The Economist gives Obama a tepid endorsement

I thought this was interesting -- in one of the most tepid endorsements I recall reading for a political candidate, the economics-centric The Economist magazine has decided to support Obama.  Not because Obama has done a great job with everything, but because they just can't figure out who Romney is. Some key excerpts from the endorsement:

Mr Obama’s first term has been patchy. On the economy, the most powerful argument in his favour is simply that he stopped it all being a lot worse. America was in a downward economic spiral when he took over, with its banks and carmakers in deep trouble and unemployment rising at the rate of 800,000 a month. His responses—an aggressive stimulus, bailing out General Motors and Chrysler, putting the banks through a sensible stress test and forcing them to raise capital (so that they are now in much better shape than their European peers)—helped avert a Depression. That is a hard message to sell on the doorstep when growth is sluggish and jobs scarce; but it will win Mr Obama some plaudits from history, and it does from us too...

No administration in many decades has had such a poor appreciation of commerce. Previous Democrats, notably Bill Clinton, raised taxes, but still understood capitalism. Bashing business seems second nature to many of the people around Mr Obama. If he has appointed some decent people to his cabinet—Hillary Clinton at the State Department, Arne Duncan at education and Tim Geithner at the Treasury—the White House itself has too often seemed insular and left-leaning. The obstructive Republicans in Congress have certainly been a convenient excuse for many of the president’s failures, but he must also shoulder some blame. Mr Obama spends regrettably little time buttering up people who disagree with him; of the 104 rounds of golf the president has played in office, only one was with a Republican congressman.

Above all, Mr Obama has shown no readiness to tackle the main domestic issue confronting the next president: America cannot continue to tax like a small government but spend like a big one. Mr Obama came into office promising to end “our chronic avoidance of tough decisions” on reforming its finances—and then retreated fast, as he did on climate change and on immigration. Disgracefully, he ignored the suggestions of the bipartisan Bowles-Simpson deficit commission that he himself set up. More tellingly, he has failed to lay out a credible plan for what he will do in the next four years. Virtually his entire campaign has been spent attacking Mr Romney, usually for his wealth and success in business...

Mr Obama’s shortcomings have left ample room for a pragmatic Republican, especially one who could balance the books and overhaul government. Such a candidate briefly flickered across television screens in the first presidential debate. This newspaper would vote for that Mitt Romney, just as it would for the Romney who ran Democratic Massachusetts in a bipartisan way (even pioneering the blueprint for Obamacare). The problem is that there are a lot of Romneys and they have committed themselves to a lot of dangerous things...

Mr Romney’s more sensible supporters explain his fiscal policies away as necessary rubbish, concocted to persuade the fanatics who vote in the Republican primaries: the great flipflopper, they maintain, does not mean a word of it. Of course, he knows in current circumstances no sane person would really push defence spending, projected to fall below 3% of GDP, to 4%; of course President Romney would strike a deal that raises overall tax revenues, even if he cuts tax rates...

However, even if you accept that Romneynomics may be more numerate in practice than it is in theory, it is far harder to imagine that he will reverse course entirely. When politicians get elected they tend to do quite a lot of the things they promised during their campaigns. François Hollande, France’s famously pliable new president, was supposed to be too pragmatic to introduce a 75% top tax rate, yet he is steaming ahead with his plan. We weren’t fooled by the French left; we see no reason why the American right will be more flexible. Mr Romney, like Mr Hollande, will have his party at his back—and a long record of pandering to them...

This newspaper yearns for the more tolerant conservatism of Ronald Reagan, where “small government” meant keeping the state out of people’s bedrooms as well as out of their businesses. Mr Romney shows no sign of wanting to revive it..

We very much hope that whichever of these men wins office will prove our pessimism wrong. Once in the White House, maybe the Romney of the mind will become reality, cracking bipartisan deals to reshape American government, with his vice-president keeping the headbangers in the Republican Party in line. A re-elected President Obama might learn from his mistakes, clean up the White House, listen to the odd businessman and secure a legacy happier than the one he would leave after a single term. Both men have it in them to be their better selves; but the sad fact is that neither candidate has campaigned as if that is his plan...

The Economist’s readers, especially those who run businesses in America, may well conclude that nothing could be worse than another four years of Mr Obama. We beg to differ. For all his businesslike intentions, Mr Romney has an economic plan that works only if you don’t believe most of what he says. That is not a convincing pitch for a chief executive. And for all his shortcomings, Mr Obama has dragged America’s economy back from the brink of disaster, and has made a decent fist of foreign policy. So this newspaper would stick with the devil it knows, and re-elect him.

