Friday, February 27, 2009

Green Stimulus

Obama has proposed a cap and trade in his most first budget. I think increasing taxes during a recession isn't necessarily wise. However, at some point in the near future we will need to increase taxes. I think that for the time being Obama can use the cap and trade revenues to offset the employer portion of the payroll tax which would effectively diminish the cost of labor (thus hopefully stemming the unemployment tide). Once the economy has stopped cratering the payroll tax cut can be phased out and the revenues from the cap and trade can be directed towards deficit reduction.


It has arrived.

Tuesday, February 24, 2009

Cannabis Tax

I think the chances of marijuana being legalized are virtually nil in my lifetime. I would be happy with decriminalization which I think is unlikely to happen anytime soon. However, my pessimism aside, a California lawmaker is proposing the legalization of marijuana. I am sure this is nothing out of the ordinary but the motivation appears to be for revenue. I would love to see California lead the way.

A "News" Story that Isn't Anything At All

The biggest non-issue of the day is this story ("Questions raised about Rahm Emanuel's housing arrangement in D.C.") about some Republicans who are spending their time blogging about whether Rahm Emanuel should be paying taxes for living, rent-free, in the basement of a home owned by Rep. Rosa DeLauro (D-Conn) and her husband, with whom Rahm has worked. When you get to the end of the article, it becomes clear that there is no real "debate" about whether he owes taxes - he doesn't. Reporting on those Republicans who say he does is not giving a "neutral" or "objective" account, it is clearly stirring up charges against Emanuel that are clearly false, and the article should make that clear up front.

Thursday, February 19, 2009

Create or Save 4 Million Jobs

Greg Mankiw has a post on Obama's promise to "Create or Save" 4 million jobs.  He thinks it's a brilliant political tool, which is another way of saying it is a rather slippery formulation.  The two notions are distinct.  If we were to measure job creation we would use the employment baseline that exists today.  Thus, a year hence if there were 4 million more jobs than there are today the president has delivered on his promise.  This is a measurable task.  Saving four million jobs isn't because it requires us to assume the counterfactual presented is valid.  In other words, one could argue that if there are four million fewer jobs a year from now the president saved four million jobs because if his various policy initiatives had not been enacted there would have been eight million jobs fewer than there are today.  I wish the press wouldn't constantly recite this talking point as it is essentially garbage.

Wednesday, February 18, 2009

Top Chef

Emeril is a guest judge on Top Chef. I love Emeril. Some folks find him annoying but I think he is the shit.

Obama's Housing Plan

Obama rolled out his plan to stop foreclosures which is promising but has a couple of major flaws. Of course, I still reject the premise, some folks that couldn't afford a house in the first place probably shouldn't be living in that house, there is a wonderful alternative called renting. Foreclosure just may be a good thing.  Moving on, though, I find the absence of one detail particularly troubling.  Obama does seem to be broadly articulating a Bailie Mae strategy that I have detailed on this blog before but with one critical ommission: shared reward.  Obama proposes paying servicers and banks to reduce principal and interest down to a certain percentage of the borrowers income.  This is fine, but what is troubling is that the government, nor the bank, gets any share of the upside if the house is sold for a profit at a later date.  So the moral of the story to all of you readers is: Go fuck up something financially, get bailed out for fucking up, and profit handsomely*.

*I suppose one could make the argument that this is only fair since this has been what the government has done with the private sector for the last year, why not extend that principle to households.

Tuesday, February 17, 2009

Detroit= the New Utopia

I gather that Detroit is complete and utter crap.  Evidence of this appears in the form of land/houses that are essentially selling for whatever it costs to process the title at a courthouse, quite literally.  Isn't that an ideal scenario for an artist colony?  Just a thought.

