Healthcare was a big win because it was a big hump. Now, it seems the Democrat Party can’t get the financial crisis right. Why? I feel I have no real idea because one explanation seems too cynical, the other one seems too preposterous.
For the former, the explanation is that they are too corrupt, they love the money coming to them and it’s coming in a wide stream. For many blue dog dems, that’s true. They’re limousine liberals who think they have a bleeding heart because they can talk education.
The latter explanation is that the Dems don’t how to play smart and aren’t as good at policy marketing as Republicans. Can this possibly be true? Can it be possible that I or you know better? We know what the american people want and it’s to do what actually works, punish and fix the bankers and our economy.
In the end, both explanations are probably the issue. We haven’t had think tanks or an intellectually unified left execpt behind single leaders (like Obama) and since Congress does not need to be accountable to the people, they probably think they can pass a few bad policies without getting too much flack.
Anyway, this article from Mark Thoma about throwing in the towel on the Dems is important.
I’ve been pushing hard for more help for labor markets for quite awhile — at times I’ve thought it was a bit repetitive, but necessary — but it’s probably time for me to give up and accept that we are going to have a slower recovery than we could have had with more aggressive fiscal policy. Unless there is a dramatic reversal of recent indications that we are at the beginning of a recovery, Congress is not going to provide anything more than token help from here forward.
Mainstream media is protraying the economy as having a recovery. It is also saying that we are making a profit on Citigroup. Anyone who has about 20 seconds to look at this article knows it’s simply not true that we are turning a profit on Citi. Instead, we’re still a long ways out on it. The idea is that there are numerous subsidies and programs that have helped Citi appear to be making money, all funded by the taxpayer or puts the taxpayer on the hook in the end. Here’s most of the story, it’s not a soundclip explanation, but it can easily be turned into one: We did not make a profit on Citi, we have paid for its losses and have not been paid back for that or probably ever will:
While we had put up enough money in November to buy Citi outright, when Treasury did the conversion to common stock, taxpayers only got a 27 percent stake…
Of course this is just the beginning of the list of handouts to this sick financial giant. The rescue in November of 2008 was actually Round II. The first round took place the prior month when Treasury handed Citi $25 billion in TARP money. While we did collect interest payments on this money, in addition to stock warrants, taxpayers got far less than the market rate. The Congressional Oversight Panel for TARP commissioned an independent study to compare the value of the assets that Citi gave us with our $25 billion investment. In their assessment, we overpaid Citi by $9.5 billion.
Citigroup also borrowed money that was explicitly guaranteed by the Federal Deposit Insurance Corporation (FDIC). As recently as this January, Citi still had $64.6 billion in FDIC guaranteed loans outstanding. It was paying just a 0.91 percent interest rate on these loans due to the government’s safety blanket. If we assume that this crippled giant might otherwise pay something close to 3.0 percent on these loans in a free market, then this subsidy would be worth almost $1.4 billion a year.
So far we have $4.4 billion in TBTF subsidies, $9.5 billion in TARP handouts, and $1.4 billion in FDIC subsidies. That’s a total of $15.3 billion. This is in addition to only getting 27 percent of the company when taxpayers put up more than enough money to own Citigroup outright. But wait, there’s more….
Citigroup’s assets and deposits give it roughly 10 percent of the market. If we assume that it accounted for 10 percent of the overpriced mortgages sold to Fannie and Freddie in the conservatorship era, then Citi’s Fannie and Freddie subsidy comes to $6 billion. We also have roughly $30 billion in losses incurred at the Federal Housing Authority (FHA) over the last two years……
There are also the various special lending facilities created by the Federal Reserve Board, in addition to its ongoing operations through the discount window. Through these facilities, Citigroup could borrow short-term money at near zero cost. At its peak, more than $2 trillion was lent through these facilities. The Fed refuses to tell taxpayers who it lent our money to, but let’s assume that Citi got 10 percent of this stash as well, or $200 billion. If Citi lent the money back to the government by buying Treasury bonds that pay 3.7 percent interest, then it could earn more than $7 billion a year by lending our money back to us. Nice work if you can get it.
And, there is also the matter of the Fed’s massive program to buy mortgage-backed securities to push down mortgage rates. If the impact of this program lowered 30-year mortgage rates from 5.5 percent to 5.0 percent, then this would raise the price of the 30-year mortgages on Citi’s books by more than 7.0 percent. If Citi has $500 billion in mortgages on its balance sheets, then this would increase the market value of these mortgages by more than $35 billion. This gift will not be costless to the Fed. It bought $1.25 trillion in mortgages. If it ends up reselling them in a market in which the 30-year mortgage rate averages 6.0 percent, then it will have incurred a loss of almost 15 percent, or more than $180 billion.
In short, anyone looking at the fuller picture would see that it is silly to claim that taxpayers made a profit in our investment in Citi. But, hey the banks and the bankers did well, not much else matters in Washington Post land. (For a recent tally of how much money is still outstanding from the bailout see Wall Street Bailout Cost.)
Congress and mainstream media and other economists need to come and say so — tell the real story of Citigroup and the economy’s recession. And then there are all the lost jobs and foreclosures caused by the crisis.
I’ll still complain — there’s no reason to let policymakers off the hook — but it’s time to give up the hope that anything more will be done to help the unemployed find jobs.
(tx Mary Bottari)