News Cut: November 24, 2008 Archive

The Citi deal

Posted at 9:49 AM on November 24, 2008 by Bob Collins (5 Comments)
Filed under: Economy

Part of the big Citibank bailout (by the way, did you notice the White House said it "didn't know anything about weekend rescue talks? Entirely believable, unfortunately) calls for the government to buy "toxic mortgages." So, now we -- the taxpayer -- are back to buying bad mortgage instruments? Let's recap. The initial big bailout bill was to be used mostly for buying up "toxic mortgages." But when the Treasury Department experts got a look at things, they realized that was an unworkable solution, so they started buying stakes in banks instead. That led to uncertainty (a nice way of saying "calamity" in stock market-speak) in the market because the feds were sending the signal that they really didn't know what they were doing. The Citibank bailout -- a partial return to Plan A -- has cheered the market, which is up 300 points at midmorning.

And we haven't even figured out yet whether the taxpayers are now on the hook for the $400 million Citi is paying the New York Mets.

Bailouts and the economy defy explanation by mere mortals.

Which is why my colleague, Preston Wright, has formulated his own economic plan. I'll let him tell it:

Yes, this is a real solution. It's kind of like daylight savings.

Extend the number of days in a month to 42.

That way, everyone paid every two weeks would suddenly get an extra paycheck per month to pay off debt and mortgages.

Financial institutions would take the brunt of it because it would be like refinancing all loans, yet people would suddenly have extra cash to spend, save and pay back debt.

The economy would be jump-started because everyone would feel like they had gotten a 50% raise.

If I follow this correctly -- a dubious assumption at best -- we'd still have 12 months in the year, thus adding 84 to our year. Under this plan, the first day of summer could also be New Year's Day at least once.

(5 Comments)

The state's budget deficit

Posted at 10:59 AM on November 24, 2008 by Bob Collins
Filed under: Economy, Politics

President-elect Obama reportedly is going to keep the tax cuts on the wealthy around until they're scheduled to expire in 2011 (We'll find out more at 11 when he holds a news conference on the economy, which I'll live blog here). But a Minnesota budget expert sees a tax increase on wealthy Minnesotans as a solution to an estimated $4 billion state budget deficit.

"The deficit we're hearing about would be about 11 percent of the general fund," says Nan Madden, director of the Minnesota Budget Project. That's slightly less than the size of the deficit that greeted Gov. Tim Pawlenty when he took office in 2003. (Listen)

Madden says lawmakers need to understand "that programs that help people get and keep jobs, and make ends meet, those things should not be cut. We shouldn't pile on folks who are already suffering from the economic downturn. Second thing to understand is cutting state spending is a drag on the state's economy. State spending largely goes to people's salaries, to buying goods and services in Minnesota. So when we cut spending, that's actually taking dollars out of the state economy."

Madden says a targeted tax increase to people with high incomes won't have a detrimental effect on the economy because "that's money that people would save rather than money that would be spent on consumption."

Are there enough wealthy people left in Minnesota? "The size of this problem means you can't take anything completely off the table but we would argue we need a balanced approach. We can't take revenue increases off the table. And when you have a budget deficit that's 11% of the general fund, you can't close it only through spending cuts."

Madden expects some delays in payments to Minnesota school districts "and some things that are on the gimmicky side." She says she hopes lawmakers take a long-term view of the state budget, using spending cuts and delayed payments as "a short term bridge."

Live-blogging Obama's economy news conference

Posted at 11:00 AM on November 24, 2008 by Bob Collins
Filed under: Economy

Listen

We're waiting for the start of the president-elect's news conference, and silently praying that nobody will ask questions about puppies. NPR is stressing Obama's insistence that "there's only one president." That president this morning said more Citi-type bailouts are possible.

11:07 a.m. - We're underway. In his opening statement Obama says "we're facing an economic crisis of historic proportions." He announces the nomination of four individuals, including : Tim Geithner as secretary of treasury; Larry Summers as head of the economic council; Melanie Barnes as head of the domestic policy council.

11:12 a.m. - Dow up 305.13 as Obama begins.

11:13 a.m. - Obama says one of his nominees -- Melody Barnes -- is "an expert at determining whether a recession has started." He needs someone to tell him that? On the other hand, he didn't mention that she was name done of the "best dressed women in Washington." Matthew Yglesias takes a more intellectual approach.

11:17 a.m. - It doesn't sound like we're going to hear many specifics today on Obama's solutions. The Dow is dropping slightly from its high.

11:18 a.m. -- How bad is the economy and, in particular, the auto industry. While Obama was talking, GM announced its ending its endorsement deal with Tiger Woods.

Questions

Q: What about the stimulus package?
A: Obama says he doesn't want to get into numbers right now. "We have a consensus, which is pretty rare, between conservative economists and liberal economists, that we need a big stimulus package that will jolt the economy back into shape." Dow gains continue to evaporate. Now up 250.

Q:Will you let Bush tax cuts expire?
A: Says the tax cuts were disproportionately targeted to the wealthiest. "It is important if we're going to help pay for some of these expenditures to get our economy back on track, then it's important for those who can pay more do so." He then avoided answering the question about whether those tax cuts would be repealed immediately or allowed to expire.

Q: Can you give us a range of the size of stimulus package you're considering?
A: No.

11:24 a.m. - The Dow has shed 100 points since the president-elect started talking.

Q: Can you describe how your team's approach might differ from the approach we've had in the last year?
A: "I don't want to look backwards. I'm sure there are some things that Secretary Paulson has done that he wish he'd done differently." He then punts the question and lapses into the stump speech about a strong Main Street is as important as a strong Wall Street.

Q: Do you think the automakers made a convincing case for a bailout?
A: "We can't allow the auto industry simply to vanish. We've got to make sure it is there and that the workers and suppliers ... stay in business. I've also said we can't just write a blank check to the auto industry."

So is that a "yes" or a "no"?

"I was surprised they didn't have a better thought-out proposal."

So, that's a "no," I guess.

Q: How and when should the second half of the rescue money be spent?
A: Obama said he spoke with President Bush and Fed Chair Bernanke today. I will make further assessments about whether it's necessary to draw down additional (bailout) money as the administration and treasury secretary provide me with more real-time information. We are united in making sure the financial system operates the way it was mean to.

11:33 a.m. We get the trademark, "thank you, guys."

Another very short Obama news conference with very little insight.

The Dow is up 205 183 at the end of the news conference. It bent but did not break.

Hanging in with retirement plans

Posted at 11:59 AM on November 24, 2008 by Bob Collins (3 Comments)
Filed under: Economy

Americans are still putting money into their 401Ks, despite the dwindling returns, a survey by Hewitt Associates released today shows.

An analysis of 2.7 million U.S. employees found the average 401(K) has dropped 14 percent so far this year, down to $68,000 from $79,000 at the start of the year.

"Some have lost more than 30 percent," the report said. Gosh, it's almost like they were talking directly to me on that one.

Only about half of the 401(K)s are invested in the stock market, according to the survey, and more than 6 percent of those surveyed cashed out, a move that runs contrary to most financial advice these days.

(3 Comments)