mykeystrokes.com

"Do or Do not. There is no try."

How Default Would Harm Homeowners, Cities, Businesses And Everyone Else

It’s easy to understand why the government will have more trouble borrowing if it fails to pay its debts, or even has a difficult time paying its debts. It’s a bit harder to see why ordinary Americans, the city of Pittsburgh, hospitals in Iowa, and medium-sized corporations will have more trouble borrowing. But they will. And their trouble borrowing is the main channels through which a default, or even something too close to it for the market’s comfort, could deal a body blow to the economy.

On Wednesday, Moody’s warned that it was putting the U.S. government credit rating on review for a downgrade. But they didn’t stop there. Another 7,000 debt products that are “directly linked to the U.S. government or are otherwise vulnerable to sovereign risk” were also put on review for a possible downgrade. That’s about $130 billion worth of debt. If America tumbles, so do they. But Moody’s still wasn’t done. An unknown amount of “indirectly linked” debt is also getting reviewed.

If America’s credit rating falls, it’s taking a lot more than just Treasury securities with it. It’s going to take the whole credit market with it. Which, as you’ll remember, is exactly how the subprime housing sector took the economy down in 2008.

The first to fall will be “directly linked” debt. These are bonds that rely on payments from the federal government. Naomi Richman, a managing director in Moody’s Public Finance division, puts it bluntly: “There are certain kinds of municipal bonds that are directly reliant on Treasury paying or some other direct payment,” she says. “If those bonds don’t receive their payment, they have no other source of revenue.” So down they go.

Then there’s the “indirectly linked” debt. That’s debt from state government, local governments, hospitals, universities and other institutions that rely, in some way or another, on payments from the federal government. If Medicaid stops paying its bills, all the hospitals that rely on Medicaid’s payments become less creditworthy. If we stop funding Pell grants, then all the universities that enroll students who pay using financial aid become less creditworthy. And since the federal government passes one-fifth of its revenues through to the states, and the states pass those revenues through to cities, if the federal government stops paying its bills, all states and all cities are suddenly in worse financial shape, which will make it harder for them to get loans.

And then there’s everything else. Mortgages. Credit cards. Loans that businesses take out to expand. Much of the debt in the American economy, and in fact globally, is “benchmarked” to Treasury debt. When your bank quotes you a mortgage rate, the calculation begins with the rate on 10-year treasuries and then adds premiums for various types of risk specific to you and your area on top of that. “There’s a whole credit structure,” says Pete Davis, president of Davis Capital Investment Ideas. “Think of it as roads and bridges, but it’s finance, it’s all connected, and it’s all on top of treasuries. Your CD at a bank, your credit card interest rates, your car loans, your mortgages — that’s all built on Treasury rates. So when you shake the basis of it, everything on top of it shakes, too.”

The 2008 economic crisis wasn’t started by a nuclear bomb detonating in New York, or a campaign to sabotage the country’s factories, or a plague that struck our able-bodied young males. Rather, investors bought a lot of debt based on subprime mortgages. They performed some tricky financial wizardry that they thought made the debt low-risk. They found out they were wrong. And then, because the players in the financial system no longer knew how much money anyone had, the credit markets froze and the economy crashed.

Now imagine that happening, not with the housing market, but with the government of the United States of America. The cornerstone of the global financial economy is the idea that Treasuries are risk-free. If they’re not, then like in the financial crisis, no one knows how much money anyone who holds treasuries has. But they also don’t know how much money anyone who depends on the federal government — be they businesses or individuals — holds.

This is how a default gets into the rest of the economy: It takes everything the financial markets thought they could know and rely on and upends it. It then shuts off credit, or makes it prohibitively expensive, for nearly every participant in the economy, from states and cities to hospitals and universities to homebuyers and credit-card applicants. That, in turn, freezes all of their activity, which destabilizes everyone who relies on them, which then destabilizes financial markets further, and so on.

It was one thing to have forgotten that this sort of thing could happen in 2006, when America hadn’t seen it for 70 years. But we just went through it. And if we go through it again, the Federal Reserve, which has pushed interest rates as low as they can go, and Congress, which has vastly expanded the deficit, have a lot less ammunition left for a response.

Are we likely to get to that point? No, of course not. But between here and there are worlds where the economy doesn’t crash, but because the federal government panics the market, interest rates rise and the economy slows. In a recovery this weak, that would be a disaster. And it would be entirely of our own making.

