Senior Fellow Gene Sperling weighed in on the need for Congress to enact an economic stimulus package. Sperling explained that the government should take “a Powell Doctrine approach to economic stimulus for 2009,” using “overwhelming fiscal stimulus force” to get the economy back on track. Watch it:

Sperling added that “the minimum amount that is needed is $300 billion…with the understanding that we may need more.”

In advocating such a large stimulus, Sperling is in agreement with a host of economists. Last month, New York University Professor Nouriel Roubini said that $400 to $500 billion may be necessary, while Nobel Laureate Paul Krugman has More ».

These proposals all dwarf the $60-$100 billion package endorsed by Rep. Nancy Pelosi (D-CA). However, Pelosi (and the rest of Congress) needs to be aware that turning the economy around - even if it means increasing the deficit in the short term - is preferable to holding back and enacting a smaller package that does not provide an adequate economic boost.

As the Center for American Progress laid out in its recovery strategy “for 2009 and beyond“:

These investments in economic stimulus and recovery will contribute to a higher budget deficit in the short term. But we cannot be penny wise and pound foolish. Strong economic growth will do far more to put us on the path of fiscal health than shortchanging needed investments today.

“Remember, if the stimulus is too big, it does much less harm than if it’s too small,” wrote Krugman. “You really, really don’t want to lowball this.”

At the same time, though, it’s important to “restore financial discipline and the public’s confidence in government” by making “a serious commitment to scrub the budget of inefficient and ineffective programs and tax incentives.” This combination of short-term stimulus and long-term discipline will help to create a “sustained economic agenda that focuses on building the foundation for a brighter future.”

Progressives Won. Now What?»

Our guest blogger is Brian Levine, a Senior Policy Adviser at the Center for American Progress Action Fund.

Last week, progressives won a resounding victory. The question is: Now what? Today, the Center for American Progress released its own recovery strategy for 2009 and beyond. The CAP report cautions against being “penny wise and pound foolish” as we confront large budget deficits in the short-term. We must invest immediately in health care, energy and education to help our economy through this crisis and lay the groundwork for future growth.

The report lays out a strategy that begins with stabilizing the economy by ensuring the solvency of financial institutions, restoring confidence to the credit and stock markets, and ending the housing crisis, while jumpstarting the recovery with an intelligently crafted stimulus package.

These steps must be accompanied by a sustained economic agenda that focuses on build­ing the foundation for a brighter future. As the report points out:

Today’s crisis is not just the failing economy but the looming barriers to future prosperity in the form of unsustainable and growing levels of health care costs, the lack of adequate clean, depend­able energy, and our inability to educate our children for the needs of our economy.

We must slow the growth of health care costs, which will require an upfront investment, partly because it requires universal coverage. In addition to covering everyone, we must incorporate new medical technologies into the system and promote more efficient delivery of care.

We need to invest in a new green energy infrastructure to create jobs now and begin the shift to clean, sustainable energy. Using energy more efficiently makes our economy as a whole more efficient. And renewable energy and efficiency are growth industries that can drive American economic leadership well into the future.

And the economic crisis must not prevent us from transforming the public education system to one that prepares our children to compete for high-quality jobs in the global economy and tackling the problem of college affordability.

After the period when deficit spending is needed to strengthen the economy, we must restore fiscal discipline as quickly as possible.

Fannie And Freddie Take The First Step, But Far More Must Be Done To Help Homeowners»

Today, the Wall Street Journal reported that mortgage giants Fannie Mae and Freddie Mac “said they would help streamline the modification of loans for potentially hundreds of thousands of homeowners who are 90 days or more behind on their mortgage payments.” This is a move by the Bush administration that is meant “to help troubled homeowners“:

To qualify, borrowers would have to be at least three months behind on their home loans and would have to owe 90 percent or more than the home is worth…Qualified borrowers would get help in several ways: The interest rate would be reduced so that they would not pay more than 38 percent of their gross income on housing expenses. Another option is for loans to be extended to 40 years from 30, and for some of the principal to be deferred, interest-free.

The plan focuses only on loans that Fannie and Freddie own or guarantee. While Fannie and Freddie are “the dominant players in the U.S. mortgage market,” they hold “only 20 percent of delinquent loans.” Sheila Bair, chairman of the Federal Deposit Insurance Corp., said the plan “falls short of what is needed to achieve wide-scale modifications of distressed mortgages.”

Despite the criticism from Bair and others, like Sen. Charles Schumer (D-NY), this plan is a step in the right direction for an administration that has been woefully hesitant to take any action that would aid homeowners. However, Bair and Schumer are absolutely right to say that the plan does nowhere near enough. Far more must be done to include lenders outside of Fannie and Freddie in a widespread mortgage restructuring plan.

