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“Why Sane Bargaining Looks Strange”: Two Can Play The Crazy Uncle Game

An entirely new political narrative is taking shape before our eyes, yet many in Washington are still stuck in the old one.

President Obama’s victory blew up the framework created by the 2010 elections, which forced him to play defense. Now, he finally has room to move. That’s the only way to understand the ongoing budget talks.

This has several implications. First, why was anyone surprised that Obama’s initial offer to the Republicans was a compendium of what he’d actually prefer? We became so accustomed to Obama’s earlier habit of making preemptive concessions that the very idea he’d negotiate in a perfectly normal way amazed much of Washington. Rule No. 1 is that you shouldn’t start bargaining by giving stuff away when the other side has not even made concrete demands.

Second, Obama made clear that he will not allow the fiscal calendar to set his priorities. Past actions by Congress established this wacky set of deadlines requiring frenzied decision-making. This does not mean the deficit is the nation’s highest priority. It isn’t. Speeding up economic growth is the most important thing now.

Thus did Obama’s opening proposal call for measures to boost the recovery, including an infrastructure bank, a public-private partnership that ought to appeal to Republicans. And he was right to insist upon an extension of unemployment insurance and another year of the payroll tax holiday or some equivalent way to keep middle-class purchasing power up. Raising taxes on the wealthy won’t damage the economy. A sudden drop in the take-home pay of the vast majority of U.S. consumers would.

Third, House Republicans have, so far, been unwilling to assume any risk to get what they claim to want. They seem to hope a deal will be born by way of immaculate conception, with Obama taking ownership of all the hard stuff while they innocently look on.

Obama went that route in 2011 when he feared that Republicans would bring down the nation’s economic house by failing to pass an increase in the debt ceiling. This time, he doesn’t face that risk.

If we go past the so-called “fiscal cliff” deadlines and all the resulting budget cuts and tax increases come into force, the administration can minimize the damage. It can delay the implementation of new tax tables so billions of dollars are not suddenly sucked out of the economy. There is no law requiring that budget cuts be implemented upfront or spread equally across the year. Obama can publicly announce he is delaying any cuts, on the theory that Congress will eventually vitiate some of them. And he can make sure the bond markets know of his plans well in advance.

This is not pretty, and it’s not ideal. But the only way to keep the next four years from becoming another long exercise in gridlock and obstruction is for Obama to hang tough now. And he has every right to.

Republicans claim they are fighting for cuts in entitlement programs, particularly Medicare. Fine. Let them put their cuts on the table. So far, all we have are words. Obama has outlined $400 billion in savings from Medicare. If this isn’t enough, the GOP’s negotiators should tell us how to find more. And having individual Republicans toss out ideas is not the same as a detailed public counter-proposal.

Republicans also say tax reform can raise enough money so we can avoid rate increases on the wealthy. Fine. Let them put forward a comprehensive plan so we can judge it. Their problem is that tax reform can’t produce the revenue that’s needed, but let’s at least see what they have in mind.

Obama is criticized for making life difficult for House Speaker John Boehner (R-Ohio) who has to bring around a rather right-wing caucus. Sorry, but demanding this sort of solicitude doesn’t fly anymore. Boehner rather brilliantly used the “I have to deal with this crazy uncle in the attic” gambit to extract a lot of concessions in 2011. Republicans walked away from the great deal Boehner won for them. The intervening election means they won’t get a similar gift this time. Obama has to win something for his own progressive supporters who rightly feel empowered by November’s results. Two can play the crazy-uncle game.

So a normal negotiation looks strange only because the past two years have been so utterly abnormal, driven by tea party extremism and an irrational hostility to Obama, a fundamentally moderate man who has already shown a willingness to offer more than his share of concessions. Boehner knows this, which is why everyone (especially Wall Street) should calm down.

 

By: E. J. Dionne, Jr., Opinion Writer, The Washington Post, December 2, 2012

December 3, 2012 Posted by | Fiscal Cliff | , , , , , , , , | 1 Comment

“Fueled, Serviced, And Collected”: How Wall Street Profits From The College Loan Mess

Five years after Wall Street crashed the economy by irresponsibly securitizing and peddling mortgage debt, the financial industry is coming under growing scrutiny for its shady involvement in student loan debt.