By: Ezra Klein, The Washington Post, July 15, 2011

//

July 17, 2011 Posted by | Banks, Budget, Businesses, Congress, Conservatives, Consumer Credit, Consumers, Debt Ceiling, Deficits, Democrats, Economic Recovery, Economy, Financial Institutions, GOP, Government, Government Shut Down, Ideologues, Ideology, Lawmakers, Medicaid, Middle Class, Politics, Public, Republicans, Right Wing, States | , , , , , , , , , , , , , , , , | Leave a comment

Why The Tea Party Should Stop Fearing Compromise

Among tea party voters, there is a belief that the right is always getting sold out  by the political establishment. In their telling, Reagan-era conservatives agreed to an amnesty for illegal immigrants on the condition that the law  would be enforced going forward, then deeply regretted having done so.  George H.W. Bush broke his “no new taxes” pledge. The  Contract with America failed to deliver on many of its promises. George  W. Bush joined forces with Ted Kennedy on No Child Left Behind, changed  positions on campaign finance reform, and closed out his presidency by  bailing out undeserving Wall Street firms. In all this, he was abetted  by GOP legislators.

These tea party voters  are sometimes justified in feeling betrayed. Other times, they misinterpret what happened. Right or wrong, however, they’re powerfully averse to compromise. Mere mention of the word aggrieves them. They  don’t think of it as a means of bringing about a mutually beneficial  change in the status quo, where one of their priorities is addressed in return for giving up something on an issue they care less about. When  they hear the word compromise, the knee-jerk reaction is to oppose it.  In their experience, going along with compromise is tantamount to  getting screwed. The insistence that pols “stand on principle” is a  defense mechanism.

This attitude helps explain why tea partiers  are so frequently attracted to relatively inexperienced politicians like Sarah Palin, Marco Rubio, and Michele Bachmann. More experienced pols  have been forced to compromise as the price of achieving something, just as a President Palin, Rubio or Bachmann would be forced to compromise  in order to pass the parts of their agenda most important to them. Having  gotten so little of substance done in their careers, however, they haven’t yet had to give up anything significant, so they can maintain the fiction that they never would. As Daniel Larison puts it, “Bachmann’s lack of  achievements is in some ways a blessing for her, because it is proof  that she has never compromised. In today’s GOP, that is very valuable,  and she doesn’t have many competitors in the race who can say the same.”

The tea party movement should know better. The Founding Fathers engaged in an endless series of compromises. Abraham Lincoln  compromised. Franklin D. Roosevelt compromised. So did Ronald Reagan. Every consequential leader in the history of the United  States has had to compromise.

It defies common sense to think the next  Republican president will be different. So why are tea party voters asking  themselves, “Which of these presidential candidates is least  likely to compromise?” They ought to be pondering different questions, such as: “What  style of negotiation and compromise does this candidate employ? How much have they  gotten in the past for what they gave up?”

“Do the issues they’ve treated as most important align with my priorities?”

Viewed in  that light, Mitch Daniels’ talk of a truce on social issues in order to  focus on the budget deficit should’ve appealed to a large faction of tea partiers. He laid out his  priorities. They aligned perfectly with tea party rhetoric: it is a movement focused on economic issues and individual liberty far more than social conservatism if you trust what its typical adherents themselves assert. But even tea partiers who  shared Daniels’ priorities didn’t like that he talked of compromise.

They got self-righteous about it.

Tea partiers would be better off accepting that every politician cares about some things  more than others, that there is no such thing as successfully governing America as an uncompromising social, economic and national security conservative, and that pretending otherwise results in choosing candidates who are  marginally less likely to choose the best compromises.

Another way to put this is that if tea party voters were  less naive about the centrality of compromise to politics — and more  willing to believe that a principled person can compromise — they’d  feel  less victimized by an unchangeable fact of democracy. They’d also be  more frequently empowered to bring about  policy outcomes that better align with what they care about most.

 

By: Conor Friedersdorf, Associate Editor, The Atlantic, July 15, 2011

July 16, 2011 Posted by | Budget, Congress, Conservatives, Debt Ceiling, Deficits, Democracy, Economic Recovery, Economy, Elections, GOP, Government, Government Shut Down, Ideologues, Ideology, Iowa Caucuses, Liberty, Politics, Republicans, Right Wing, Taxes, Teaparty, Voters | , , , , , , | Leave a comment

Getting to Crazy: The Culmination Of A GOP Process

There aren’t many positive aspects to the looming possibility of a U.S. debt default. But there has been, I have to admit, an element of comic relief — of the black-humor variety — in the spectacle of so many people who have been in denial suddenly waking up and smelling the crazy.

A number of commentators seem shocked at how unreasonable Republicans are being. “Has the G.O.P. gone insane?” they ask.

Why, yes, it has. But this isn’t something that just happened, it’s the culmination of a process that has been going on for decades. Anyone surprised by the extremism and irresponsibility now on display either hasn’t been paying attention, or has been deliberately turning a blind eye.

And may I say to those suddenly agonizing over the mental health of one of our two major parties: People like you bear some responsibility for that party’s current state.

Let’s talk for a minute about what Republican leaders are rejecting.

