J. Bradford DeLong's Blog, page 2103
February 4, 2011
Zoe Lofgren and Olga Pierce: Obama Broke Pledge to Force Banks to Help Homeowners - ProPublica
ZL&OP:
Dems: Obama Broke Pledge to Force Banks to Help Homeowners - ProPublica: Before he took office, President Obama repeatedly promised voters and Democrats in Congress that he’d fight for changes to bankruptcy laws to help homeowners—a tough approach that would force banks to modify mortgages. “I will change our bankruptcy laws to make it easier for families to stay in their homes,” Obama told supporters at a Colorado rally on September 16, 2008, the same day as the bailout of AIG.
Bankruptcy judges have long been barred from lowering mortgage payments on primary residences, though they could do it with nearly all other types of debt, even mortgages on vacation homes. Obama promised to change that, describing it as exactly “the kind of out-of-touch Washington loophole that makes no sense.” But when it came time to fight for the measure, he didn’t show up. Some Democrats now say his administration actually undermined it behind the scenes. “Their behavior did not well serve the country,” said Rep. Zoe Lofgren (D-CA), who led House negotiations to enact the change, known as “cramdown.” It was “extremely disappointing.”
Instead, the administration has relied on a voluntary program with few sticks, that simply offers banks incentives to modify mortgages. Known as Home Affordable Modification Program, or HAMP, the program was modeled after an industry plan. The administration also wrote it carefully to exclude millions of homeowners seen as undeserving. The administration launched the program with a promise that it would help 3 million to 4 million homeowners avoid foreclosure, but it’s likely to fall far short of that goal. The Congressional Oversight Panel now estimates fewer than 800,000 homeowners will ultimately get lasting mortgage modifications.
Over the past year, ProPublica has been exploring why the program has helped so few homeowners. Last week, we reported how the Treasury Department has allowed banks to break the program’s rules....
Congressional Democrats had long been pushing a bill to enact cramdown and were encouraged by the fact that Obama had supported it, both in the Senate and on the campaign trail. They thought cramdowns would serve as a stick, pushing banks to make modifications on their own. “That was always the thought,” said Rep. Brad Miller (D-NC), “that judicial modifications would make voluntary modifications work. There would be the consequence that if the lenders didn’t [modify the loan], it might be done to them.”
When Obama unveiled his proposal to stem foreclosures a month after taking office, cramdown was a part of the package. But proponents say he’d already damaged cramdown’s chances of becoming law. In the fall of 2008, Democrats saw a good opportunity to pass cramdown. The $700 billion TARP legislation was being considered, and lawmakers thought that with banks getting bailed out, the bill would be an ideal vehicle for also helping homeowners. But Obama, weeks away from his coming election, opposed that approach and instead pushed for a delay. He promised congressional Democrats that down the line he would “push hard to get cramdown into the law,” recalled Rep. Miller. Four months later, the stimulus bill presented another potential vehicle for cramdown. But lawmakers say the White House again asked them to hold off, promising to push it later. An attempt to include cramdown in a continuing resolution got the same response from the president....
Treasury staffers began conversations with congressional aides by saying the administration supported cramdown and would then “follow up with a whole bunch of reasons” why it wasn’t a good idea, said an aide to a senior Democratic senator. Homeowners, Treasury staffers argued, would take advantage of bankruptcy to get help they didn’t need. Treasury also stressed the effects of cramdown on the nation’s biggest banks, which were still fragile. The banks’ books could take a beating if too many consumers lured into bankruptcy by cramdown also had their home equity loans and credit card debt written down.
While the Obama administration was silent, the banking industry had long been mobilizing massive opposition to the measure.... After narrowly passing the House, cramdown was defeated when 12 [Senate] Democrats joined Republicans to vote against it....
“The ideal would have been both [cramdown and HAMP],” said Rep. Barney Frank (D-MA), then the chairman of the House Financial Services Committee. But given the political constraints, HAMP on its own was “better than nothing.”
“We designed elegant programs that seemed to get all the incentives right to solve the problem,” said Karen Dynan, a former senior economist at the Federal Reserve. “What we learned is that the world is a really complicated place.”
The program was further limited by the administration’s concerns about using taxpayer dollars to help the wrong homeowners....
