Interesting “Coulds” Coming In

June 1st, 2011 at 4:19 pm

Some deep thinkers have been coming up with some potentially useful “coulds” based on this recent post.  It’s a list worth keeping up and expanding on, at least until the unemployment rates hits…oh, I don’t know…5%.

Again, let me stress that it’s once again walk-and-chew-gum time.  It’s just as important to keep the “shoulds” going, but that’s a challenge with fewer constraints.

From the department of stuff that could really help and doesn’t have budget costs, both Paul and Brad DeLong mentioned recess appointments to the Fed.

Over to Brad:

“…the most obvious thing to do would be to recess-appoint Ken “6% inflation” Rogoff and Peter “I have a Nobel Prize in understanding structural unemployment” Diamond to the Board of Governors of the Federal Reserve.

…Of the twelve bank presidents, I trust Rosengren, Dudley, Pianalto, and Williams to understand both the Fed’s dual mandate and have a reality-based view of monetary policy. That’s not very many.

And two powerful, smart, eloquent, reality-based voices to the Board of Governors and to the FOMC, and we would have a Federal Reserve much more likely to do the right thing.”

Brad and Rortybomb also had some ideas to get Fannie and Freddie doing more to get this housing market anvil off the neck of the rest of the economy.   These two institutions are financing the vast majority of mortgage originations right now, and their reluctance to get deeper into the modification biz is not helping.  The ideas Brad and Mike espouse look good and bold to me—they’re worth pursuing (and even if ideas like these don’t get you all the way there, I think they would nudge banks holding private-label mortgages to do less extending-and-pretending, i.e., mark down non-performing home loans).

A few other coulds worthy of mention:

Currency Management: this would be a very bad time to let up on countries who subsidize their exports by suppressing their currency values in foreign exchange markets, most notably China.  I’d push the Levin bill on this.  And it’s bipartisan: the darn thing got 99 R votes in the last Congress!   (Paul agrees, btw.)

Don’t Create Airpockets: We need fiscal impulse, i.e., another boost from fiscal policy, but absent that, it’s important not to take away fiscal boosters that are currently active, like the payroll tax holiday and, with long-term unemployment still a big problem, extended unemployment benefits.  The latter in particular has a big multiplier—unemployed people tend to spend their checks—which we can’t afford to lose right now (oh, and it’s also the right thing to do when unemployment’s 9%).

Similarly, I get that there’s a budget deal to be made and totally support getting the budget on a sustainable path.  But a) revenues have to be part of the deal or the spending cuts will have to be far too draconian–there’s neither reason nor excuse for a budget deal to increase poverty, and b) don’t start with any of this until the economic recovery has a lot more momentum.  Please, let’s not make a 1937 mistake.


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15 comments in reply to "Interesting “Coulds” Coming In"

  1. alex says:

    one of my theories behind why FDR was able to do what he did (leaving aside the question of temperament, et al) was that the conservative approach had been tried for 3 years prior to his taking office with only bad results. president obama had the “misfortune” of taking over while we were still on the slide and was able to implement to arrest that slide but he was never in a position to say “we’ve been following your prescriptions for recovery for 3 years now and they don’t work” (though it would have helped to hear him repeatedly say over and over that we’d been using the republican prescriptions for 8 years prior to no avail).

  2. Measure for Measure says:

    Fund local libraries? After all, they tend to cut their hours during recession, just when demands for their services rise.

    Nah, too Mommy-party.

  3. Sid F says:

    Are people who say we need more fiscal stimulus and that we should wait until the economy is in better condition before addressing the deficit problem even listening to the current dialogue.

    The Obama administration is in negotiations to cut spending, and not raise taxes in order to buy approval for raising the debt ceiling. The only question is how many trillions will be cut over what time period.

    VP Biden is negotiating the Democrat surrender as we speak. Now if the “bond vigilante” folks can just force the Fed to raise rates we can all take out our 1937 calendars and relive that wonderful year.