For a host of reasons, including a major decline in public dollars for higher education, going to college today means borrowing—and all that borrowing has resulted in a growing and heavy hand for Wall Street in the lending, packaging, buying, servicing, and collection of student loans. Now, with $1 trillion of student loans currently outstanding, it’s becoming increasingly clear that many of the same problems found in the subprime mortgage market—rapacious and predatory lending practices, sloppy and inefficient customer service and aggressive debt collection practices—are also cropping up in the student loan industrial complex.

This similarity is especially striking in the market for private student loans—which currently make up $150 billion of the $1 trillion of existing student loans.

As detailed in a July 2012 report by the Consumer Financial Protection Bureau and Department of Education, private student loans mushroomed over the last decade, fueled by the very same forces that drove subprime mortgages through the roof: Wall Street’s seemingly endless appetite for new ways to make profit. In this case, investor demand for student loan asset backed securities (SLABS) resulted in private student lenders—primarily Sallie Mae, Citi, Wells Fargo, and the other big banks—to relax lending standards and aggressively begin marketing these loans directly to students.

Unlike federal student loans, private loans have higher and fluctuating interest rates and come without any flexibility for tailoring payments based on income. Before the SLABS binge, most private student loans were actually made in connection with the college financial aid office, which helped ensure students weren’t taken for a ride, or weren’t borrowing more than they needed to. Between 2005 and 2007, the percentage of loans to students made without any school involvement grew from 40 percent to over 70 percent. And the volume of private student loans mushroomed from less than $5 billion in 2001 to over $20 billion in 2008. The market shrunk back to $6 billion after the financial crisis as lenders tightened standards.

And just like the subprime mortgage market, not all students were aggressively targeted by these rapacious lenders. The largest percentage of private loans taken out in 2008 were by students at for-profit colleges. In 2008, just 14 percent of all undergrads took out a private loan while 42 percent of students at for-profit colleges took them out. And as we now know, these loans are sinking borrowers—with absolutely no ability to discharge these loans by filing bankruptcy.

The latest student loan default rates issued by the Department of Education show that the three-year default rates for those who started repayment between October 2008 and September 2009 was 13 percent nationally—an average masking sharp differences depending on the type of school the borrower attended. For-profit institutions had the highest average with nearly 1 out of 4 borrowers in default, compared with 11 percent from public institutions and 7.5 percent at private, non-profit institutions.

All these statistics mean that close to 6 million borrowers are in default (almost 1 in 6 borrowers) to the tune of a combined $76 billion, more than the combined annual tuition for all students attending public two- and four-year colleges.

And for the borrower who can’t make payments, the student loan industrial complex is not a good place to be. And it’s costly for taxpayers: the Department of Education paid $1.4 billion last year to debt collectors and guaranty agencies to chase down borrowers who weren’t paying their loans. And here’s where Wall Street grabs another slice of the debt-for-diploma system pie. As reported in The New York Times, of the $1.4 billion paid out last year, about $355 million went to 23 private debt collectors. The remaining $1.06 billion was paid to the guarantee agencies to collect on defaulted loans made under the old federal loan system, which they in turn often outsource to private collectors.

But wait, there’s more! It turns out that two of the nation’s biggest banks own debt collection agencies that have contracts with the Department of Education to collect on federal student debt that’s gone bad: NCO Group, owned by One Equity Partners, the private equity arm of JP Morgan Chase and Allied Interstate, owned by Citi Venture Capital International, the private equity arm of Citigroup. Both of these debt collection agencies are distinctive in that according to a comprehensive report by the National Consumer Law Center, they have received the most complaints filed with the Better Business Bureau in a three-year period. At the same time, NCOs performance in recovering past-due loans has made it one of the top performers for the DOE.

The new cop on the beat—the Consumer Financial Protection Bureau—is now going to be providing federal oversight of the nation’s largest debt collectors, which is welcome news. The Department of Education could also play an important role in rewarding good behavior by their debt collectors. As NCLC recommends in its report, they could incentivize humane treatment of debtors by penalizing agencies for large numbers of complaints filed against them and reward agencies with few complaints.

Over the last two decades, our nation—in a major shift from its historical roots—slowly privatized and financialized the responsibility of paying for college. The result is a system in which the entire pipeline of student loans—now the largest source of “aid” for most students—is fueled, serviced, and collected by Wall Street.