Candidate Obama had portrayed homeowners in a sympathetic light. But the president struck a cautious note when he unveiled the plan in February 2009. The program will “not rescue the unscrupulous or irresponsible by throwing good taxpayer money after bad loans,” said Obama. “It will not reward folks who bought homes they knew from the beginning they would never be able to afford.” While the government had been relatively undiscriminating in its bank bailout, it would carefully vet homeowners seeking help. HAMP was written to exclude homeowners seen as undeserving, limiting the program’s reach to between 3 million and 4 million homes...



Jeff Weintraub: How to Read Adam Smith
Jeff Weintraub to his U. Penn students:
Jeff Weintraub: Kenneth Arrow & Frank Hahn put Smith’s theory of the market in perspective: Nowadays, more than two centuries after Adam Smith published The Wealth of Nations and after so many of his ideas have been absorbed and elaborated by academic disciplines, ideologies, and everyday public discourse, it can sometimes be too easy to take his theory of the market for granted. And doing that can have at least two different kinds of effects, both unfortunate. On the one hand, it may incline people to swallow these ideas too easily and uncritically, as though they were simply common sense, without realizing how controversial and paradoxical many of them are. And on the other hand, it may lead people to underestimate the powerful and startling originality of Smith’s theoretical achievement in WN.
The following passage from the Preface to Kenneth Arrow & Frank Hahn’s General Competitive Analysis (1971), which was long one of the most prominent texts in general equilibrium theory, captures something important about point and significance of Smith’s theory of the market and makes it clear why the central thrust of his theory should remain startling, as well as illuminating, to anyone who takes it seriously.
There is by now a long and fairly imposing line of economists from Adam Smith to the present who have sought to show that a decentralized economy motivated by self-interest and guided by price signals would be compatible with a coherent disposition of economic resources that could be regarded, in a well-defined sense, as superior to a large class of possible alternative dispositions. Moreover, the price signals would operate in a way to establish this degree of coherence. It is important to understand how surprising this claim must be to anyone not exposed to the tradition. The immediate "common sense" answer to the question "What will an economy motivated by individual greed and controlled by a very large number of different agents look like?" is probably: There will be chaos. That quite a different answer has long been claimed true and has indeed permeated the economic thinking of a large number of people who are in no way economists is itself sufficient ground for investigating it seriously. The proposition having been put forward and very seriously entertained, it is important to know not only whether it is true, but whether it could be true. A good deal of what follows is concerned with this last question, which seems to us to have considerable claims on the attention of economists... (pp. vi-vii)



Robert Waldmann: David Frum Explains Why Friends Don't Let Friends Support Republicans
Robert Waldmann:
David Frum explains why friends don't let friends vote for Republicans: He wrote
The right kind of focused, temporary government spending can also be a powerful job creator. Over the next generation, we desperately need to improve our road, air, and rail networks and to modernize our systems for distributing electricity. We should be doing as much as possible of this work now, to spur recovery. Unfortunately, infrastructure investment has been a victim of our broken politics. The money does not go to the best projects. The money is earmarked by the most powerful politicians. We need a new tunnel under the Hudson. We get a bridge to nowhere.
Pretty good for a Republican except for the bit about reality. We didn't get a bridge to nowhere. The project was cancelled (and not because Palin said "thanks but no thanks").... The transportation bill which included funding for the bridge to Gravina island was a monstrosity -- passed by a House and Senate with Republican majorities and signed into law by George Bush Jr. Also, Republican governor Christopher Christie's decision to cancel the project to build a new tunnel under the Hudson was idiotic.
There is an easy solution to both problems noted by Frum. Never vote for a Republican again.
Maybe, maybe if there were no elected Republicans Frum could find a decision made by a Democrat to criticize.



Republican Opposition to the Asteroid Destruction and American Preservation Act
From America's Finest News Source:
Republicans vote to repeal Obama-backed bill that would destroy asteroid headed for Earth: WASHINGTON—In a strong rebuke of President Obama and his domestic agenda, all 242 House Republicans voted Wednesday to repeal the Asteroid Destruction and American Preservation Act, which was signed into law last year to destroy the immense asteroid currently hurtling toward Earth.