    Good Grief

  4. blacksqr says:

    1. Take over the big banks. The president has had, since the FDR admin, unilateral authority to declare a national banking emergency and set the rules by which all national banks must operate. This authority may not include liquidation, but Obama could fire and replace current management, require sale of all toxic mortgage assets at current market price, and demand all derivative trading be done in the open. Oh, and halt all bonus payments. In addition to being the only really effective move, it would also, once and for all, make Obama THE PRESIDENT, the capo di tutti capi, impossible to ignore either in Washington or New York. He would at last have the power to break the gridlock at the Capitol. When you have them by the short hairs, their hearts and minds will follow. This is really the sine qua non, the one thing that has to be done, without which everything else is just chin music; but if you want more:

    2. Demand disgorgement of excessive corporate cash. It has been, also since the FDR admin, illegal for corporations to amass and keep large amounts of cash without immediate plans to use it. Right now corporate cash hoards are at record levels, and the law has been ignored since the Reagan admin. The legal authority is already there, Obama should simply announce that large corporations must reduce their cash reserves by 80% within six months or face prosecution. The resultant spending spree would be stimulus of exactly the needed kind.

    3. Encourage establishment of a business-to-business credit network, a means for businesses to barter for credit. Switzerland has had one since the last Depression, the EU has a Europe-wide pilot program based on it. It’s been very effective in making credit available when businesses most need it, when the banks lose interest in lending. Obama should announce a goal of getting one formed and assure that all regulatory hurdles will be cleared for fast-track action.

    This is just the tip of the iceberg. There is plenty that Obama both should and can do today. Acting otherwise is learned or feigned helplessness.

    • WASanford says:

      I can hear the Republican faithful screaming about a government takeover, can’t you? Nonetheless I’m concerned that that the concentration of money and power at the top of our economy is a threat to our democracy. It has, in my estimation, already badly damaged it. I vote for a confiscatory rate in the upper tax bracket(s) to, at least, slow down the concentration of wealth and power. Otherwise, those of us who have been “left behind” will find ourselves little more than beasts of burden. That prospect is unacceptable to me for myself, my family, or my country.

  5. readerOfTeaLeaves says:

    Well, since you mention walking-and-chewing gum at the same time, as well as Fannie and Freddie in the same post…

    If we walkedAND_AlsoChewedGum, we’d have federally subsidized mortgages increment rates based in part on the sustainability of the housing units. Do you have a green roof? Your mortgage rate goes down by half a point, because you’re not producing as much toxic storm runoff.

    Do you have a winterizing, or energy features built into the dwelling that your local utility can verify are saving energy? If so, you get another half point off the mortgage rate.

    Is the unit in a walkable area – within 1/4 mile of a transit stop, shops, and local amenities that will reduce your auto use? If so, take off another half point for your federally backed mortgage.

    Now, who would implement all these things, check the houses for these features, bring them up to code so that homeowners and renters qualify for reduced rates for mortgages and rents? Well, that would require creating jobs to do all those things.

    It’s incredibly frustrating to watch all the wailing and moaning about Fannie and Freddie, when in many respects they have helped drive environmentally disastrous sprawl.

    Figuring out a way to build ‘green’ incentives into Fannie and Freddie — as well as lowering the mortgage payoff to 15 years max, would be smart government.

    Realigning Fannie and Freddie to promote a more energy efficient nation — quite apart from temporary jobs fixes, but more fundamentally a long-term shift, seems as if it would be a smart ‘could’; it is certainly a ‘should’.

  6. Jeff H says:

    As you mentioned mortgages and F&F I thought I would add my experience with a loan modification BoA did for me a few months ago.

    I’m retired military, and had a fair interest rate with my VA loan of 6 1/4% . I bought the house during the crash of the summer of 2008, never late on a payment, good credit score…

    I took advantage of one of the governments deals that gave BoA an incentive to refi my loan to 4.5% saving me about $300 a month. It took about 3 months to get it all worked out, and because of the day it happened on, I was able to miss the next 2 months of mortgage payments.