 Like I said, tepid.  You can read the entire article here.

June column for Builder & Developer magazine now online

My column for the June issue of Builder & Developer magazine is now posted online.

For this issue, entitled "The 2012 Presidential Candidates on Housing Policy," I wanted to compare what President Obama and presumptive GOP Nominee Mitt Romney have in plan for the housing market.

An excerpt:

After several years of false starts, there finally appear to be more green shoots appearing in the nation’s housing market which indicate a slow yet actual rebound.  Sales of both new and existing homes are on the mend, affordability is at generational highs, and the dreaded tsunami of foreclosures expected to lower prices even further have largely been bought up by investors to re-purpose as rental properties.  Even better, according to Moody’s housing analyst Celia Chen, homeowners will begin to favor newly built homes versus distressed homes which are damaged.

Nonetheless, because the economy remains the top concern of most voters in the 2012 Presidential election, how President Barack Obama and the GOP’s presumptive nominee Mitt Romney influence housing policy is of critical importance to homebuilders and homeowners alike...

So can market forces alone help guide this all-important sector of the U.S. economy to health, or will it continue to need more help?  The answer to that question depends on whom you ask...

To read the entire column, click here.

To read the entire June 2012 issue in digital format, click here.

Where do they stand? Obama vs. Romney on housing policy

After several years of false starts, there finally appear to be more green shoots appearing in the nation’s housing market which indicate a slow yet actual rebound.  Sales of both new and existing homes are on the mend, affordability is at generational highs, and the dreaded tsunami of foreclosures expected to lower prices even further have largely been bought up by investors to re-purpose as rental properties.  Even better, according to Moody’s housing analyst Celia Chen, homeowners will begin to favor newly built homes versus distressed homes which are damaged.

Nonetheless, because the economy remains the top concern of most voters in the 2012 Presidential election, how President Barack Obama and the GOP’s presumptive nominee Mitt Romney influence housing policy is of critical importance to homebuilders and homeowners alike.  As a political Independent for well over a decade, I may have no abiding loyalty towards either major party, but I do certainly want what’s best for the industry and, by extension, the country.

According to the NAHB, the housing sector normally accounts for 15% of the nation’s GDP, and is one of the few sectors which cannot be out-sourced to other countries across the globe.  Based on population growth and demographics, the nation will have to build 17 million new residences just to keep up with demand over the next decade, and yet for now the industry remains largely hamstrung by deferred household formations, limited construction financing, and a flawed appraisal system in which new homes erroneously get compared against deeply discounted distressed and foreclosed units.

So can market forces alone help guide this all-important sector of the U.S. economy to health, or will it continue to need more help?  The answer to that question depends on whom you ask.

For Mitt Romney, while there is nothing on his campaign Web site which specifically addresses housing, he seems to rely more on the private market to sort things out.  According to Glenn Hubbard, an economic adviser to Romney, the domination of housing finance by government entities such as the FHA, Freddie Mac and Fannie Mae is simply not sustainable and must be phased out in favor of private lenders.

At a recent campaign event in Florida, Romney also reportedly mused about getting rid of agencies such as the Department of Housing and Urban Development (HUD) as part of his plans to simplify the federal government.  As for foreclosures, he prefers to let the free market let prices hit ‘rock bottom’ as opposed to government policies which would seek to make such declines more orderly.

President Obama, on the other hand, seems to believe that continued intervention by the federal government – at least in the short to medium run -- is essential to providing adequate mortgage capital and even to help underwater borrowers refinance, with restrictions, to today’s historically low rates.  He probably doesn’t have much choice:  given that his previous attempts to bolster the housing market haven’t worked at even close to the scale that is necessary – with less than 20% of homeowners eligible for loan modifications -- if government intervention is to work at all, the policies must be more aggressive.

More recently, Obama seems to have absorbed this criticism, unveiling more than a half dozen plans to encourage refinancing, to reduce the overhang of debts owed by underwater homeowners, and to expand existing aid programs even to borrowers who were speculators or simply took on too much debt.  These latest moves seem as much practical as they are political, since the previous obsession with refusing to help those who made financial mistakes has really acted as a structural brake on the economic rebound.  Schadenfreude may feel good to the individual, but it does nothing to fix the housing market.

