Economy

Hidden Gems in the Mortgage Deal

AP Photo/Paul Sakuma
In the end, as at the start, Thursday’s deal between five big banks, the Department of Justice, and the attorneys general of 49 states came down to New York, the center of mortgage securitization and securities misrepresentation, and California, the center of mortgage mis-origination. Those states’ attorneys general—New York’s Eric Schneiderman and California’s Kamala Harris, both progressive Democrats elected in 2010—weren’t about the give the banks a pass. Which is why it wasn’t until two a.m. Thursday that the deal was finalized. Schneiderman’s chief concern was to preserve and enhance his and other law enforcement agencies’ ability to investigate the banks. Harris’s foremost interest was to secure the best deal for the hundreds of thousands of California homeowners who were struggling to make the payments on their devalued homes. Together, they compelled the banks and the Obama administration to come up with a better deal than the one that the banks and the Justice Department had...

The Mortgage Deal with the Devil

(AP Photo/David J. Phillip)
The long-awaited mortgage deal between the federal government, 49 state attorneys general, and five big banks that was announced Thursday is pretty thin gruel, but it could have been a lot worse. Under the deal, the banks will provide relief to homeowners in a deal variously described as ranging from $25 billion to more than $40 billion. But a look at the fine print suggests that only about $5 billion cash will actually change hands. Some $1.5 billion will go directly to homeowners who went through foreclosure, with each receiving about $2,000. Other cash will go to states to help distressed homeowners. The rest of the money will be granted in the form of “credits” to banks that refinance loans or reduce principal amounts of underwater mortgages. But this is, in fact, funny money. Much of this write-down has already been taken by the banks, which know that an underwater mortgage is worth far less than its nominal value. In exchange for agreeing to refinance loans, the banks will get...

Greece's Desperate Measures

A budget agreement reduces the minimum wage and cuts pensions.

(AP Photo/Thanassis Stavrakis)
After days of intense negotiations during which its membership in the eurozone seemed to hang by a thread, Greece finally reached an agreement today on the measures that will accompany the new loan package from its European partners and the International Monetary Fund. The measures agreed on are draconian. They include a 22 percent cut in the monthly minimum wage, reducing earnings from 751 euros to 586 euros per month. For people under 25, it will be even lower, down to 511 euros, and any increase before 2016 is ruled out. In addition, further reductions to the minimum wage may take place in July. Meanwhile, all automatic wage increases that are included in collective-bargaining agreements will be frozen until unemployment falls below 10 percent (it is currently at 20.9 percent). Employers are also considerably strengthened in their bargaining position vis-à-vis the unions through changes in arbitration regulations and a contraction of the time period (from six to three months)...

A Homeowner Bailout

Today's Balance Sheet: Banks are finally being forced to pay for their bad form during the housing bubble.

(Flickr/Galt Museum)
After a year of talks and little action, government officials have worked out a potential $26 billion settlement with the nation's top five banks, the New York Times reported. The agreement could provide relief for up to two million Americans who have had their homes foreclosed on since September 2008; it totals up to $1,500 to $2,000 per borrower. The five banks involved—Ally Financial, Bank of America, Citigroup, J.P. Morgan Chase, and Wells Fargo—collectively handle 27 million mortgages. Although this move is a good way to help hurting homeowners, bigger problems with the process need fixing. “If you don’t do something to help the foreclosure process, it’s not going to help the housing market,” said Christopher J. Mayer, a housing expert at Columbia Business School. The Latest Obama Advisers Revising Economic Outlook for Greater Job Growth Bloomberg Businessweek Greek Finance Minister Heads to Brussels as Loan Talks Stall The Wall Street Journal Tie U.S. Recovery Programs to...

Bernanke Tries to Predict the Future

Today's Balance Sheet: The recovery is still moving at a snail's pace, but campaigns aren't doing too bad at raking in cash.

Ben Bernanke is second only to Barack Obama when it comes to being a Republican punching bag for the economic downturn, but the Federal Reserve chairman spent some time explaining his decisions and expectations for the coming months during a session with the Senate Budget Committee yesterday. Bernanke said that his biggest worry was the federal deficit, which he said is on pace to become unsustainable in the next 15 to 20 years. He refused to say whether higher taxes or reduced spending would reduce the deficit, saying it's " not [his] place " and "that's something Congress is going to have to work out ... That's what people elected you to do." However, Bernanke did say that reducing the deficit cannot come at the price of continued recovery, especially since the recovery is still "frustratingly slow" and "sluggish," and could be torn asunder by the euro crisis. Bernanke's address left out the good January jobs report, giving more credence to the theory that the numbers may be an...