Thursday, February 12, 2009

Judd Gregg=Daft

Judd Gregg is withdrawing his nomination to be Secretary of Commerce. He has apparently discovered that his views are different from Obamas. Well no shit. But it is not like Commerce plays a terribly ideological role. It has a couple component agencies that are important but semi-autonomous: NOAA and the Census. Other than that it basically organizes trade junkets so that American businessmen (read campaign contributors) can shill their products abroad. Whoopty shit. You could shift the Census into the department of Labor or make it a stand alone organization and put NOAA under the EPA and get rid of the rest of the department without anyone knowing any better. It is one of the lowest profiles cabinet appointments.

Update: Brad DeLong speculates that something tawdry must have come up in the vetting process. This seems to be the only plausible explanation, or that he really is that daft.

Bank Bailout: Nationalization

With regards to what to do with the banks I heartily agree with Megan McCardle's recommendation: triage.  Find out which banks are clearly have no hope of returning to solvency, seize them and liquidate them.  At that point, I think those banks that are marginal will attempt to either sell off assets/raise private capital to boost their balance sheets as opposed to waiting for more TARP money.  What I don't get is why this isn't considered as the default option.  We have an institution that does this and does this well: the FDIC.  In fact, said institution was created in response to the last time we saw such a banking panic, the Great Depression.  To some degree it seems that both Hank Paulson and Tim Geithner have formulated their bailout plans with the main goal of ensuring that Vikram Pandit and Ken Lewis can remain as CEOs.

Phenomenal News

High Speed Rail got $9.3 billion in the stimulus bill.

Bankers Bonuses

This is old news but it still amazes me.  I have always thought that bonuses are tied to performance, and in the context of banking, that would be specifically in the form of profits, or at least performance relative to your competitors. How does one rationalize doling out billons of dollars in bonuses when you have lost tens of billions of dollars and had to be bailed out by Bank of America and by extension the taxpayer?  I think the decent thing for Merrill Lynch to do would be to replace those bonuses with Mortgage Backed Securities that they are currently holding at whatever their current book value is (as opposed to what they would actually sell for).

And when Republicans stammer that some sort of compensation caps for those that get taxpayer monies will drive away good talent from the financial industry I want to scream.  Where are these people going to go?  Have these brilliant politicians not noticed that the financial industry has contracted severely.  And by the way, has the question ever occured to them that some of this "talent" was not that talented in the first place, or at the very least their talents were misdirected.  These bankers make the Bush administration prosecution of the Iraq war and response to Katrina look almost adequate by comparison.

What is the value proposition that these bankers have that can enable them to command such bonuses?  Clearly it is not there ability to manage risk.  Have they threatened society collectively "let us get fat and happy in the financial sector or else we will start to run your health care and prosecute your wars"?

I have been always squeamish about the meddling with executive compensation but I think it is nigh time to have that conversation.  The levels of compensation are so great that the incentive or temptation to engage in corporate looting have pushed society to a fragile state.  I think there has to be something that aligns the compensation with the long term health of the company. Brad DeLong has suggested bonuses that are redeemable if the company meets certain thresholds ten years out as opposed to one quarter out.   I would also like to see clawback provisions for salaries once they get into the F-U money range- maybe 8 digits.

My Preferred Stimulus

Obviously this is a moot issue at this point but I would have liked to see an extension of unemployment benefits, bail out the states/local governments, a cut in the employer portion of the payroll tax (finance this by implementing a carbon and a gas tax two years out), and massively expand the number of H1B Visas.

Monday, February 09, 2009

Obama's Press Conference

My goodness what a change. Having a President who knows the English language is such a marked improvement. Helen Thomas just asked if any country in the Middle East has nukes, I think she was egging him on to acknowledge that the Israelis have nukes. I don't know why that is such a bugaboo.

Tax Reform

Equity Private over at Dealmaker makes an argument for tax reform.  I agree that the time is ideal for tax reform in the sense that those interests typically aligned against tax reform are currently quite weak, such as tax preparers, accountants, and especially the mortgage industry (which accounts for one of the largest deductions/perversions of our tax code in the form of the mortgage interest tax deduction).  That said, I am doubtful anything will happen anytime soon, and that's a shame.