Since the Obama Administration has put the housing market back on its front burner, I’d expect the Romney campaign to do the same.  But given that the federal government continues to guarantee or insure more than 90% of all home mortgage activity through FHA, Fannie Mae and Freddie Mac, candidate Romney will have to offer specifics on just what, when and how the private sector will successfully step up to the plate.

60 Minutes talks with President Obama about the economy, AIG and settling into his new job

They say that starting a new job is one of life's most stressing events -- and if you're Barack Obama and you're taking the helm of the United States as the world teeters on the edge of financial catastrophe? Gallows humor. Lots of it. From CBSNews.com:

By most accounts, this past week was one of the most difficult in the young presidency of Barack Obama. At the heart of it all was the public upheaval over $165 million in bonuses paid to employees of AIG, a company largely responsible for bringing the world's financial system to its knees and now being propped up by U.S. taxpayers. The bonuses touched off a cultural war between Wall Street and Main Street, both of whose support the president needs to help stabilize the economy.

After campaigning in California to drum up support for his $3.6 trillion budget, the president sat down with 60 Minutes in the Oval Office for a conversation about the AIG debacle, the economy, and getting the hang of the world's most difficult job.

Part I:


Watch CBS Videos Online

Part II:


Watch CBS Videos Online

Has Obama's "Katrina" moment already arrived?

Apparently things move very fast in the Obama Administration, with some of his more virulent opponents already calling for his impeachment. But New York Times columnist Frank Rich suggests that the lack of communication on the financial crisis has quickly become Obama's own "Hurricane Katrina" moment. From his column:

A CHARMING visit with Jay Leno won’t fix it. A 90 percent tax on bankers’ bonuses won’t fix it. Firing Timothy Geithner won’t fix it. Unless and until Barack Obama addresses the full depth of Americans’ anger with his full arsenal of policy smarts and political gifts, his presidency and, worse, our economy will be paralyzed. It would be foolish to dismiss as hyperbole the stark warning delivered by Paulette Altmaier of Cupertino, Calif., in a letter to the editor published by The Times last week: “President Obama may not realize it yet, but his Katrina moment has arrived.”...

Six weeks ago I wrote in this space that the country’s surge of populist rage could devour the president’s best-laid plans, including the essential Act II of the bank rescue, if he didn’t get in front of it. The occasion then was the Tom Daschle firestorm. The White House seemed utterly blindsided by the public’s revulsion at the moneyed insiders’ culture illuminated by Daschle’s post-Senate career. Yet last week’s events suggest that the administration learned nothing from that brush with disaster. Otherwise it never would have used Lawrence Summers, the chief economic adviser, as a messenger just as the A.I.G. rage was reaching a full boil last weekend. Summers is so tone-deaf that he makes Geithner seem like Bobby Kennedy...

Click here for entire column.

California gains political power

With a Democratic President now in office as well as a House Speaker, two power senators and various congresspersons chairing important subcommittees, there's been a large but potentially unnoticed shift of power from the South to California. But will these newly powerful liberals over-reach? A story in The Economist ponders the question:

THE 2008 election did not just put a new president in the White House. It also completed one of the biggest shifts in the regional balance of power in America’s recent history, draining influence away from the once-mighty South and redistributing it to the coasts. This will help determine who gets what from Barack Obama’s attempts to stimulate and reshape the economy.

The biggest winner from this internal revolution is America’s biggest state, California. Nancy Pelosi, who has been speaker of the House since 2007, is no longer restrained by a Republican president. Californians run two of the most powerful committees in the House: Energy and Commerce (Henry Waxman), Education and Labour (George Miller), plus an important subcommittee on intelligence (Jane Harman)...

Californian number-plates will not be as ubiquitous as Texan ones used to be in the White House car park. But Mr Obama has nominated several Californians to leading positions in his administration besides Mr Panetta: Hilda Solis, a former congresswoman, to run the Labour Department, Steven Chu, a former head of the Lawrence Berkeley National Laboratory, to Energy, Nancy Sutley, a former deputy mayor of Los Angeles, to run the Council on Environmental Quality.

The rise of California is matched by the fall of the South. Southern politicians have long punched above their weight in Washington. Southern Democrats such as Lyndon Johnson and Sam Rayburn dominated Congress before the civil-rights era.