As part of a new book entitled Change for America: A Progressive Blueprint for the 44th President, Center for American Progress Senior Fellow Michael Barr lays out how the federal government can “create a process for the rapid and transparent repricing and restructuring of existing home mortgages themselves”:

The Federal Reserve would run auctions, in which Treasury and the private sector would purchase mortgages from current lenders and investors at discounts determined by the auction process. These mortgage holders would take a hit, trading a reduction in asset value and yield in exchange for liquidity and certainty.

The Bush administration has been quick to bail out troubled financial institutions (in the case of AIG, repeatedly). Action aimed at helping troubled homeowners was long overdue, and can not end with Fannie and Freddie.

Fox News: We Don’t Need GM, Ford ‘Ponzi Schemes’»

In an interview yesterday morning with Fox News’ Megyn Kelly, Fox contributor Jonathan Hoenig calls the domestic auto industry a “Ponzi scheme” and possible government efforts to prevent their bankruptcy “thievery.” His advice to auto workers? “Buy a Honda. We’re going to get by just fine without General Motors and Ford.” After the interview, Fox News anchor Gregg Jarrett scoffed:

You retire and you get health care for life? Since when? I mean, no wonder the Big Three are broke.

Watch clips from the interview:

The potential collapse of the domestic auto industry, the ensuing devastation of manufacturing communities, and the dissolution of the safety net for the millions of retired auto employees and their families doesn’t faze Fox News. Nearly 3 million U.S. jobs would disappear and hundreds of billions of dollars would leave the U.S. economy if GM, Ford and Chrysler were to cease operations in 2009.

The Fox News outrage at government intervention in the auto industry comes as the AIG bailout alone has reached $150 billion. But the auto manufacturing sector is much more important to American families than the financial industry. “Every auto plant job generates another five jobs among suppliers and the surrounding community,” writes auto industry representative Dave McCurdy. “By comparison, a Wall Street job generates two additional jobs.”

Ironically, the Fox anchors are right when they criticize the manufacturers for their history of fighting higher fuel economy standards (although they completely ignored the proximate causes of the frozen credit markets and a spiraling recession). Of course, Fox is normally rabidly against any government regulations or conservation of fossil fuels. Their mindless drumbeat against global warming legislation and for increased offshore drilling is exactly the kind of right-wing propaganda that has prevented innovation in the auto industry.

Transcript: More »

If It Happens, The Auto Industry Bailout Needs To Be Done Right»

There seems to be a growing consensus in Washington that the federal government needs to bail out America’s auto industry. The Wall Street Journal reported today that Sen. Harry Reid (D-NV) and Rep. Nancy Pelosi (D-CA), in a letter sent Saturday, “formally requested that Treasury Secretary Henry Paulson consider giving ‘temporary assistance to the auto industry‘ using money originally appropriated to shore up the banking system.”

President-elect Barack Obama also supports this position. During an appearance on CBS’ Face the Nation, Obama’s Chief of Staff Rahm Emanuel said that “there are existing authorities within the government today that the administration should tap to help the auto industry.”

If the auto industry bailout occurs, two things need to happen. First, it needs to have much stronger oversight than the bank bailout did. As CQ noted, “reports continue to circulate about the banks potentially hoarding portions of the $250 billion Treasury has offered to invest in exchange for senior preferred stock, or using the money for purposes other than lending.” Sen. Chris Dodd (D-CT) pointed out, “That was never the intent; that’s an abusive use of taxpayer money.”

More importantly though - as Pelosi and Reid said - “federal aid should come with ’strong conditions,’ such as requirements that car makers build more fuel-efficient vehicles.” Bill Scher at OurFuture writes, “With the auto industry in dire straits, we taxpayers have maximum leverage to demand the cars necessary to help lower energy costs, cut carbon emissions and reduce our dependency on foreign oil.”

As John Podesta, President and CEO of the Center for American Progress Action Fund - who is currently on leave to head the Obama transition - said on CNN’s Late Edition:

I think we’ve got to stabilize the current situation, but we also have to build for a stable long-term path so that they’re producing the kinds of efficient vehicles that we need in this country.

Podesta added that “the auto industry directly employs about 250,000 people and if you think about the ripple effects, they are the backbone of our manufacturing economy.” Indeed, according to estimates, one in 12 U.S. jobs is tied to car manufacturing, and a bailout of the industry could help boost the U.S.’s ailing manufacturing sector.

In a statement, Dave McCurdy, president and CEO of the Alliance of Automobile Manufacturers, said that the auto industry, if rescued, “will be on the leading edge of the new energy economy“:

Our engineers and designers continue working toward the next technology breakthroughs that will even further reduce oil dependence and carbon dioxide emissions. Our work toward meeting a national solution could create the biggest wave of ‘green jobs’ our nation has seen.

This is a promise that the next administration and Congress need to ensure the auto industry keeps.