A Great Saying

"When shit acquires value the poor are born without assholes."  It's a Brazilian saying so I am sure the translation could be better, but nonetheless, quite good.

Friday, February 06, 2009

Japan's Lost Decade

Japan had a decade of economic stagnation.  They cut the interest rate to zero, propped up insolvent banks, and paved over half the country.  We have cut the interest rate to zero, propped up insolvent banks (and are currently contemplating ways to do so on a grander scale), and are debating how to best pave over half the country.  It's all a bit unnerving.

update: I should add though the infrastructure spending I don't view as problematic.  We have let our infrastructure decay and haven't made any improvements in ages.  I do wish there was a more rational process in allocating these monies.  The infrastructure enhancements, which by and large, won't be going out the door anytime soon should be considered under separate legislation.  Maybe we could even come up with a capital budget.

Thursday, February 05, 2009

The Bailout and Nationalization

I am opposed to releasing the TARP money for any more bank bailouts.  What we appear to be doing is propping up insolvent banks, which remain insolvent, until the situation becomes sufficiently dire again that they need more taxpayer funds.  This seems like a process without an end.  Some of these banks, such as a CitiGroup, actually have good assets but are loathe to part with them.  What rational CEO would?  Given the choice between selling off the good assets to cover the losses on your core business (effectively being the CEO of the rump of what's left over) and or sitting pat, waiting for a fresh (and seemingly recurring) injection of capital which would you choose?  I think the answer is obviously the latter.  I think what's necessary is to remove the appearance of a choice.  The government can use the TARP money to buy more agency debt or whatever it likes to ensure credit flows and in the meantime let the FDIC do what it does, determine if a bank is insolvent, if so, shut it down, and sell it off in pieces.  

Wednesday, February 04, 2009


I think Barbara Mikulski's amendment, which passed, to provide a tax deduction for auto loan interest and a deduction for the sales tax on an auto purchase is phenomenally stupid. We need to be stop favoring automobiles over other forms of transit.

What to Do with Poplar Point

Clark Realty has told D.C. that they will no longer develop Poplar Point. Greater Greater Washington has a good post on part of the proposal for Poplar Point's development, namely, a massive park. They make the point that a massive park is really nothing more than an invitation for crime and a waste of space. Obviously Central Park is an example of the contrary but I do tend to agree with the basic thrust of their argument (and arguably Central Park's success is a function of Manhattan's tremendous density and policing techniques). San Francisco is a city that does seem to strike a nice balance between green space and city space and they achieve this through constant distribution of small green spaces. A really cool way of implementing this at Poplar Park would be to do the Urban beach thing. Anyhow, my two cents.

Update: Another exception might be the Tiergarten in Berlin.

Monday, February 02, 2009

Wise Words from Andrew Samwick

"Second, as I will continue to blog until I am blue in the fingers, the appropriate course of action when the economic downturn appears like it will be unusually severe is to bring planned capital projects forward in time.  Doing so allows them to be done more cheaply.  That politicians cannot make sensible policies under the pressure to be timely is obvious.  But the warning signs (and the idiotic mantra of temporary, targeted, and timely) have been evident for over a year.  Had we started to accelerate capital projects then, we would be seeing those projects kick in by now, and we would be on our way out of this mess.  Instead, we are repeating this year -- on a grander scale and with a leftward tilt -- the lunacy of last year's stimulus package."

It is amazing to me that we are having this discussion at the moment. This is another failure on the part of the Bush Administration, and specifically of Mary Peter's tenure as DOT secretary.  Recessions, whether they be long in character like this one or shorter in nature, do occur.  When recessions occur labor and materials are typically cheaper and it is a good time for the government to forge ahead on infrastructure projects it has in the pipeline.  During recessions the government can pursue planned infrastructure investments at a lower cost, accomplishing two objectives simultaneously: 1) using the taxpayers' money efficiently in implementing necessary infrastructure projects; 2) providing stimulus.  All of this is incumbent on planning which appears to have been nonexistent.