    I am employed, though everyone in my company took 30% pay cuts in 2008 and are basically stuck here. So, I wouldn’t have been able to qualify for my loan if I had to re qualify. Lucky for me, the government program didn’t require that.

    From what I have seen and heard of most of the subprime loans were resetting to rates anywhere from 8%-10%+. If the government could put in place something, or use F&F to accomplish loan modifications that brought interest rates down to 4.5%, and save the current home owner a few months of payments I think they would see defaults drop dramatically.

    Also, if they would advertise these programs a lot better, it would make a big difference. I was inundated (and still am) with BS junk mail from every fly by night mortgage group with official looking names (Official VA Modification program followed in small print ‘we are not part of any official VA anything…’) until I just happened to be on a flight sitting next to a vet that had just done a refi with BoA.

    I don’t know how the subject came up, but the next day I contacted BoA who already had my mortgage through their purchase of Country Wide.

    There is a lot that can be done, and a lot that has been done but no one knows about. Maybe some large ad purchases on FOX NEWS would help.

    And no, I’m not kidding. 😉

    • WASanford says:

      Glad you were able to work things out with your bank. I absolutly love your idea of placing ads on Fox.

      • Jeff H says:

        I think Jared should be on Fox daily. Maybe the viewers will forget that he actually worked in the administration and listen to him. 😉

  7. LizinOregon says:

    Tell us again how moral hazard is an issue for individual homeowners but not for banks after you read the new CRS report on arbitraging the FED window.

  8. benamery21 says:

    It seems like Treasury direct control of FNMA and FRMC ought to make it easy (without Congress) to loosen the qualifying rules on residential energy efficiency loans enough to really juice residential investment.

  9. The Raven says:

    I realized that I already had a list, so here it is again, slightly updated:

    – Get out there & start talking up Keynsianism. Remind people of Hoover’s failure in 1930, and FDR’s failure in 1937. Criticize the investment banks for gross malfeasance, the mortgage banks for fraud, and the health insurance companies for price-gouging.

    – Get out there & start talking environmentalism. Start talking science. Start talking jobs. Start talking union. Start talking women’s rights. Start talking freedom and equality—remember those?

    – Investigate the Koch brothers and the De Vos family. Investigate ALEC. Investigate the State Policy Network.

    – Stop lying to the public. Stop telling people it’s really OK when no way it is. Stop making deals with the devil.

  10. Paul says:

    – overall moratorium, at minimum similar to those of the 1930s. the banking structure would survive, likely improve. In concert, greater regulation of non-bank banks and additional capital controls.

    – all earning less than median annual wage brought up to that amount via issuance of federal reserve ‘debit’ cards.

    – substantially higher tax rates for those who have gained most post 1981 tax act.

    – end wastage in afghanistan, iraq, columbia, libya…

    – import substitution REindustralization to include such as national maglev system and high temp superconductor grid…

  11. TV says:

    Just curious, why do you think this administration has done nothing on Fed Appointments? Kevin Warsh announced he was stepping down in mid-February. It seems like we would be much more likely to get one appointment through if we put up two. And if they blocked two competent appointments, we could blame Republicans for holding up competent appointments (which we can’t do when we’re holding up our own appointments), and it would make it more acceptable to make recess appointments.

    Separate question, why not just pull the trigger and recess appoint Diamond? I should note, I’m actually fine with being passive in the sense that if we put up two qualified candidates, we could let the republicans block one and then quickly put up an alternative. Seems like it’s (politically) tougher to argue that we need to recess appoint Diamond now when we’re just letting another seat sit open with no appointment.

    It just seems really strange to me. It’s been clear since at least May of 2009 that Fed policy was simply crazy. And since, then, we’ve continually chosen to let seats go idle. Now, with perhaps five competent appointments on the Fed, two more could very plausibly make a large difference — especially in comparison to anything else the administration could possibly do at the moment. Fed appointments seem like about the only game in town.