Dean Baker

Recent Articles

Are Auto Companies Really Worried that Financial Reform Will Prevent Them From Giving Consumers "Cheap Credit"?

That's what the Post told readers in noting opposition to Senator Dodd's bill. Of course just because they say that they are worried about their ability to provide cheap credit to consumers does not mean that this is actually their concern. Lobbyists sometimes do not tell the truth. --Dean Baker

Greenspan Tries to Rewrite History of Housing Bubble

Alan Greenspan refused to acknowledge responsibility for the housing bubble again in a talk given at Brookings yesterday. It would have been helpful if the NYT had provided some additional history to point out to readers that what Greenspan was claiming was not true. For example, Greenspan asserted that: "Unless there is a societal choice to abandon dynamic markets and leverage for some form of central planning, I fear that preventing bubbles will in the end turn out to be infeasible. ....Assuaging their aftermath seems the best we can hope for.” Rather than using the Fed's research and ability to shape public debate to warn of the bubble, Greenspan repeatedly insisted that there was no housing bubble. He even encourage homebuyers to take out adjustable rate mortgages at the end of 2003 when fixed rate mortgages were near a 50-year low. In fact, the Fed even published a study saying that there had been no run-up in prices -- rather the widely increase was attributable to measurement...

Non-Story On Regulator Bonuses: A Mind Is a Terrible Thing to Waste

AP broke the big news -- better be sitting down: "During the 2003-06 boom, the three agencies that supervise most U.S. banks – the Federal Deposit Insurance Corp., the Office of Thrift Supervision and the Office of the Comptroller of the Currency – gave out at least $19 million in bonuses" Oh my god! oh my god! Just think, the money used to pay bonuses at these three agencies over this three year period would have been almost enough to pay the one-year bonus of a single top performer at Goldman or AIG. What an incredible waste of taxpayer dollars. It is understandable that AP would look into this issue, but responsible people there should have quickly realized that there is nothing here. We have all sorts of incompetents running the regulatory agencies (starting with Federal Reserve Board Chairman Ben Bernanke), and we should certainly be asking about whether they deserve their paychecks, but the money at issue with these bonuses is far too trivial to waste anyone's time with. --Dean...

TARP Give Aways

The Post discussed the extent to which banks have repaid their TARP money , noting that small banks have been much slower to pay back the government loans than large banks. At one point the article discusses the sale of warrants on bank stock that the government received as part of the package. It comments that: "the goal of requiring the warrants was to ensure that taxpayers would see a return once the banks recovered." It is worth noting that the government lent TARP funds at interest rates that were far below the interest rates prevailing in the market at the time. In many cases these below market loans were needed to allow banks to survive. In all cases, the subsidy provided by these below market loans amounted to a substantial gift to the bank. For example, Goldman Sachs (one of the more creditworthy banks) had to pay 10 percent interest on the money it borrowed from Warren Buffet at almost the exact same time as it got TARP loans from the government. The interest rate on TARP...

Why the "Jobs Bill" Won't Creat Jobs

The NYT article on the jobs bill passed by the Senate yesterday included the views of economists Timothy Bartik and John Bishop as to why the bill will likely create few jobs. It would have been helpful to include the fact that the private sector adds roughly 4 million jobs a month, most of which are replacing jobs lost due to either workers quitting or being laid off. The jobs bill would allow firms to take the credit for any of the workers that they would have hired anyhow, as long as the workers has been employed less than 40 hours in the last sixty days. Since the credit provided in the bill is relatively small (6.2 percent of wages for the rest of 2010 and $1,000 if the worker stays on the payroll for 1 year), the vast majority of workers for whom the credit is claimed almost certainly would have been hired even without the credit. In other words, it is money for nothing. --Dean Baker