The rise of the modern Republican Party projected a succession of southern conservatives to the pinnacle of power—Newt Gingrich and Dick Armey in the 1990s and Tom DeLay in the early 2000s; not to mention the two Texan George Bushes. The Democrats were so worried about their decline in the South that they ran two southerners, Bill Clinton and Al Gore, in 1992 and 1996. Now the South is as impotent as it has been for a century.

This geographical shift has brought dramatic changes in style and substance. California’s Democratic House delegation is the most diverse on the Hill, with 10 white women, nine Hispanics, four black women and two Asian-Americans. It is also one of the most left-wing, according to the voting records. It is hard to imagine a bigger change from the southern-fried conservatives who once lorded it over Congress...

The Californication of the Democratic Party carries all sorts of risks. The most obvious is that California has the most dysfunctional politics in the country. The Golden State has one of the highest unemployment rates in America, at 9.3%, thanks to its high taxes, its unions, its anti-business climate and its gigantic housing bubble. Some 100,000 people have fled the state each year since the early 2000s...

The biggest risk is overreach. Many Californian liberals are as far to the left on cultural issues as the southern Republicans were to the right. Many of them also draw their support from two groups that have limited appeal to the rest of the country, particularly to the “bitter” voters that Mr Obama had such trouble wooing in November; the fabulously rich and public-sector activists.

All this suggests that one of Mr Obama’s most delicate tasks, if he wants to prevent his party from being captured by the “left coast” in the same way that the Republicans were captured by the South, will be to contain the Californian barons...

And Mr Obama did remarkably well in the South, capturing Virginia and North Carolina and coming within five points of taking Georgia. But putting just one person with a southern drawl in his cabinet might have helped.

President Obama explains his stimulus plan

If you happened to miss President Obama's State of the Nation speech tonight to Congress, you can find it online at numerous places (including here at CNN).

I thought there were numerous 'take away' points that would much discussed tonight and tomorrow, most of which were included in Andrew Sullivan's live blogging of the event:

9.37 pm. I like the historical references to using crises to make long-term investments: the ability to do two things at once:

In the midst of civil war, we laid railroad tracks from one coast to another that spurred commerce and industry. From the turmoil of the Industrial Revolution came a system of public high schools that prepared our citizens for a new age. In the wake of war and depression, the GI Bill sent a generation to college and created the largest middle-class in history.

This is lethal politics and strikes me as very much attuned to the mood of the public. And how great it is to have a president refer to American history with intelligence and acuity.

Click here for the entire blog post.

Click here for watch the speech on demand at CNN.com.

Obama announces detailed housing rescue plan

This morning President Obama announced details of his plans to help 9 million homeowners avoid foreclosure. First, a summary from the L.A. Times:

• Remove restrictions on Fannie Mae and Freddie Mac that prohibit the institutions, both taken over by the government last year, from refinancing mortgages they own or have guaranteed when more is owed on a home than it is worth. The White House says this could reduce monthly payments for up to 5 million homeowners.

• Create incentives for lenders to modify subprime loans at risk of default or foreclosure. For lenders that agree to reduce rates to levels borrowers can afford, the government will make up part of the difference between the old monthly payment and the new payment. Participating lenders also will be required to cut payments to no more than 31 percent of a borrower's income. Up to 4 million homeowners could benefit.

• Keep mortgage rates low for millions of middle-class families seeking new mortgages. Using money already approved by Congress for this purpose, the Treasury Department and the Federal Reserve will continue to buy Fannie and Freddie mortgage-backed securities to maintain stability and liquidity in the marketplace. The department, through its existing authority, will provide up to $200 billion in capital for this purpose.

• Pursue reforms to help families avoid foreclosure. The administration will continue to support changing bankruptcy rules so judges can reduce mortgages on primary homes to their fair market value, as long as the borrower sticks to a court-ordered repayment plan. As part of the $787 billion stimulus package that Obama signed into law on Tuesday, the administration will award $2 billion in competitive grants to communities experimenting with innovative ways to prevent foreclosures.

If you missed the press conference, you can watch it below:

Is President Obama up to solving the economic crisis?

Given that the bi-partisan cooperation hoped for by President Obama lasted all of perhaps 10 minutes, economist Paul Krugman is voicing a concern that many others have echoed: is Obama up to the task? From Krugman's column in the New York Times:

Mr. Obama’s victory feels more than a bit like defeat. The stimulus bill looks helpful but inadequate, especially when combined with a disappointing plan for rescuing the banks. And the politics of the stimulus fight have made nonsense of Mr. Obama’s postpartisan dreams...