The student loan industrial complex invites a more profound question: given the billions in profit generated by federal and private student loans, along with the billions in administrative costs absorbed by tax payers, is debt the most efficient and equitable way to provide access to higher education?

 

By: Tamara Draut, The American Prospect, November 16, 2012

November 19, 2012 Posted by | Education | , , , , , , , , | 2 Comments

“The Case For Barack Obama”: A Record Of Accomplishment That Bests Any President Since Roosevelt

I decided to support Barack Obama pretty early in the Democratic primary, around spring of 2007. But unlike so many of his supporters, I never experienced a kind of emotional response to his candidacy. I never felt his election would change everything about American politics or government, that it would lead us out of the darkness. Nothing Obama did or said ever made me well up with tears.

Possibly for that same reason, I have never felt even a bit of the crushing sense of disappointment that at various times has enveloped so many Obama voters. I supported Obama because I judged him to have a keen analytical mind, grasping both the possibilities and the limits of activist government, and possessed of excellent communicative talents. I thought he would nudge government policy in an incrementally better direction. I consider his presidency an overwhelming success.

I can understand why somebody who never shared Obama’s goals would vote against his reelection. If you think the tax code already punishes the rich too heavily, that it’s not government’s role to subsidize health insurance for those who can’t obtain it, that the military shouldn’t have to let gays serve openly, and so on, then Obama’s presidency has been a disaster, but you probably didn’t vote for him last time. For anybody who voted for Obama in 2008 and had even the vaguest sense of his platform, the notion that he has fallen short of some plausible performance threshold seems to me unfathomable.

Obama’s résumé of accomplishments is broad and deep, running the gamut from economic to social to foreign policy. The general thrust of his reforms, especially in economic policy, has been a combination of politically radical and ideologically moderate. The combination has confused liberals into thinking of Obamaism as a series of sad half-measures, and conservatives to deem it socialism, but the truth is neither. Obama’s agenda has generally hewed to the consensus of mainstream economists and policy experts. What makes the agenda radical is that, historically, vast realms of policy had been shaped by special interests for their own benefit. Plans to rationalize those things, to write laws that make sense, molder on think-tank shelves for years, even generations. They are often boring. But then Obama, in a frenetic burst of activity, made many of them happen all at once.

Bipartisan panels of economists had long urged Medicare to reform its payment methods to curb perverse incentives by hospitals and doctors to run up costs as high as possible; Obama overcame fierce resistance in Congress in order to craft, as part of Obamacare, a revolution in paying for quality rather than quantity. He eliminated billions of dollars in useless subsidies to banks funneling (at no risk) government loans to college students. By dangling federal public-education grants, Obama unleashed a wave of public-school reform, over the objections of the most recalcitrant elements of the teachers union movement. And he forced Wall Street to accept financial regulations that, while weaker than ideal, were far tougher than anybody considered possible to get through Congress.

It is noteworthy that four of the best decisions that Obama made during his presidency ran against the advice of much of his own administration. Numerous Democrats in Congress and the White House urged him to throw in the towel on health-care reform, but he was one of very few voices in his administration determined to see it through. Many of his own advisers, both economists steeped in free-market models and advisers anxious about a bailout-weary public, argued against his decision to extend credit to, and restructure, the auto industry. On Libya, Obama’s staff presented him with options either to posture ineffectually or do nothing; he alone forced them to draw up an option that would prevent a massacre. And Obama overruled some cautious advisers and decided to kill Osama bin Laden.

The latter three decisions are all highly popular now, but all of them carried the risk of inflicting a mortal political wound, like Bill Clinton’s health-care failure and Jimmy Carter’s attempted raid into Iran. (George W. Bush, presented with a similar option, did not strike bin Laden.) In making these calls, Obama displayed judgment and nerve.

A year ago, I wrote about the pervasive disillusionment felt by Obama’s supporters. It is a sentiment that has shadowed every Democratic president since Franklin Roosevelt, and even Roosevelt provoked long bouts of agony and disillusionment among his supporters. All were seen by many Democrats at the time as failures, weaklings, or unprincipled deal-makers. It’s true that all of them, including Obama, have made terrible errors. What this tells us, though, is that we need some realistic baseline against which to measure them.