The $440 billion legislation, which would send a dozen high-thrust plasma impactor probes to shatter the massive asteroid before it strikes the planet, would affect more than 300 million Americans and is strongly opposed by the GOP.
“The voters sent us to Washington to stand up for individual liberty, not big government,” Rep. Steve King (R-IA) said at a press conference. “Obama’s plan would take away citizens’ fundamental freedoms, forcing each of us into hastily built concrete bunkers and empowering the federal government to ration our access to food, water, and potassium iodide tablets while underground.”
“We believe that the decisions of how to deal with the massive asteroid are best left to the individual,” King added.
Repealing the act, which opponents have branded ‘Obamastroid,’ has been the cornerstone of the GOP agenda since the law’s passage last August. Throughout the 2010 elections, Republican candidates claimed that the Democrats’ plan to smash the space rock and shield citizens from its fragments was “a classic example of the federal government needlessly interfering in the lives of everyday Americans.”
“This law is a job killer,” said Rep. Virginia Foxx (R-NC), who argued the tax increases required to save the human species from annihilation would impose unbearably high costs on businesses. “If we sit back and do nothing, Obamastroid will result in hundreds of thousands of lost jobs, which we simply can’t afford in this economy.”
“And consider how much money this program will add to our already bloated deficit,” Foxx continued. “Is this the legacy we want to leave our children?”
Many GOP members have also criticized the legislation for what they consider pork-barrel spending, claiming the act includes billions in “giveaways” to NASA, nonperishable food manufacturers, and pharmaceutical companies contracted to produce mass volumes of vitamin D supplements in the likely event that dust from the asteroid’s impact blots out the sun for a decade.
In an effort to counter Republicans’ claims, Democrats have asserted that the long-term benefits of preventing the United States from being incinerated by an explosion several billion times more powerful than the Hiroshima bomb would far outweigh the initial monetary outlay.
In support of their position, Democrats have pointed to estimates from the nonpartisan Congressional Budget Office that show repealing the law could result in a loss of up to $14 trillion in the nation’s GDP.
“I will be the first to admit this is not a perfect bill, by any means,” said Rep. Elijah Cummings (D-MD), who has argued that the measure does not go far enough in deflecting the ensuing debris that will rain down on Earth once the asteroid has been destroyed. “But it is absolutely a bill that each and every American needs now if we want to move forward as a country.”
According to political pundits, the showdown over whether to let the asteroid blast a 150-mile-wide, 20-mile-deep crater in the Earth’s crust represents a potential turning point for the nation, and could completely reshape the American political landscape for many centuries to come.
“If efforts to destroy the asteroid are successfully overturned, then there will be major ramifications for both Obama and his Republican opposition, as well as the American populace at large,” political scientist Alan Abramowitz said on Face The Nation Sunday. “This could have a huge impact come 2012.”
With repeal rhetoric reaching a crescendo, the president used his weekly radio address Saturday to state his case for destroying the one-trillion-ton asteroid before it barrels into Earth at 60,000 miles per hour.
“I am more than willing to work with my Republican colleagues to improve the Asteroid Destruction Act,” Obama said. “But let me be clear: Repeal is not an option.”
“While I recognize that intelligent minds may disagree on this issue, I believe we have an obligation to prevent our citizens from having their flesh seared off in a global firestorm that transforms our planet into a broiling molten wasteland,” Obama added. “I think Americans deserve better.”



20110203 Lecture: Economic Growth Final Lecture
Problem Set 2 Answers
IAS 107: Problem Set 3
Clarity in Commerce Clause Jurisprudence
A Legal Fiction:
Legal Fiction: You probably missed this, but the Court released one more opinion yesterday:
SUPREME COURT OF THE UNITED STATES
No. 06-03
United States (Respondent) v. Smith (Petitioner)
Justice SCALIA delivered the opinion of the Court:
This case presents a question of the scope of Congress’s power under the commerce clause. To simplify and clarify our commerce clause analysis, we have consolidated two cases in which petitioners challenge the constitutionality of two federal laws that allegedly exceed Congress’s power to regulate commerce – (1) a law banning local possession of marijuana; and (2) a law criminalizing violence against women. Applying our new standard, we find the marijuana law constitutional and the other one, well, not so much.