In both the House and the Senate, the vast majority of Republicans rallied behind the idea that the appropriate response to the abject failure of the Bush administration’s tax cuts is more Bush-style tax cuts. And the rhetorical response of conservatives to the stimulus plan — which will, it’s worth bearing in mind, cost substantially less than either the Bush administration’s $2 trillion in tax cuts or the $1 trillion and counting spent in Iraq — has bordered on the deranged...

And the ugliness of the political debate matters because it raises doubts about the Obama administration’s ability to come back for more if, as seems likely, the stimulus bill proves inadequate...

Officially, the administration insists that the plan is adequate to the economy’s need. But few economists agree. And it’s widely believed that political considerations led to a plan that was weaker and contains more tax cuts than it should have — that Mr. Obama compromised in advance in the hope of gaining broad bipartisan support. We’ve just seen how well that worked...

Over all, the effect was to kick the can down the road. And that’s not good enough. So far the Obama administration’s response to the economic crisis is all too reminiscent of Japan in the 1990s: a fiscal expansion large enough to avert the worst, but not enough to kick-start recovery; support for the banking system, but a reluctance to force banks to face up to their losses. It’s early days yet, but we’re falling behind the curve.

Should we be worried?

Click here for full article.

The perils of only planning for best-case scenarios

According to Financial Times columnist Martin Wolf, Barack Obama may be facing serious consequences to his Presidency if his stimulus plan only plans for best-case scenarios. From the column:

Has Barack Obama’s presidency already failed? In normal times, this would be a ludicrous question. But these are not normal times. They are times of great danger. Today, the new US administration can disown responsibility for its inheritance; tomorrow, it will own it. Today, it can offer solutions; tomorrow it will have become the problem. Today, it is in control of events; tomorrow, events will take control of it. Doing too little is now far riskier than doing too much. If he fails to act decisively, the president risks being overwhelmed, like his predecessor. The costs to the US and the world of another failed presidency do not bear contemplating.

What is needed? The answer is: focus and ferocity. If Mr Obama does not fix this crisis, all he hopes from his presidency will be lost. If he does, he can reshape the agenda. Hoping for the best is foolish. He should expect the worst and act accordingly.

Yet hoping for the best is what one sees in the stimulus programme and – so far as I can judge from Tuesday’s sketchy announcement by Tim Geithner, Treasury secretary – also in the new plans for fixing the banking system. I commented on the former last week. I would merely add that it is extraordinary that a popular new president, confronting a once-in-80-years’ economic crisis, has let Congress shape the outcome.

Ouch!

Read the rest of the column here.

McCain vs. Obama: where they stand.

As a final note before tomorrow's election, Builder magazine has an article summarizing the stands of both John McCain and Barack Obama. Although many builders typically vote along strict Republican lines, some well-known builders such as Toll Bros.' Bob Toll and Eli Broad, founder of Kaufman & Broad, support the Democratic nominee. If nothing else, that should make for interesting conversations at industry functions! From a BuilderOnline.com story:

With no end to the housing downturn in sight, with banks and investment firms hemorrhaging billions of dollars, then failing, and the federal government offering more than $1 trillion and counting to try and stem the tide of the credit crisis, the next president of the United States may hold the future of the country in his hands. Many businesses and individuals are hurting, but the home building industry has more at stake than most.

To say that this election is important to builders would be an understatement of the greatest magnitude; the economy is in a full-fledged nose dive, and builders need a president to restore the American people’s confidence, create new jobs, and right the capsized economy before people will start buying homes in large numbers again...

Finding real answers in the candidates’ whistle-stop promises and scripted answers to softball questions is difficult at best. To provide clarity on the candidates’ positions, Builder first asked readers to rank their top concerns on a 1 to 10 scale with 1 being the highest priority and 10 being the lowest. Then we distilled the candidates’ positions on some of those issues. Our survey revealed that many of you rate the energy and credit crises most important, with immigration, infrastructure development, affordable housing, and green building rounding out the list of your chief domestic concerns.

Read on to find out where McCain and Obama stand on several of your top issues.

Click here for full story.

"The Economist" on the Presidential election

The Economist magazine has an excellent series of articles on the upcoming election, the issues we face and how the opposing candidates have pledged to handle them. And how does a group of economists rate Bush's tenure? It ain't pretty. Listed below are links to each of the major articles:

Introduction

An inconvenient truth

John McCain and Barack Obama

The battle of hope and experience

The Economy

A choice of remedies

Regulation and trade

Changing the rules

Foreign policy

The best of enemies

Iraq and Afghanistan

Which war?