Obama can boast a record of accomplishment that bests any president since Roosevelt, and has fewer demerits on his record than any of them, including Roosevelt. The only president that comes close in gross positive accomplishment is Lyndon Johnson, whose successes were overwhelmed by his failures to such a degree that he abandoned his reelection campaign. The immediacy of the political moment can — and usually does — blind us. (In the aftermath of September 11, 2001, the wide and even bipartisan sentiment prevailed that George W. Bush was exactly the right sort of person we would want to have as president at that moment.)

The sense among Obama’s wavering supporters that he has failed rests upon a two-part indictment. The first and most potent is that he has presided over a weak economy. This line of attack on Obama became inevitable starting on approximately September 14, 2008, when the U.S. financial system imploded. The economists Carmen Reinhart and Kenneth Rogoff have established that financial crises wreak vastly deeper harm than regular recessions. Financial crises freak out consumers, and they freak out political elites in a way that creates a panicked stampede toward exactly the wrong sorts of policies (like reducing short-term deficits) that in turn makes the crisis even worse.

This panic has impeded Obama’s recovery measures. But the fact remains that, by the standards of a financial crisis, the United States suffered through a relatively shallow trough and has enjoyed a fairly rapid recovery. (Here is a chart laying out the comparison between the United States and other comparably afflicted economies.) Obama managed to stabilize the financial system and, through the stimulus, avert a total collapse in consumer demand.

But while America has suffered less since 2008 than other victims of a financial crisis, it has suffered. Obama’s notable success in containing the damage has not redounded to his benefit for another, even more historically durable reason: Voters tend to blame or credit incumbent politicians for the state of their lives utterly regardless of responsibility. This is not even limited to things like the economy, where politicians can affect the outcome. Voters reward or punish incumbents based on the weather or the success of local sports teams. Mitt Romney’s campaign theme attempting to assign all blame to Obama for the state of the economy is a clever manipulation of this long-standing form of irrationality. In 2004, Romney dismissed any attempt to blame George W. Bush for the decline of jobs under his watch as “poppycock.” In his most condescending tone, Romney explained that of course outside forces were to blame — those outside forces being the vastly milder 2001 recession — and that attempting to hold Bush responsible for the economic record of his term was sheer stupidity. Now Romney has made that very theme the central basis of his presidential campaign.

The second indictment of Obama is that he failed to redeem the broader vision of trans-partisan governance he campaigned on. The reason this happened is that the Republicans’ leadership in Congress grasped early on that its path to returning to power required Obama to fail, and that they could help bring this about by denying his initiatives any support. In a meeting before Obama’s inauguration reported by Time’s Michael Grunwald, the House Republican leadership instructed their members on exactly this strategy. GOP Senate Minority Leader Mitch McConnell has followed the same strategy. GOP House members and senators have admitted, some of them publicly, that their leadership prevailed upon them not to negotiate with Obama.

Partisan strife between Congress and the president has gone on for decades. In the past, members of Congress often opposed the president’s agenda, but they also believed that the voters would punish them if they failed to show accomplishments, and so they carefully balanced their substantive opposition with a sense of political self-preservation. What makes the Republican opposition different is that it rests upon a novel, and probably true, insight. Most Americans pay little attention to the details of policy. They rely upon a broad heuristic — if something has touched off an ugly and protracted battle, it is probably bad, but if both sides agree on it, it is probably good. Even many Sunday political talk-show chatterers and other blowhards use the same basic thought process. And so, as McConnell actually said out loud, “if the proponents of the bill were able to say it was bipartisan, it tended to convey to the public that this is O.K., they must have figured it out.” McConnell, in keeping with his Bond-villain habit of boasting openly about his nefarious intentions, actually announced in a prepared speech that his top political priority was to make Obama a one-term president.

The Republican strategy is perfectly clear and not even very well hidden. Yet many of us don’t accept it as a reality because it does not feel true. We instinctively hold the president, not Congress, responsible, another finding political scientists have measured. The hunger to attribute all outcomes to the president is so deep that the political elite take it on faith. Bob Woodward, who is justly famed as a reporter but whose opinions are interesting only as a barometer of Washington establishmentarianism, blamed Obama because Republicans turned down an extraordinarily favorable budget deal. “Presidents work their will — or should work their will,” Woodward declared, “on the important matters of national business.”