President Obama has made it clear that he’s willing to sign on to a deficit-reduction deal that consists overwhelmingly of spending cuts, and includes draconian cuts in key social programs, up to and including a rise in the age of Medicare eligibility. These are extraordinary concessions. As The Times’s Nate Silver points out, the president has offered deals that are far to the right of what the average American voter prefers — in fact, if anything, they’re a bit to the right of what the average Republican voter prefers!

Yet Republicans are saying no. Indeed, they’re threatening to force a U.S. default, and create an economic crisis, unless they get a completely one-sided deal. And this was entirely predictable.

First of all, the modern G.O.P. fundamentally does not accept the legitimacy of a Democratic presidency — any Democratic presidency. We saw that under Bill Clinton, and we saw it again as soon as Mr. Obama took office.

As a result, Republicans are automatically against anything the president wants, even if they have supported similar proposals in the past. Mitt Romney’s health care plan became a tyrannical assault on American freedom when put in place by that man in the White House. And the same logic applies to the proposed debt deals.

Put it this way: If a Republican president had managed to extract the kind of concessions on Medicare and Social Security that Mr. Obama is offering, it would have been considered a conservative triumph. But when those concessions come attached to minor increases in revenue, and more important, when they come from a Democratic president, the proposals become unacceptable plans to tax the life out of the U.S. economy.

Beyond that, voodoo economics has taken over the G.O.P.

Supply-side voodoo — which claims that tax cuts pay for themselves and/or that any rise in taxes would lead to economic collapse — has been a powerful force within the G.O.P. ever since Ronald Reagan embraced the concept of the Laffer curve. But the voodoo used to be contained. Reagan himself enacted significant tax increases, offsetting to a considerable extent his initial cuts.

And even the administration of former President George W. Bush refrained from making extravagant claims about tax-cut magic, at least in part for fear that making such claims would raise questions about the administration’s seriousness.

Recently, however, all restraint has vanished — indeed, it has been driven out of the party. Last year Mitch McConnell, the Senate minority leader, asserted that the Bush tax cuts actually increased revenue — a claim completely at odds with the evidence — and also declared that this was “the view of virtually every Republican on that subject.” And it’s true: even Mr. Romney, widely regarded as the most sensible of the contenders for the 2012 presidential nomination, has endorsed the view that tax cuts can actually reduce the deficit.

Which brings me to the culpability of those who are only now facing up to the G.O.P.’s craziness.

Here’s the point: those within the G.O.P. who had misgivings about the embrace of tax-cut fanaticism might have made a stronger stand if there had been any indication that such fanaticism came with a price, if outsiders had been willing to condemn those who took irresponsible positions.

But there has been no such price. Mr. Bush squandered the surplus of the late Clinton years, yet prominent pundits pretend that the two parties share equal blame for our debt problems. Paul Ryan, the chairman of the House Budget Committee, proposed a supposed deficit-reduction plan that included huge tax cuts for corporations and the wealthy, then received an award for fiscal responsibility.

So there has been no pressure on the G.O.P. to show any kind of responsibility, or even rationality — and sure enough, it has gone off the deep end. If you’re surprised, that means that you were part of the problem.

By: Paul Krugman, Op-Ed Writer, The New York Times, July 14, 2011

July 16, 2011 Posted by | Budget, Class Warfare, Congress, Conservatives, Corporations, Debt Ceiling, Deficits, Democrats, Economic Recovery, Economy, Elections, Freedom, GOP, Government, Government Shut Down, Health Care, Ideologues, Ideology, Journalists, Media, Middle Class, Politics, President Obama, Press, Pundits, Republicans, Right Wing, Taxes, Voters | , , , , , , , , , , , , , | Leave a comment

Does Michele Bachmann Have A ‘Reverend Wright’ Problem?

Joshua Green of The Atlantic is reporting that Rep. Michelle Bachmann has long belonged to a church that, well, has some odd views about the Catholic Church:

Michele Bachmann is practically synonymous with political controversy, and if the 2008 presidential election is any guide, the conservative Lutheran church she belonged to for many years is likely to add another chapter due to the nature of its beliefs–such as its assertion, explained and footnoted on this website, that the Roman Catholic Pope is the Antichrist.

The short, obvious response to the idea that this might hurt Bachmann’s presidential aspirations is, in a few words, “Reverend Jeremiah Wright.”

After all, President Barack Obama’s ties to Reverend Wright and his church didn’t hurt his presidential campaign nearly as much as expected — as he went on to win. Even in 2008, the idea that Obama was a covert black radical hiding behind a moderate liberal façade seemed far fetched. There was little connection between Wright’s views and Obama’s actual policy agenda.