Health care

Running for cover

Immigration

The lurking monster

Energy and the environment

Greener than thou

Education

Still at risk

Crime

Hanging fire

Values

Endless culture war

Conclusion

The three elections

Next, how economists rate the candidates' plans:

The Economist's poll of economists

Examining the candidates

Were Obama and Barney Frank responsible for the subprime crisis?

Although it's not too surprising to see the level of partisan vitriol escalating so close to the election, the facts about the subprime mortgage crisis are getting so badly mangled that I decided to turn to snopes.com to see what they had to say about it.

First, on the contention that Barack Obama filed a lawsuit to force banks to make loans to poor people: False. I can't pull anything from that site, so click here to read the post.

Next, on the 1999 email warning against potential troubles with FannieMae and FreddieMac: True. Click here to read. Still, that was NINE YEARS ago. What's more serious is the idea that attempts by the Bush Admin. to institute more regulation of the GSEs was stopped by a Democratic Congress.

I think there's plenty of blame to go around on this issue, and neither major party can claim to be innocent.

Zillow poll: McCain or Obama better for housing?

The real estate website Zillow conducted an online poll among its users asking which Presidential candidate was better-suited to solve the housing crisis. From an Inman News story:

A new survey published Friday -- conducted online by Harris Interactive on behalf of real estate Web site Zillow.com -- found that between the two major presidential candidates, 58 percent of Americans think Sen. Barack Obama will better address the current state of the housing market than Sen. John McCain (42 percent).

According to the survey of 2,016 U.S. adults, the perception of who is better to address the housing market is heavily influenced by whether respondents own a home, which represents approximately two-thirds (64 percent) of U.S. adults. Among non-homeowners, some 67 percent think Obama will better address the housing market than McCain (33 percent). Among current homeowners, 52 percent of homeowners think Obama will better address the market versus the 48 percent who think McCain will...

The survey also showed housing market issues are among the top three most important issues affecting the United States that the new president should be prepared to address after taking office. The most import issues are energy/gas prices (82 percent), U.S. debt (70 percent) and housing/mortgage/foreclosure (63 percent), although this varies based on which candidate respondents plan to vote for...

For example, of the 41 percent who said they plan to vote for Obama in November, 71 percent think housing/mortgage/foreclosure issues are among the most important compared with 52 percent of those who plan to vote for McCain.

According to the Zillow survey, 14 percent of adults say they don't know who they plan to vote for; 6 percent declined to answer; and 7 percent say they do not plan to vote in the upcoming presidential election.

Politics derails bipartisian bailout plan

In the beginning, there was a $700 billion Plan (at least the first phase of it), and some thought it was good (others weren't so sure). Then the President went on national television to explain the catastrophic consequences of failing to approve the Plan (i.e., a potential Depression), which some thought good and others thought was simply more fear-mongering.

The Plan was about to be approved and then -- Poof! -- Republican candidate John McCain put his campaign on hold and swept into Washington to -- what? derail the Plan? fly off to Alaska with Sarah Palin and watch Russia from a doorstep? -- and now it seems that Congress is at an impasse. Obama's waiting for a Plan to be announced first before he issues his own specifics on what to do (sort of like voting "Present" instead of "Yes" or "No").

Rome -- burning. Leaders -- fiddling. Voters -- really sorry now that they thought the proper way to vote for candidates of high office was to consider sharing a beer (although that Shiner Bock from Texas is good stuff!). From a New York Times story:

The status of a rescue plan for the nation’s financial system was in doubt on Thursday, at least for the moment, as lawmakers emerged from a meeting with President Bush to say that negotiations had a ways to go...

One critical snag seems to be opposition to the $700 billion plan by conservative House Republicans.

“My hope is that we can get a deal,” said Senator Christopher J. Dodd, chairman of the Senate Banking Committee, hours after House and Senate negotiators had announced that an accord was at hand. President Bush had hoped that an agreement could be announced after the late-afternoon meeting.

Mr. Dodd, looking tired and annoyed, complained that the late complications were making the episode sound more like “a rescue plan for John McCain,” the Republican presidential candidate, than one for the financial system.

It does no good, Mr. Dodd said, “to be distracted for two or three hours by political theater.”...