How can a president “work his will” in such a way as to force autonomous members of the opposite party controlling a co-equal branch of government to sacrifice their own calculated self-interest? It is a form of magical thinking, but a pervasive one. Which is exactly why the Republican strategy — making Obama’s promise to transcend partisanship fail by withholding cooperation — has worked.

Whether this strategy succeeds in its ultimate goal — returning the GOP to power in 2013 — depends on the election. In an unusual way, the success of Obama’s first term hangs in large part on his reelection bid, as a President Romney would probably kill his grandest achievement of providing health insurance to those Americans too sick or poor to acquire it in the marketplace. So any evaluation of Obama’s term before the election must be provisional.

What can be said without equivocation is that Obama has proven himself morally, intellectually, temperamentally, and strategically. In my lifetime, or my parents’, he is easily the best president. On his own terms, and not merely as a contrast to an unacceptable alternative, he overwhelmingly deserves reelection.

 

By: Jonathan Chait, Daily Intel, October 31, 2012

November 1, 2012 Posted by | Election 2012 | , , , , , , , , | 5 Comments

“Talk About Uncertainty”: Mitt Romney’s Question Mark Economy

As we close in on Election Day, the questions about what Mitt Romney would do if elected grow even larger. Rarely before in American history has a candidate for president campaigned on such a blank slate.

Yet, paradoxically, not a day goes by that we don’t hear Romney, or some other exponent of the GOP, claim that businesses aren’t creating more jobs because they’re uncertain about the future. And the source of that uncertainty, they say, is President Obama — especially his Affordable Care Act (Obamacare) and the Dodd-Frank Act, and uncertainties surrounding Obama’s plan to raise taxes on the wealthy.

In fact, Romney has created far more uncertainty. He offers a virtual question mark of an economy

For example, Romney says if elected he’ll repeal Obamacare and replace it with something else. He promises he’ll provide health coverage to people with pre-existing medical problems but he doesn’t give a hint how he’d manage it.

Insurance companies won’t pay the higher costs of insuring these people unless they have extra funds — which is why Obamacare requires that everyone, including healthy young people, buy insurance. Yet Romney doesn’t say where the extra money to fund insurers would come from. From taxpayers? Businesses?

Talk about uncertainty.

Romney also promises to repeal Dodd-Frank, but here again he’s mum on what he’d replace it with. Yet without some sort of new regulation of Wall Street we’re back to where we were before 2008 when Wall Street crashed and brought most of the rest of us down with it.

Romney hasn’t provided a clue how he proposes to oversee the biggest banks absent Dodd-Frank, what kind of capital requirements he’d require of them, and what mechanism he’d use to put them through an orderly bankruptcy that wouldn’t risk the rest of the Street. All we get is a big question mark.

When it comes to how Romney would pay for the giant $5 trillion tax cut he proposes, mostly for the rich, he takes uncertainty to a new level of abject wonderment. “We’ll work with Congress,” is his response.

He says he’ll limit loopholes and deductions that could be used by the wealthy, but refuses to be specific. Several weeks ago Romney said he’d cap total deductions at $17,000 a year. Days later, the figure became $25,000. Now it’s up in the air. “Pick a figure,” he now says.

Make no mistake. Wall Street traders and corporate CEOs are supporting Romney not because of the new level of certainty he promises but because Romney promises to lower their taxes.

Meanwhile, many of Romney’s allies who are attacking Obama for creating uncertainty are themselves responsible for the uncertainty. They’re the ones who have delayed and obfuscated Obamacare, Dodd-Frank, and any semblance of a federal budget.

“Continued uncertainty is the greatest threat to small businesses and our country’s economic recovery,” says Thomas Donohue, president and CEO of the U.S. Chamber of Commerce, which has been funneled tens of millions of dollars into ads blaming Obama for the nation’s economic woes.

That’s the same Chamber of Commerce that’s been using every legal tool imaginable to challenge regulations emerging from Obamacare and Dodd-Frank — keeping the future of both laws as uncertain as possible for as long as they can. The Chamber even brought Obamacare to the Supreme Court.