Long Time, No See Payroll Tax

Today's Balance Sheet: It's the most wonderful time of the year, the payroll tax cut extension deadline, again.

The payroll tax cut extension passed by tooth and nail at the end of 2011 expires at the end of February, and this month's battle to work out the re-extension's logistics looks like it will be just as painful. A 20-member conference committee is hammering out the details, with three hearings scheduled for this week, including one this morning. The committee has less than three weeks to craft a deal and get it to Congress for passage before the President's Day recess. The two parties are fighting over the same territory they did in December—Democrats want a millionaire surtax and want to keep unemployment insurance untouched, Republicans want to freeze federal workers' pay, impose higher premiums on upper-income Medicare beneficiaries and ban millionaires from receiving jobless benefits. As of right now, neither side will budge. If legislators tread the same ground as they did two months ago, we'll see another payroll showdown at the end of the year. Senator Max Baucus told Politico...

Mitt Romney: Liberal Economist

(Flickr/Gage Skidmore)
Say you’re a presidential candidate shifting to the general election after your place as the party's nominee seems firmly settled. The entire logic of your candidacy has been built on business experience as the answer to an economic downturn, and you plan to assail the community-organizer president for not understanding how the private sector works. A high rate of unemployment is your friend. Voters will be dissatisfied enough with the general state of their lives that you should easily waltz past the incumbent president without having to do the tricky work of laying out your own vision for the country. Except, after a year of laying the groundwork for this sort of campaign, the economy slowly begins to recover. Things are certainly not in good shape, but the trend lines are beginning to move in the right direction and people are once again hopeful. That's the unenviable situation Mitt Romney has found himself. He is on the verge of dismissing his Republican opponents, and a string of...

Obama's Mixed Signals

Today's Balance Sheet: Obama needs a good nine months more of good news if he wants to win reelection. 

Before all eyes in the country turned to football last night, President Barack Obama told Matt Lauer in his annual pre-Super Bowl interview that he "deserve[s] a second term.” He went on: “We’ve made progress. The key right now is to just make sure we don’t start turning in a new direction that could throw that progress off." It's impossible to hear these words without thinking of the 243,000 new jobs added in January—very good news for an administration whose future rests on the capriciousness of the global economy over the next few months. The wealth of good news has also led to a jump in Obama's approval rating and, for the first time, Obama holds a significant edge over Mitt Romney in a hypothetical match-up; if the election were held today, Obama would win with 51 percent of the vote. However, the burst of economic confidence doesn't mean Obama's re-election is preordained. There are still nine months to go until the polls close, and the potential for things to go wrong is still...

+243,000 Jobs in January

Today's Balance Sheet: January's jobs numbers came out today, and they were way better than anyone expected. 

The Bureau of Labor Statistics released January's jobs numbers this morning, and the economy added 243,000 jobs last month. Unemployment dropped from 8.5 percent to 8.3 percent—the lowest the rate has been in nearly three years . Forecasts had predicted that the economy would only pick up 150,000 jobs, so this morning's news is a unexpectedly good. The White House is probably cheering January's hiring surge—the incumbent president's chances at reelection hinge on the growth of the economy. The Latest A Fistful of Dollars The Economist White House Offers Plan to Lure Jobs to America The New York Times Wall Street Split as Money Managers Fault Bank Foreclosure Deal Bloomsberg Businessweek I Paid $4 Million for This? Moneybox ​ Chart of the Day Once Facebook raises the $5 billion for its initial public offering, the company is expected to have a market valuation of $80-100 billion. The company has a very different structure than other companies of similar worth—with only 3,200 staff,...

Help Wanted Again

AP Photo/Amy Sancetta
The latest jobs report was a welcome surprise . Jobs increased in January by 243,000, cutting the unemployment rate to 8.3 percent. The question remains: Is this a blip, or has the economy turned a corner? Earlier in the week, the Congressional Budget Report put out a more pessimistic report, showing unemployment rising to 8.9 percent by the final quarter of this year (which happens to include Election Day), and peaking at 9.2 percent in early 2013. According to the CBO, we won’t return to pre-recession employment levels until 2019. Why the grim picture? CBO assumes more budget cutting, as the Bush tax cuts sunset, the deficit keeps declining, and there is no further offsetting stimulus. Though the short-term jobs numbers have been above expectations for both December and January, there is no assurance that this good news will continue in the absence of additional stimulus. And the risk remains of either a spike in the price of oil, as a byproduct of the escalating conflict with Iran...