Mr. McCain and his Democratic opponent, Senator Barack Obama, left the White House by a side entrance without commenting. The initial silence of the presidential candidates reinforced the impression that thorny issues still need to be addressed...

It has become abundantly clear, that members of Congress are hearing from their constituents, many of whom are furious about the proposed rescue.

Democrats said that Senate and House Democrats and Senate Republicans and the White House were ready to hammer out a deal, but that House Republicans balked.

“We were ready to make a deal,” said Representative Barney Frank, Democrat of Massachusetts, who attended the meeting and was standing next to House Speaker Nancy Pelosi as Mr. Paulson Jr. asked for more time.

“The House Republicans now tell us we’re not for this, we have got something else,” Mr. Frank said.

He complained that the new House Republican counter-proposal included ideas about private mortgage insurance and a cut in the capital gains tax that Mr. Paulson had already testified would not work...

Conservative Republicans, in particular, have said that such a huge government intervention violated their free market principles.

A senior Republican lawmaker, speaking on condition of anonymity so as not to undermine the party leadership, said there was a “violent reaction” among House Republicans to the Paulson plan. He said backers of the alternative, one of several that have been proposed in the House, are calculating that they can force the negotiators to accept it as part of a larger deal.

No, not another RTC-type bailout. Perhaps another "RFC," updated from the 1930s.

Despite the constant parade of "no bailout!" exclamations accompanying email signatures on blog comments and the efforts by certain members of the blogosphere to energize an anti-bailout crowd, it seems that the housing/mortgage/financial crisis is spinning out of control to the point that some point of bailout seems necessary (something unhappily predicted by this blog back in late 2007). How might it look? A story in the Wall Street Journal reviews:

The federal government is working on a sweeping series of programs that would represent perhaps the biggest intervention in financial markets since the 1930s, embracing the need for a comprehensive approach to the financial crisis after a series of ad hoc rescues.

At the center of the potential plan is a mechanism that would take bad assets off the balance sheets of financial companies, said people familiar with the matter, a device that echoes similar moves taken in past financial crises. The size of the entity could reach hundreds of billions of dollars, one person said.

Another proposal would be the creation of federal insurance for investors in money-market mutual funds, coverage akin to the insurance that currently safeguards bank deposits. The move is designed to stem an outflow of funds as consumers start to worry about even the safest of investments, a sign of how the crisis is spreading to Main Street. There is $3.4 trillion in money-market funds outstanding.

In addition, the Securities and Exchange Commission is set to propose a temporary ban on short-selling. It's not clear how broadly the ban might extend, but it could apply only to financial stocks...

The administration had been taking a patchwork approach to the financial crisis, putting out fires as they ignited. The new moves represent an effort to take a more systematic approach, after a spiral of bad debts, credit downgrades and tumbling stocks brought down venerable names from investment bank Lehman Brothers Holdings Inc. to insurance giant American International Group Inc. Banks have grown unwilling to lend to one another, a sign of extreme stress, because financial markets work only when institutions have faith in each other's ability to meet their obligations.

Word of the plan came the same day as the Federal Reserve and other major central banks offered hundreds of billions of dollars in loans to commercial banks to alleviate a deepening freeze in the world's credit markets. That step appeared to have moderate impact on lending among banks. Meanwhile, a wave of redemptions continued hitting money-market funds, causing a second large fund to shut to investors...

The flurry of moves under discussion may bring the markets some breathing room, but it isn't clear whether they will amount to a long-term solution to the complex financial problems sweeping the market...

Treasury Department officials have studied a structure to buy up distressed assets for weeks, but have been reluctant to ask Congress for such authority unless they were certain it could get approved. The intensified market turmoil may have changed that political calculus, even with less than two months left until the November elections.

A big question still to be answered is how the government will value the assets it takes onto its books. One possible avenue could be some sort of auction facility, so that the government would not have to be involved in negotiating asset values with companies. Financial companies would likely take big losses...

Exactly how such an entity might be structured isn't yet clear. The possible plan isn't expected to mirror the Resolution Trust Corp., which was used from 1989 to 1995 during the savings and loan crisis to hold and sell off the assets of failed banks. Rather, a new entity might purchase assets at a steep discount from solvent financial institutions and eventually sell them back into the market.

The program may look more like the Reconstruction Finance Corporation, a Depression-era relief program formed in 1932 by President Hoover that tried to inject liquidity into the market by giving loans to banks and other businesses.

According to a top congressional aide, the Treasury department wants authority to either control the program or have it be a separate division of the government...