At the same time, congressional Republicans have done everything in their power to scotch any agreement on how to reduce the budget deficit. Because they’ve pledged their fiscal souls to Grover Norquist, they won’t consider raising even a dollar of new taxes. Yet it’s impossible to balance the budget without some combination of spending cuts and tax increases — unless, that is, we do away with Social Security, Medicare and Medicaid, or the military.

Business executives justifiably worry about January’s so-called “fiscal cliff”, requiring sudden and sharp tax increases and spending cuts. But they have no one to blame but Norquist’s Republican acolytes in Congress, including Paul Ryan, all of whom agreed to the fiscal cliff when they couldn’t agree to anything else.

Average Americans, meanwhile, face more economic uncertainty from the possibility of a Romney-Ryan administration than they have had in their lifetimes. Not only has Romney thrown the future of Obamacare into doubt, but Americans have no idea what would happen under his administration to Medicare, Medicaid, college aid, Pell grants, food stamps, unemployment insurance, and many other programs Americans rely on. All would have to be sliced or diced, but Romney won’t tell us how or by how much.

Romney is casting a pall of uncertainty in every direction — even toward young immigrants. He vows if elected he’ll end Obama’s reprieve from deportation of young people who arrived in the U.S. illegally when they were children. As a result, some young people who might qualify are holding back for fear the information they offer could be used against them at later date if Romney is elected.

Conservative economists such as John Taylor of the Hoover Institution, one of Romney’s key economic advisors, continue to attribute the slow recovery and high unemployment to Obama’s “unpredictable economic policy.”

In truth, Romney and the GOP have put a giant question mark over the future of the economy and of all Americans. The only way the future becomes more certain is if Obama wins on Election Day.

 

By: Robert Reich, Co-Founder, The American Prospect, October 24, 2012

October 26, 2012 Posted by | Election 2012 | , , , , , , , , | Leave a comment

“Worst Socialist Ever”: Republicans Ought To Be Awfully Impressed With President Obama

In 2004, a Bush cabinet official said job creation and GDP numbers matter, but “the stock market is … the final arbiter” of economic success.

If that’s true, eight years later, Republicans ought to be awfully impressed with President Obama.

Through Friday, since Mr. Obama’s inauguration — his first 1,368 days in office — the Dow Jones industrial average has gained 67.9 percent. That’s an extremely strong performance — the fifth best for an equivalent period among all American presidents since 1900. The Bespoke Investment Group calculated those returns for The New York Times.

The best showing occurred in Franklin D. Roosevelt’s first term, when the market rose by a whopping 238.1 percent. Of course, that followed a calamitous decline. When his term started, the Dow had fallen to one-fourth of its former peak. In 2008, the year before Mr. Obama took office, the Dow declined by roughly one-third.

In the last half-century, the president who’s overseen the strongest performance on Wall Street was Bill Clinton. The second best? Barack Obama, easily.

As we talked about in April, this also suggests Obama is the worst socialist of all time. A soaring stock market, record high corporate profits, private sector job growth … it’s almost as if the president didn’t listen to Karl Marx at all.

All joking aside, I don’t consider major Wall Street indexes a reliable metric when it comes to measuring the health of the economy. Indeed, it’s not even close.

But here’s the kicker: Obama’s detractors do consider major Wall Street indexes a reliable metric when it comes to measuring the health of the economy.

As long time readers may recall, the Wall Street Journal ran an entire editorial in early March 2009 arguing that the weak Dow Jones was a direct result of investors evaluating “Mr. Obama’s agenda and his approach to governance.”

Karl Rove and Lou Dobbs made the same case. So did Rush Limbaugh, Sean Hannity, and Fred Barnes. For a short while, it was one of Mitt Romney’s favorite talking points, too. Even John Boehner got in on the larger attack.

I don’t think a strong stock market is necessarily proof of a robust economy, but I also don’t think the right should have it both ways. If a bear market in 2009 is, in the minds of conservatives, clear proof that Obama’s agenda is misguided and dangerous, then soaring Wall Street indexes shouldn’t be dismissed by those same detractors as politically irrelevant.

 

By: Steve Benen, The Maddow Blog, October 22, 2012

October 23, 2012 Posted by | Election 2012 | , , , , , , , , | Leave a comment