A Blockbuster Jobs Report

AP Photo/Madelyn Ruggiero
Earlier this morning, Nate Silver argued that 150,000 was President Obama’s “magic number” for job growth, in part, because 150,000 is the dividing line between a bad report—where the economy isn’t growing fast enough to keep up with population—and a decent one, where it is. If the economy could generate that many jobs on a monthly basis, then Obama is on OK footing for the election in November. Today’s report blows that magic number out of the water. According to the Bureau of Labor Statistics, the economy created a whopping 243,000 jobs in January, with upward movement in nearly every sector of the economy, other than the government (public-sector jobs fell, again, by 14,000). What’s more, job growth for the last two months was revised upward, from 100,000 to 157,000 for November, and from 200,000 to 203,000 for December. Unemployment has fallen to 8.3 percent, the lowest it’s been since February 2009. Indeed, for the first time in a long time, all of the indicators are in the right...

Facebook and Wall Street: It's Complicated

Today's Balance Sheet: Mark Zuckerberg "likes" Morgan Stanley.

Facebook filed for its initial public offering yesterday. The internet behemoth could be valued between $75 billion and $100 billion, making its IPO one of the biggest stock-market debuts in U.S. history and netting founder Mark Zuckerburg up to $28 billion . While Facebook is a company defined by its users, the company decided not to follow Google's example of holding a dutch auction. Instead, shares are likely to be offered to clients only on Wall Street. Morgan Stanley won the lead underwriter position in a close race against Goldman Sachs, which Bloomberg Businessweek characterized as "having to choose between a leech and a tick for a medicinal bloodletting." Although a Wall Street-brokered deal is nearly guaranteed to reap big rewards for investors, critics don't see the move as lining up with Facebook's egalitarian image. “I’ve always interpreted their values to be about openness and transparency, and there is nothing less transparent than having five bankers set the price of...

It Pays to Be Rich

Flickr/Yeshe
There's not a single state in the country in which the rich pay a higher percentage of their income in state (though not federal) taxes than the poor. According to a state-by-state scorecard from the Corporation for Enterprise Development (CFED), only Washington, D.C. has an equal tax burden for its wealthiest and poorest citizens. The CFED scorecard looks at income taxes, property taxes and consumption taxes to determine its percentages, and the results are clear. For instance, if you're in the poorest 20 percent of Washington state, you pay almost 7 times as much in state taxes as the top 1 percent. In fact, Washington taxes its poor at the highest rate in the country while its wealthiest residents have one of the lowest rates. It's the most extreme example of the difference in tax burdens between the rich and the poor, but it's hardly alone. In Wyoming, Nevada, South Dakota and Florida, the bottom quintile pays at least five times as much as the top 1 percent. But the "Assets and...

Romney Wins a Double Header

Mitt Romney, who had a resounding victory in last night's Florida primary, also wins the unofficial award for most frightening super PAC. A Federal Election Commission release Tuesday revealed that pro-Romney super PAC "Restoring Our Future" raised over $30 million last year and spent $14 million on campaign ads for the first few crucial primaries. By way of comparison, the super PACs of all the other GOP candidates spent a combined $12 million, and the candidates' campaigns have spent a total of $20.7 million. According to Democratic National Committee Chair Debbie Wasserman Schultz, Romney's campaign has spent more on negative ads than John McCain spent during his entire presidential bid. We're only a month into the primary season, so expect post-Citizens United super PACs—which give an outsized level of influence to rich donors and corporations—to wreak even more havoc as the stakes get higher after the conventions. The Latest U.S. Deficit to Top $1 trillion, Smallest Since ’09 The...

Austerity Über Alles

Germany's insistence on belt-tightening during the recession stems from a fear of history repeating itself.

BERLIN, GERMANY —Score another one for Angie. Last night in Brussels, the leaders of 25 of the 27 European Union countries agreed to become more like Germany. Not in so many words, of course. There was talk of spurring growth, creating jobs, and liberalizing trade. But at the heart of the pact was the so-called debt brake. Modeled on Germany’s own 2009 Schuldenbremse , which imposed a tight cap on federal and state deficits, the debt brake compels participating eurozone countries to keep their structural deficits under 0.5 percent of their gross domestic product (GDP). The 25 countries that signed on—that is, every EU country but non-eurozone Britain and the Czech Republic—are now expected to write language into their national constitutions codifying the deficit limit, with violators to be hauled before the European Court of Justice, which can fine member countries as much as 0.1 percent of their GDP. The fiscal pact is a major victory for German Chancellor Angela Merkel, who set it...

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