China’s Stimulus In Perspective: Comparable U.S. Package Would Be $2.4 Trillion»

Over the weekend China unveiled a “massive” $568 billion stimulus plan to “loosen credit conditions, cut taxes and embark on a massive infrastructure spending program in a wide-ranging effort to offset adverse global economic conditions by boosting domestic demand.”

The announcement sent markets around the world soaring as it eased fears of a huge dropoff in Chinese demand.

This emergency spending by the Chinese government will invest “the equivalent of almost a fifth of its gross domestic product last year on infrastructure.” The $568 billion is approximately 18% of China’s $3.3 trillion 2007 GDP.

An equivalent investment by the United States government in infrastructure and emergency spending would cost over $2.4 trillion, or 18% of the United States’ $13.8 trillion 2007 GDP.

This is 15 times the size of Speaker Pelosi’s proposed two-part $160 billion stimulus, and 12 times the size of Center for American Progress’ “Green Recovery” proposal that would invest $200 billion in green infrastructure and alternative energy priorities over two years.

In a column today, Nobel Prize winning economist Paul Krugman points out that much of the failure of FDR’s New Deal stimulus was that it was not large enough.

He writes, “My advice to the Obama people is to figure out how much help they think the economy needs, then add 50 percent. It’s much better, in a depressed economy, to err on the side of too much stimulus than on the side of too little.”

Unemployment Hits 14-Year High, U.S. Economy Has Shed 1.2 Million Jobs In 2008»

According to data released today by the Department of Labor, the U.S. unemployment rate is at a 14-year high of 6.5 percent. In October, “employers shed another 240,000 jobs…the 10th consecutive monthly decline and a clear signal that an accelerating slowdown is assailing households and businesses.”

The job loss was even worse than economists had predicted. In total, the U.S. economy has seen 1.2 million jobs disappear this year.

As the Center for American Progress’ Christian Weller wrote, “The deepening labor market contraction that followed years of slow job growth requires both a short-term response to keep job losses from spiraling downward and a long-term policy response that will allow American families to recover their income losses.”

Here are some steps that can be taken:

- Extend unemployment benefits, as “many are running out.” CAP’s Michael Ettlinger noted that “the best stimulus proposals can meet the overlapping objectives of boosting demand, stopping job losses, helping those most in need during bad times, and starting to make investments that have long-term benefits. Extending unemployment compensation and measures getting cash into the pockets of people who need it (and will spend it) are examples of stimulus policies.”

- Implement a green recovery and infrastructure investment program, which - by making a wide range of investments that efficiently produce jobs and move the country toward a low-carbon economy - can “create 2 million new jobs nationwide over two years.”

Either of these measures can be included in an economic stimulus package, which is needed to boost the struggling economy anyway. An extension of unemployment benefits has already gained the support of Rep. Nancy Pelosi (D-CA) and President-elect Barack Obama.

Big Business May Be Against The Free Choice Act, But The Public Solidly Supports It»

Yesterday, the Wonk Room noted that conservatives are beginning to warn against the supposedly anti-business agenda of the newly-elected progressive government, beginning with the Wall Street Journal’s report that businesses are bracing “for a cooler climate.” Meanwhile, McClatchy reported today that big businesses are preparing “for a less friendly Washington” and are concerned about “rapid passage” of the Employee Free Choice Act:

Business lobbies can take solace in one important development: Democrats appear to have failed to win enough Senate seats to reach the 60-vote margin needed to cut off debate and force votes on controversial legislation.

This numbers game is important because unions have their eye on rapid passage of the Employee Free Choice Act, which was supported by Obama and Vice President-elect Joe Biden. The legislation would end seven decades of secret balloting during union drives and instead allow organizers to collect signatures from a majority of workers to form a union. This process is called “card check.”

First, McClatchy is spreading some misinformation about the bill: it would not end secret balloting. But more importantly, lost in all this discussion of businesses concerned about the Free Choice Act is the fact that the general public supports the bill. As swing-state polling from American Rights at Work and Peter D. Hart Research Associates shows:

- Nearly two-thirds (60%) of voters believe in even in these tough economic times, it is important to pass the Employee Free Choice Act, and nearly one-third (31%) of voters strongly believe it should be a priority for Congress.

- When told about proposed legislation in Congress that would “make it easier for workers to form unions by allowing employees to be represented by a union when a majority of their coworkers sign cards saying they want to join that union,” voters favor the Employee Free Choice Act by nearly three to one (55% favor; 28% oppose).

- Voters “are more than twice as likely to say big corporations having too much power (50%) creates a bigger problem for people like them than big labor unions having too much power (23%).”

- Overall, 55% of voters in these states say they approve of labor unions, compared with just 27% who say they disapprove.

As American Rights at Work pointed out, “Despite an extraordinary $20 million spent in nine battleground states to defeat candidates who support the Employee Free Choice Act, voters soundly rejected this misleading anti-union campaign from corporate interests and overwhelmingly backed candidates who support working families.” On election day, an anti-union ballot initiative in Colorado also failed to pass.