Thursday, Republican nominee Sen. John McCain sought a broad expansion of government regulation over financial institutions, including the formation of a body to both assume distressed mortgages and help failing investment banks.

Saying the government cannot "wait until the system fails," Sen. McCain called for the creation of an entity that would essentially help companies sell off bad loans and other impaired assets. It is unclear how the body, dubbed the Mortgage and Financial Institutions trust, would operate, including whether or not institutions would seek help or whether the government would intervene on its own behalf.

His rival, Democratic Sen. Barack Obama of Illinois was less specific about what steps he would take, offering broader outlines of policy proposals that included a "Homeowner and Financial Support Act." The measure, which would inject capital and liquidity in the financial system, is designed to provide a more coordinated response than "the daily improvisations that have characterized policy-making over the last year."

Can't wait for those debates!

Barack Obama on the economy

Eager to know where Barack Obama stands on the best ways to fix the economy? You can find that here courtesy of Fortune magazine.

Positive fall-out from the Bear Stearns rescue

Economics is one of the most complicated social sciences one can study, and for good reason: besides the basics of supply and demand, the roles of human psychology and the inter-relations of a complex economy in today's world can be confusing. That's why I liked an article by David Weidner in today's MarketWatch.com on how the Bear Stearns bail-out may actually help save Main Street:

If you're thinking about refinancing your mortgage, getting a loan to buy a new car, or switching to a lower-interest rate credit card, you can thank the Federal Reserve for your ability to do so.

You might also want to mention that the recent boost to your 401(k) portfolio is appreciated as well.

Though it may not be obvious, anyone who participates in the credit world -- and that's most of us -- owes the Fed a debt of gratitude for stepping in and helping to prevent the collapse of Bear Stearns Cos...

Sure, the Fed is taking it on the chin. Taxpayers will buy a boatload of sketchy securities from Bear and hope that they produce any kind of return. J.P. Morgan Chase & Co. with the Fed's backing, will absorb the rest of Bear through a buyout. Taxpayers will probably take a loss, but no one knows how much it will be. It could be $29.9 billion. It could be half that, or nothing.

The move is unprecedented. The Fed on rare occasions has backed up banks, but it's never backed up investment banks. The idea that investment banks get bank protection is what should be debated, but no, everyone wants to know if the little guy is getting screwed...

Call it a bailout or call it corporate welfare, Timothy Geithner, the New York Federal Reserve president, had something else in mind when he forced Bear into the arms of its rival and took responsibility for $30 billion in its assets: the financial system.

"Main Street, directly or indirectly, by holding mutual funds, by having a pension in mutual funds or insurance invested in securities -- all of these are ways the person on the street has an interest in a stable financial system," said Lawrence J. White, a New York University professor who served on the Federal Home Loan Bank Board during the savings and loan crisis.

"The ability of an individual to get credit also" comes from Wall Street, White said...

It's those kinds of truths that get lost in the rhetoric in Congress or on the campaign trail. The latest to chime in, Republican John McCain, said on March 25 that he didn't favor government intervention either for "big banks or small borrowers."...

Sorry John, but an economic collapse wouldn't be limited to those who made bad bets or mistakes.

To his credit, Senator McCain did admit that economics are not his strong suit. Yes, John, we know! So what say Senators Clinton and Obama?

Obama has said he'd like to create incentives for lenders to refinance mortgages and he wants crack down on irresponsible lenders. Most of the candidate's policies are tougher standards for lenders not borrowers.

Sen. Hillary Clinton has proposed a $30 billion program to help troubled home borrowers. She also wants to get former Fed chairmen Paul Volcker and Alan Greenspan on the job. But she also offered an honest assessment of the Bear Stearns bailout...

Though she stopped short of endorsing the Fed's bailout of Bear Stearns, she's come the closest of any candidate to acknowledging that Wall Street and Main Street are just two names for the American credit highway...

So, if the Fed is backing up investment banks like it does commercial banks, then shouldn't investment banks be under tighter controls? Isn't this intervention the equivalent of creditor insurance for those complex loan agreements between Wall Street banks?

If so, then there are bigger questions at stake than whether or not some fat cats got bailed out. Wall Street has been living a life of freewheeling risk, built around the fact the industry was doing it on its own dime. Backed by taxpayers, brokers may be subject to capital requirements, managerial competency standards and restrictions on what kinds of business it can do.

In other words, they'd be just like regular banks.