Robert Kuttner

Europe Buys Some Time

The stock market liked the European deal that was announced in the wee hours of Thursday morning. At this writing, the Dow is up 268 points. But the market, as is so often the case, could well be wrong. For starters, this is not yet a done deal. The European leaders agreed that the banks will take "voluntary" losses of about 50 percent on their holding of Greek bonds, so that the Greek economy can gain some room to breathe—but the banks did not agree. Charles Dallara, who heads the international bankers' lobby, the misnamed Institute for International Finance, was quoted by The Wall Street Journal as saying that "there is no agreement on any element of a deal." He later told CNBC that the deal was "voluntary," permitting issuers of credit-default swaps (mostly banks) to avoid payments they would have to make in the case of a formal restructuring or a default. But never underestimate the ability of banks to impose their losses on somebody else. Under the proposed deal, the banks also...

Doomed to Fail

Once again, the Obama administration has announced a plan to shore up housing prices and underwater homeowners—and once again the plan is very likely to fail. This latest effort will try to use Fannie Mae and Freddie Mac, now wards of the government, to help homeowners refinance mortgages at lower interest rates. The premise is that with interest rates at record lows, homeowners can save hundreds of dollars a month in their mortgage payments by refinancing. For example, by refinancing a 5.5 percent mortgage to a 4.5 percent mortgage, a homeowner with a $300,000 loan could save about $250 a month. In theory, as many as 1.6 million people could qualify for this kind of refinancing, putting more money in their pockets. So this new program would be a source of economic stimulus as well as housing relief. But the devil is in the details. Fannie and Freddie lost a ton of money in the subprime disaster. That’s why the government had to take them over. So the last thing they want to do is...

High Stakes

This is a fateful week for financial regulation and the financial system. European leaders are trying to reach a consensus on how to give Greece some breathing room to salvage its economy and to recapitalize the continent's banks. Since the banks are heavily invested in Greek bonds, the more relief the Europeans give Greece, the more they will have to spend recapitalizing their own banks. Meanwhile, on this side of the Atlantic, regulators are grappling with two momentous issues: how to implement the so-called Volcker Rule, which seeks to limit the ability of federally insured banks to engage in inherently speculative trading activity; and how to carry out another key section of the Dodd-Frank Act, which gives regulators the authority to take over large failing financial institutions. The Financial Stability Oversight Council, a body created by Dodd-Frank made up of senior bank regulators, is meeting today on the issue of how to deal with failing banks. Meanwhile, the Federal Deposit...

Ben Bernanke's Mostly Right

Fed Chairman Ben Bernanke says the economy is on the verge of another recession -- "close to faltering" was his euphuism of choice in his testimony to Congress Tuesday -- and there only so much the Federal Reserve can do about it. For once, he is mostly right. Bernanke has already cut short term interest rates almost to zero; he has bought up a lot of government bonds under another euphemism -- "quantitative easing" -- and he has been begin exchanging short-term debt for longer-term debt, as a way of locking in low interest rates. This is considered heretical in some financial circles, and several members of the Fed's own policy-setting Open Market Committee fault the Fed chair for courting inflation. The bigger problem, of course, is deflation. A little more inflation wouldn't hurt since it might help levitate housing prices and reduce the burden of past debt. Bernanke could intervene even more aggressively to lock in low interest rates on long-term government debt. He could take a...

The Theory of Power

O ver the past three decades, laissez-faire economics has had an im-mense impact on our society, mostly for the worse. The elements have included privatization of public services, an assault on social benefits, and most important, deregulation of finance. Though free-market ideas are hotly debated in classrooms, op-ed pages, and journals, their influence on events has come not in a Platonic fashion, through the power of argument, but through power itself. Free-market theory has conveniently provided ideological coherence. Elites find laissez-faire an immensely useful fable, because it serves as an expert brief against government interference. In the academy, dissenting economics has had trouble gaining a foothold. The reigning paradigm is simple and elegant: Free markets maximize individual choices and collective well-being, end of story. By contrast, dissenting economics is messy, historical, less like physics, more like sociology or journalism. Because the paradigm assumes...