Being in a union can considerably improve many facets of a worker’s life, through increased wages, better health insurance, and better retirement benefits. It would be nice for some media outlet to focus on that aspect of the Free Choice Act, instead of constantly allowing businesses to say how bad it will be.

UPDATE: Roll Call reports that the U.S. Chamber of Commerce has vowed to fight the bill:

U.S. Chamber of Commerce President Thomas Donohue vowed in a press conference Thursday morning that his business association would continue its battle against the Employee Free Choice Act. “Labor unions and trial lawyers will expect payback,” Donohue said. “Their agendas should alarm every business, small and large.”

Conservatives Fear Progressives Will Shift Power ‘Back In Favor Of Unions’»

Yesterday’s election was a “resounding victory for progressive ideals,” as “progressives triumphed in all regions of the country and won overwhelming support from individuals of all different backgrounds.” Already, though, the prospect of progressive policies being enacted has conservatives sounding the alarm.

At the forefront of the conservative outcry is the notion that American business will suffer under a progressive administration and Congress, particularly due to pro-union measures. As the Wall Street Journal reported:

What appears to worry business interests most is the possibility that a Democratic Congress and a Democratic White House will shift the balance of power between employers and unions back in favor of unions, after two decades or more in which unions have been in retreat.

Michael Franc, vice president for government relations at the Heritage Foundation, announced in the Washington Times that the election of Barack Obama “tilts the playing field to the left” on “a range of issues making it easier for labor to unionize businesses and collect dues, [and in favor of] automatic arbitration favoring unions.”

Even before election day, conservatives were warning that a progressive Congress would pass the Employee Free Choice Act, a bill that would make it easier for workers to unionize. Yesterday, though, was not only a repudiation of the conservative agenda, but also a denunciation of anti-union initiatives. For instance, “Colorado voters decided against Amendment 47, a contentious ‘right-to-work’ measure that sought to restrict the way unions organized in the state.”

A shift in power back toward unions will simply start to reverse eight years of conservative, pro-corporate rule. In 2007, top business executives earned “344 times the salary of the average American worker.” Between 1980 and 2005 - as unionization rates plummeted - CEO pay rose. General wages were 0.3% lower in June 2008 than they were in March 2001.

On average, union workers make 30 percent more in wages than non-union workers, and are more likely to have health insurance. 72 percent of union workers have a guaranteed, defined pension, “compared to only 15% of nonunion workers.”

Unions were indeed “in retreat” while conservatism ruled. Ending that retreat could lead to a better life for many of America’s workers.

‘Vital First Steps’: Extending Unemployment Benefits»

Today, Bloomberg reported that Congress may be taking up a stimulus bill in a lame-duck session following today’s election, and that “lawmakers are facing growing calls for a measure that would dwarf the $168 billion economic stimulus package signed into law in February.”

The size of the stimulus bill is the subject of serious debate, with economists saying anywhere from $300 billion to $500 billion may be necessary “to prevent a deepening recession.” Goldman Sachs economists said that the measure should equal $500 billion “in order to offset a big slowdown in consumer and business spending.”

The Wonk Room has been arguing that the stimulus should be aimed at infrastructure projects, which - as Paul Krugman noted - “the country badly needs in any case.” However, there is another key facet that the stimulus bill should address: unemployment benefits. The U.S. unemployment rate was 6.1 percent in September. As former Secretary of Labor Robert Reich noted:

More than 1 in every 5 people out of work have been looking for six months or more. And many are running out of unemployment benefits. The National Employment Law Project estimates nearly 800,000 will run out this month. And another 350,000 in November and December. That means they won’t be able to pay their bills, including their mortgages. Already this year, almost half of mortgage delinquencies have been caused by homeowners’ lacking of income or employment.

This idea has already garnered opposition from conservatives in Congress. As CNN Money reported today, House conservatives are against extending unemployment benefits:

Mike Steel, an aide to House Minority Leader John Boehner, R-Ohio, said the Republicans would prefer to pass a stimulus bill that didn’t include extensions in unemployment benefits, food stamps and infrastructure projects, arguing they take too long to effectively boost the economy.

Boehner and other conservatives are incorrect if they believe extending unemployment benefits will not quickly boost spending. As the Center for American Progress has noted, “the immediate macroeconomic benefit of putting more money in the pockets of unemployed Americans looking for work is reason enough to extend benefits. This is stimulus money that will swiftly and assuredly flow back into the economy.”

As CAP’s Michael Ettlinger wrote, “moves to help the unemployed and those who are being hit hardest by the deteriorating situation should be included” in a stimulus package, as they are the “vital first steps to getting our economy stabilized and providing stimulus to stop the bleeding.”