This could, however, create problems for Bachmann. After all, unlike Obama, Bachmann has placed her religious views front and center in the campaign, most recently by signing onto a “pledge” issued by a group of social conservatives in Iowa affirming a number of paternalistic policy positions. In signing the pledge, Bachmann was promising to fight marriage equality, pornography, the repeal of Don’t Ask Don’t Tell and even the presence of women in the Armed Forces. Bachmann’s religious views, unlike Obama’s, are easily connectable to a definable policy agenda. So her religious views will be far more relevant than Obama’s — and many of the policy positions she’s adopted as a result aren’t likely to be popular outside of the GOP base.

George W. Bush frequently credited Karl Rove’s outreach to Catholics as key to his ascension to the White House. Has Bachmann — who left her former church last year and disavowed its views on Catholicism — damaged herself with this key segment of the electorate? That’s anybody’s guess. But generally speaking, some of her religiously informed political views will be a major liability among the broader electorate, should she win the nomination, and may even discourage Republicans who want to win the White House from voting for her. The more stories like this one expose the extent to which some of Bachmann’s religious views smack of bigotry, the worse her chances will get.

By: Adam Serwer, The Washington Post, July 14, 2011

July 16, 2011 Posted by | Bigotry, Catholic Church, Conservatives, Elections, GOP, Ideologues, Ideology, Iowa Caucuses, Populism, President Obama, Republicans, Right Wing, Swing Voters, Teaparty, Voters, Womens Rights | , , , , , , , , , , , | Leave a comment

Where Industry Writes State Law: How Business Lobbies Bought All The Laboratories Of Democracy

It sure is funny that, at basically the same time, state legislatures across the country began passing a slew of similar measures attacking collective bargaining, undocumented immigration and abortion, right? Just a weird coincidence, I’m sure, this sudden nationwide war on public employee unions and immigrants and women.

Hah, I am just kidding. We all know it’s because of lobbyists and the American Legislative Exchange Council. ALEC is sort of a Match.com for state lawmakers and the nation’s worst industry lobbies. The Center for Media and Democracy’s ALEC Exposed project has a handy list of the hundreds of bills ALEC pushes in every state in the union, on subjects ranging from school vouchers to gutting environmental regulations to opposition to the National Popular Vote Compact. (Yeah, that one I don’t even get.)

Here’s how the ALEC process works: GOP state legislators go to fancy conferences where they sit down with lobbyists and right-wing activists and draft right-wing legislation together. They return home and introduce it without mentioning the source. The lobbies then throw some cash at the legislators working to advance their agenda. Then, these days, the bill passes, and everyone else gets around to getting outraged about it, long after their outrage would do much good. Repeat.

This is how incredibly similar anti-immigration bills end up passing, independently, in Arizona and Tennessee. This is how bills against public employee collective bargaining end up passing in Wisconsin and Indiana. This is the process behind state resolutions banning the establishment of “Obamacare.” Our biggest national wars are being fought, and largely won, in the statehouses, with liberal activists not even joining the fight until after they’ve lost it.

Liberals aren’t this good at local politics. Unions and low-income organizations like ACORN used to take care of lobbying and politicking at the state and community level, but, oh, look what’s happened to them. Defunded!

It took a while for Democrats to figure out that they should have their own Heritage Foundation, and so far, they seem to be taking just as long to decide to create their own ALEC. (Of course the Democratic ALEC will probably also push “school reform” and pro-telecom bills and whatever else rich Democratic donors want.)

As a result of that late adoption, the famous laboratories of democracy are now often the places where massive, monied interests — along with their odd allies in the religious right — can implement their political agendas piece by piece, instead of trying to get their dream bills through the U.S. Congress, where all the cameras and journalists are. The sudden death of the small- and midmarket newspaper certainly helps. Your average local TV news doesn’t really do sophisticated policy analysis.

The closest thing liberals even have to a state to experiment with is … California, with its property-tax cap and public rejections of gay marriage and marijuana legalization. (Right-wingers know better than to trust legislating to the popular ballot, even though they’re quite good at organizing and spending huge sums of money to win ballot measures.)

Oh, the record number of bills restricting access to abortion services nationwide? That one might just be the natural Republican enthusiasm for controlling women’s bodies. I mean, the right-to-life groups obviously jumped into action when the GOP came into power and lobbied for all of the 162 new restrictions on reproductive rights enacted since the start of the year, but I’m not sure any specific business lobby benefits from it.

By: Alex Pareene, Salon, July 14, 2011

July 15, 2011 Posted by | Abortion, Anti-Choice, Businesses, Class Warfare, Collective Bargaining, Congress, Conservatives, Corporations, Democracy, Democrats, Equal Rights, GOP, Ideologues, Ideology, Immigration, Lawmakers, Media, Politics, Republicans, Right Wing, State Legislatures, States, Union Busting, Unions, Women, Women's Health, Womens Rights | , , , , , , , , , , , , | Leave a comment