Desperately Seeking Dirt on Warren

Elizabeth Warren's surprise lead in Massachusetts polls only days after she got into the Senate race to oust Republican Scott Brown has thrown GOP operatives off balance. Their first storyline was that Warren was either a creature of the Beltway or a pointy-headed Harvard professor. Neither seems to be sticking. On Tuesday, when the Democratic-affiliated polling firm, Public Policy Polling, reported Warren narrowly leading Brown, 46 to 44 among likely voters, Brown spokesman Colin Reed put out a statement contending that "we have always known that Scott would be the underdog against whichever candidate wins the Democratic primary next September." But this past summer, before Warren enjoyed decent name recognition, Republicans were touting early polls showing Brown leading Warren 53-28, and declaring him a winner. Now Republicans are putting out the word that there was something duplicitous or corrupt about Warren's leadership of the Congressional Oversight Panel that monitored the...

Forced Fed

The Federal Reserve's announcement that it will sell $400 billion of short-term Treasury securities and buy $400 billion of longer-term government bonds as a way of locking low interest rates and stimulating the economy is a good idea. Unfortunately, it is far from sufficient. The government should be borrowing at least a trillion dollars at today's very low interest rates and investing the money in infrastructure projects as a way of jump-starting a catatonic private economy. But that idea, of course, is off the table. Republicans would block it, and not even President Obama, despite his newly assertive progressive self, is proposing it. So financial markets took the Fed's announcement not as a sign that help is on the way but as a sign of just how bad things are. The Fed didn't really want to do this. Its open market divided 7 to 3 on the move. The more fiscally conservative regional Reserve Bank presidents oppose the central bank's program of buying more government bonds in general...

Our Classy President

Republicans and many pundits have faulted President Obama for engaging in the politics of class warfare. Addressing the realities of class in America is in fact long overdue. Republicans and conservative Democrats are outraged because if class ever becomes a question that can be openly discussed, the right loses, America becomes a more decent society, and Democrats become the normal majority party. You want to know about class warfare? For three decades, the American middle class has been getting whacked. Younger Americans have increasingly found it difficult to get traction in their careers. Job security, health security, retirement security, are all more fragile than in our parents' generation. Our colleague Tamara Draut, has written eloquently about this . There has also been a Great Risk Shift, as Jacob Hacker has put it , from corporations and governments onto individuals and families. Risks that used to be borne socially -- like losing your job, or falling sick, or becoming...

Medicare Cuts: Not the Way to Voters' Hearts

Last week, Obama finally got some traction with a speech that had a clear, consistent message -- jobs, jobs, jobs. Even the Republicans were reluctant to oppose him frontally. Now, once again, Obama will mix his own message by emphasizing belt tightening in general and cuts in Medicare in particular. There is one silver lining: The latest White House leaks suggest that a lobbying effort by progressives in Congress and nationally has persuaded the president not to increase the Medicare eligibility age from 65 to 67 as part of his deficit plan to be released today (Monday). Campaign for America's Future deserves particular thanks for its heroic efforts on this issue. If accurate, these reports also suggest progress on Obama's advisers part in recognizing that blurring party distinctions and throwing social insurance on the deficit bonfire is bad economics and bad politics. Earlier lobbying efforts by progressives kept Social Security cuts out of Obama's deficit-reduction package. This...

Snatching Defeat out of the Jaws of Victory

President Obama's jobs speech last Thursday evening heartened Democrats and progressives, but yesterday's meeting of the "super-committee" reminds us how much Obama has already given away and the traps he has set for himself (and the recovery) going forward. While he tries to coax the economy into producing more jobs with one hand, Obama has set in motion an inexorable process that will lead to more economic contraction. The process will also deprive the Democrats of clarity in defending their most popular crown jewels -- Medicare and Social Security -- against unpopular Republican assault. Ironically, while Republican front-runner Rick Perry was getting hammered by other GOP leaders for playing fast and loose with Social Security -- creating an opening for Democrats with seniors -- President Obama is on the verge of proposing an increase in the Medicare eligibility age from 65 to 67. This would create huge hardship -- it is astronomically expensive for this age group to buy health...

