Friday Fun: Budget Hero

The Republicans put out a their "Road to Recovery"
(and kudos to their SEO people, the document is very easy to find!). There aren't many details and this has upset some. On the other hand, writing a budget is hard.


Don't believe me? Well then, try creating one yourself here.

Halfway there...

The chart below from dshort.com should give us all some perspective as to how the current financial crisis aligns with those in the past.

We seem to be following the 1929-32 iteration more closely than 1973-4 or 2000-2. As others have noted, this may get worse before it gets worse.

Trash talking...Senate style

This is going to be everywhere tonight. Just remember you saw it here first.


Click here if the video doesn't work (of course that would mean you saw it there first, I guess).

MeFi repost

Over at MetaFilter, the poster named Mutant asks the following:

The Fed's Public Private Partnership Program, promises to clear down as much as $1T worth of "legacy assets" from banks balance sheets. Globally, equity markets responded positively. But what about assets held off balance sheet?

He continues...

Off balance sheet vehicles originally were designed to mitigate risk, focusing investments into subsidiaries so credit ratings or leverage ratios of parent companies wouldn't be impacted. Many financial firms improperly used such vehicles to hide poorly performing assets, culminating in the well known collapse of Enron in 2002. Last July The Financial Accounting Standards group postponed FAS statement 140 - which would require firms to move assets on to their balance sheets - for one year, an impending deadline that concerns many analysts.

How much is held off balance sheet? As of Q1 2009 off balance sheet assets at the four largest US banks - Wells Fargo, JP Morgan, Citigroup and Bank of America - totaled roughly $5T, or a sum potentially dwarfing Geithner's trillion dollar plan.

Regulators are aware of the problem and already are planning to increase requirements for economic capital, but considering how reluctant the United States was to adopt Basel II [.pdf] , a real fix could take a while.

All of this is to say, it looks like the hole is deeper than we are told.

Cover me, cover you

I'm not exactly sure what Obalesque is arguing here. It seems as though Rep. Schultz is for universal health care.

You down with PPIP?

The Public-Private Investment Program (PPIP), Treasury Secretary Geithner's plan to save the US financial sector from catastrophe, is...uh...complicated. I won't try to describe it (for that, I"d suggest going here). I will say that from what I understand, it is basically asking the private "investors" to price something that will mostly (completely?) be paid for with tax dollars.

I don't know if this is the right approach or not. I do want to note something I don't think other people have mentioned. In reading the Ryan Grimm piece about the nationalization of IndyMac, the following stood out:

Depositors didn't all stick around to see how things worked out. A year ago, the bank was sitting on those $19 billion in deposits. When it was finally sold last Thursday, that number had fallen to $6.4 billion.

From $19 billion to $6.4 billion. That is a drop of about 67%. People weren't made to feel secure enough by the FDIC to not pull their money out. I am left wondering if nationalization of the largest banks wouldn't create the same illiquidities and/or create runs on the banks involved? Is this why we are moving forward with TARP v.2?

Oh Canada

MattY had a post today about the border implications of global warming...namely, that they will have to be re-visited. Meanwhile, it seems that our, more mundane, boprder dispute with the Canadians has been resolved. Another quiet victory for the Bush Administration.

Bonus and bailouts

Fivethirtyeight.com's Nate Silver posted about the prospects for the passage of the bonus tax. By his logic, the bill has a very small chance of passing in its present form. In light of this, the question Ed Henry posed last night is not totally without merit:

Maybe a better question would have been "what are you going to do about the AIG bonus?" versus, "why did it take you so long to speak up?". I think that Obama's answer to the question posed couldn't be beaten. And as far as the "what are you going to do about it?" approach...well, it probably isn't going to be a tax.

Better minds than mine noted that the bill passed would create a law that...

would apply only to payments made from January 1, 2009 forward. But almost prospective is like half pregnant. The bill is retrospective for just long enough to clawback the politically fetishized AIG bonuses, while leaving those who made out during the thick of the toxic credit bubble completely untouched. It has all of the philosophical distastefulness of an ex post law, and no offsetting benefit whatsoever, other than punishing a few trophy miscreants from AIG. [em]

So, what do we take away from the sound and fury of this all? Krugman has already noted and others chimed in, "we are not going to stop, or change, the bailout plan. And there won't be another congressionally approved bailout, either. Those wads have been shot."

I hope that this consensus is wrong.

Sudent loan woes

Fully behind Incertus on this:

[I]t might be nice to think about those of us who've recently left and are struggling with some pretty crippling student loan debt...

And I'll go them one better--I don't require, or even request, a full-on bailout. I don't need something for nothing. Just make me a deal whereby I spend a handful of years in the public sector making what people in the field make--teaching in a public school, for instance, since
that's where my expertise lies--and in return, I get rid of my student loans.

To round this discussion out, it is important to remember the following:

[R]ight now we do student loans through a really pointless mechanism of basically laundering the money through private firms. All of the downside risk is borne by the government in case of default. And the lenders receive federal subsidies for doing the service of undertaking no-risk lending. But of course the companies also take a slice off the top for profits and salaries for executives and so forth. Consequently, this is more expensive than just directly lending the money. And the government is bearing all the risk anyway.