I
[unnecessarily long and tortuous narrative of facts]
II
Article I, Section 8 grants Congress the power to regulate interstate commerce. In recent years, the Court’s commerce clause analysis has been accused of being “unclear” and “results-driven.” See Bork, R., What the Fuck Is Up With Scalia in Raich?, 118 Harv. L. Rev 211, 213-14 (2005). Specifically, critics have pointed to the seeming inconsistency between the Court’s decision in Morrison and its decision in Raich (cases coincidentally involving similar facts at the case at issue here). Id. at 215. See also Aging Hippy Liberal Douche, A Post-Modernist Perspective on the Habermasian Dialectic Inherent in Scalia’s Commerce Clause Analysis, 98 Yale L.J. 1201, 1210-11 (2004).
The lower courts have also failed to find a meaningful distinction between the laws struck down by the Court and those upheld. See, e.g., Vedder v. Cobain, 321 F.3d 12, 15 (2004) (Posner, J., dissenting) (“What the fuck is up with Scalia in Raich?”).
In light of this criticism, the Court today announces a new clear standard to guide lower courts in their application of the commerce clause. This new standard will govern when a law exceeds Congress’s power under the commerce clause and when it does not. The new standard is this – a law passed pursuant to the commerce clause is constitutional if Justice Scalia likes the law and unconstitutional if he does not. Similarly, if the law is regulating things that Justice Scalia wants regulated, it is constitutional. If it does not, it is not.
A
In justifying any new constitutional doctrine, we must first of course look to the original understanding of the Holy Framers who ascended Mount Sinai and brought back down the Constitution on stone tablets in 1787. A close look at the ratification debates reveals that the scope of the commerce clause was intended to be equal to, and co-extensive with, Justice Scalia’s political preferences. Here is James Madison in Federalist No. 10:
AMONG the numerous advantages promised by a well constructed Union, none deserves to be more accurately developed than its tendency to break and control the violence of faction. The friend of popular governments never finds himself so much alarmed for their character and fate, as when he contemplates their propensity to this dangerous vice. He will not fail, therefore, to set a due value on any plan which, without violating the principles to which he is attached, provides a proper cure for it.
While at first glance this appears to have nothing to do with the commerce clause, if you switch around some of the letters, it spells: Do What Scalia Wants. See, e.g., Hamburgler v. Burger King, 521 U.S. 321, 341-42 (2003) (Thomas, J., concurring) (“As Harry Potter has taught us, mixing around letters can reveal important insights into the Framers’ original understanding and Lord Voldemort’s evil plans.”).
B
While this new standard is a marked improvement over our prior doctrine, we recognize that lower courts will need additional guidance in determining just what Justice Scalia likes and dislikes. Although multi-factored balancing tests are generally for commie pinkos and Justice Kennedy, there is not always a clear answer to these questions. Instead, lower courts must look at the many things Justice Scalia likes and dislikes and then determine how the law relates to them.
For instance, Justice Scalia dislikes many things – hippies, long-haired hippies, hippies with beards, long-haired hippies wearing sandals, the homosexual agenda, assisted-physician suicide, Will & Grace, long-haired bearded hippies wearing sandals, long-haired hippies wearing sandals and burning flags, the Florida Supreme Court, Justice Kennedy, Satan, the New Deal, and the equal protection clause.
On the other hand, Justice Scalia likes many things – police, police arresting hippies, laws criminalizing drug possession, laws criminalizing drug possession by hippies, duck hunting, barbeque, John Ashcroft, Jesus, and the equal protection clause in the context of presidential elections.
III
With this new standard in place, we can now evaluate the constitutionality of the two laws in questions.
A
The first law at issue is a federal law criminalizing local drug possession that is not intended for sale or distribution. At oral argument, the United States argued strenuously that the law should be upheld because it regulates hippies and conduct traditionally associated with hippies. The petitioners, however, argue that the connection to hippies is overblown and that the association is simply a product of our decadent Hollywood culture.
We agree with the United States. While Justice Scalia detests Hollywood, he hates hippies even worse. And drugs have long been associated with hippies. Blackstone, Commentaries on the Laws of England 134–135 (1765) (“Hippies shall face the lash of the sheriff’s whip.”) The Court cannot tolerate hippies or their hippy Vietnam-protesting ways – and we long for the return of the stocks when those America-hating hippies will get, um, . . . The original understanding was that drug laws would be included within Congress’s Article I power. The Court concludes that the drug law is constitutional.