A Good First Step

President Obama's jobs speech was the right narrative and the right tone. It suggested a president who was a capable leader in a crisis, who gets America's pain. He also boxes in the Republicans -- and by offering a plan that includes elements that many Republicans support, he makes it much harder for them to oppose it. Progressive critics who were waiting for President Obama to sound a more urgent note on jobs were happy to treat the speech with generosity. The Times ' Paul Krugman called it "significantly bolder and better than I expected." http://www.nytimes.com/2011/09/09/opinion/setting-their-hair-on-fire.html Demos President Miles Rapaport called the speech "the narrative we've been waiting for," adding the caveat : The overarching question I asked myself after the President's speech concluded was 'Can he, will he, hold this theme?' Can he keep his focus clearly on investing in the future, and not sink back into the deficit and austerity culture where the opponents of government...

Obama's Big Speech: More Weak Tea?

After a terrific speech on Labor Day in Detroit, President Obama is likely to offer fairly modest proposals tonight, adding up to a program too weak to cure a rapidly deflating economy, and a politics too weak to draw clear lines between himself and his Republican opposition. While the rhetoric may be a little hotter than usual, according to White House leaks, the centerpiece of the plan will be a temporary payroll tax cut, offered by Obama in the hopes of enlisting Republican support. This is better than nothing but is far from the kind of stimulus that the economy requires. And it is one more olive branch rather than a Trumanesque line in the sand. The rest of the plan is likely to include other business tax cuts that are inefficient ways of stimulating new hires, and a very modest amount of new infrastructure spending, plus a call for rapid passage of a transportation bill that is up for renewal anyway. A proposed infrastructure bank amounts to more federal borrowing and will...

Obama's Inner Truman

The president we elected in November 2008 gave a terrific speech on Labor Day in Detroit. It's been a long time coming. This president's trademark seems to be that he doesn't find his inner fighter until his back is to the wall (along with ours). Obama's approval rating, at just 40 percent according to Gallup, 44 percent according to a new Wall Street Journal -NBC poll, is his lowest ever -- putting Obama in one-term-president territory. A recent Rasmussen poll has him losing to Texas Governor Rick Perry, 44-41. The politics of bipartisan conciliation have been an utter failure, as even Obama's political advisers must now have admitted. The Labor Day speech also gave Obama a chance to try out some themes for his bigger Thursday address, and the reception was warm. Several things about this speech were remarkable, but three in particular stand out. First, he embraced the labor movement, explicitly and without reservation. Conventional wisdom says support for organized labor is dropping...

More Bad News on Jobs -- Will Obama Keep His?

The nation’s employers added no new jobs in August, according to the Labor Department, adding pressure on President Obama to deliver a far-reaching speech next Thursday on a strategy to deal with persistent joblessness. However, all of the preliminary indicators, including White House leaks, suggest a very modest speech filled with cautious proposals that cost little if any new money and appeal to the prejudices of the business elite. According to these leaks and other published reports, the plan will be heavy on items that Republicans might support, such as a payroll tax cut and a tax credit for businesses that create new jobs, as well as items that cost no new money, such as a national program modeled on Georgia Works, which induces jobless workers to take temporary private-sector jobs for no wages, if they include training. (This morning, the AFL-CIO sent a letter to Labor Secretary Hilda Solis, pointing out that this violates the federal minimum-wage law.) In the August report,...

How Not to Solve the Jobs Problem

There is a lot of circumstantial evidence that President Obama is planning to include in his eagerly anticipated post-Labor Day jobs speech a variation on a truly lame state program called Georgia Works. The program, begun in 2003, pays people on unemployment insurance a small additional stipend, currently $240, if they agree to work 24 hours a week, for no wages, for a private employer while unemployed, in exchange for some form of training by the employer. The program was actually started by a Democratic state labor commissioner, Mike Thurmond, and continued by his Republican successor. Thurmond went on to run as the Democratic nominee for the Senate in 2010, and lose. Former President Bill Clinton is a big booster of the program, and Obama gave it favorable mention at one of his recent town hall meetings in Iowa: The president said: "We’ve got to rethink how we do unemployment insurance. There is a smart program in Georgia. What they do is they say, all right, instead of you just...

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