B
The second law at issue is a federal law that criminalizes violence against women. The United States argues that the law affects criminals and that Justice Scalia really hates criminals. The Solicitor General added, “And I mean, he reallllllly really hates ‘em. Am I right or am I right or am I right. Rrright? Rrright?” To this persuasive argument, the law’s challengers responded that the law is an attempt to help a historically disenfranchised group through the use of federal power. While Justice Scalia has no particular gripe against historically disenfranchised groups, he cannot abide federal efforts to help them. Indeed, it is obvious that the Framers did not intend the commerce clause power to include such authority:
By a faction, I understand a number of citizens, whether amounting to a majority or a minority of the whole, who are united and actuated by some common impulse of passion, or of interest, adverse to the rights of other citizens, or to the permanent and aggregate interests of the community.
Federalist No. 10 (Madison).
The Court concludes that this law is unconstitutional.
IV
The Courts of Appeals are hereby REVERSED.



Uwe E. Reinhardt: I Don't Think Rivlin-Ryan Can Do What It Claims
UR:
Uwe E. Reinhardt: Restructuring Medicare and the Rivlin-Ryan Plan: For more than a decade, there have been calls for “restructuring Medicare.”... [It] makes for good political copy. Unfortunately, few politicians have had the temerity to be specific on the proposal, because doing so would identify winners and losers.... The notable exception has been Representative Paul Ryan, Republican of Wisconsin... with Alice Rivlin of the Brookings Institution.... Medicare would be changed from the defined-benefit plan it has been since its inception to a defined contribution plan.... [T]he risk of future health-care cost increases would be shifted onto the shoulders of Medicare beneficiaries....
The defined-contribution scheme in the Rivlin-Ryan plan is not a new idea. Once known as a “premium support model,” it was proposed for Medicare as early as 1995. What distinguishes the Rivlin-Ryan Plan from these predecessors is the idea to cap the annual growth of the Medicare voucher to the growth of G.D.P. plus one percentage point.... Over the last four decades or so, total national health spending has grown at an average annual rate exceeding the corresponding growth of gross domestic product by more than two percentage points....
[A] recent report on growth in prices for hospital care published by the American Health Insurance Plans... is well worth a read.... [A]verage payments made by the nine largest private health plans to Oregon hospitals for a set of fairly standard medical procedures. The average payment for a vaginal delivery, for example, rose to $6,424 in 2009 from $3,805 in 2005, and the payment for a knee joint replacement to $28,682 from $19,866.... [P]rivate insurers have not been able to prevent these significant price increases. The question is whether they would be able to keep premiums quoted Medicare enrollees under the Rivlin-Ryan plan to anything as low a growth rate as G.D.P. plus one percentage point. If not, the ever-growing gap between the annual growth of the Medicare voucher and the premiums quoted Medicare enrollees after 2021 would become a major burden on the elderly and, under our democratic system, would lead to vehement political opposition to the Rivlin-Ryan plan.
Short of advocating implicitly a multitiered health system with a highly financially constrained, bare-bones system for tax-financed health insurance, a broad but varied set of tiers for privately insured patients and a boutique tier for Americans able to afford that style of care, the idea to decouple tax-financed health insurance from the private sector simply by capping public health spending strikes me as highly — how shall I put it? — theoretical.



Paul Krugman: The European Central Bank's Mistake of 2008
PK:
The Mistake of 2008: Gavyn Davies has a good post on core inflation, monetary policy, and all that. He summarizes nicely the thinking behind the Fed’s belief that a one-time surge in commodity prices is not a reason to tighten. But I’m a bit surprised — not so much about Davies as about the discussion in general — at how little attention is given to the ECB’s Mistake of 2008, which illustrates the trouble with focusing on headline inflation. For back in July 2008, as the world was sliding into the Great Recession, the ECB actually raised rates. Why? Because headline inflation was indeed rising, thanks to the commodity-price surge of 2007-2008.... The ECB still tries to defend its decision — but it clearly was wrong. I’d like to hope that Trichet & co. remember that, and won’t do it again.



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