Tuesday, November 11, 2008

Hillary on New Stimulus Boost

Hillary has sent a letter to Bush, Harry Reid, Robert Byrd and Daniel Inouye pushing them to act now and start new stimulus spending for Main Street and not sit on their butts for almost three months until the Golden Calf is installed at the White House for us all to worship. She prioritizes New York's stimulus needs, as is to be expected, but the letter is more general. She does her usual job of combining hard facts, common sense and political zingers for an enlightening read. A few highlights:

We are in a recession which demands decisive action. I believe that in order to stimulate this economy, we need to get people working, earning, and building – not just spending. We have borrowed hundreds of billions that have gone to banks and financial institutions and borrowed tens of billions more to energize the economy, yet the economic downturn has continued and the financial turmoil has worsened. What is clear is that any action we take – especially as we borrow more money to do so – must pay off in the near and long term. That is what America does best: we can address this crisis while preparing for our future.

However, we do have immediate needs that cannot wait between now and when the next Congress and the next President takes office. And although your Administration has voiced skepticism about the need for a stimulus bill, I believe that the current conditions call for a coordinated response now.
Good little zing about the Wall Street give away, though she's not too sharp as New York is a financial capital, and a delicious slap to Bush with"not just spending" as a solution to sustantail financial problems. zHer next paragraph, though clearly taking Bush to task, strikes me as aimed more at the current Senate leadership than at the lame duck in the White House. No, you can't just sit on your hands until after the Inauguration. You need to set expectations now and get the ball rolling.

Hillary then goes on and identifies specific programs - Unemployment Insurance, SNAP, Medicaid - that will immediately help her constituents who are facing jobs losses. She goes into some detail about Medicaid:

In the midst of one of the greatest fiscal crises to hit our states, an increase in the Medicaid FMAP rate would help prevent further and deeper cuts to health care and other essential services like education, child care and public safety. Rising demand for health insurance coverage through Medicaid due to increasing job loss is straining state budgets, and the federal government should act to help ease this growing burden on our states.
This is something that the Spousal Unit is very keen on, the Feds supplying the money for social service programs to ensure that the states to not rob Peter to pay Paul, or steal the kids' lunches to pay for their vaccinations. One of the biggest dangers of a protracted economic downturn is that states cut services to the weakest and must vulnerable parts of the population. A city park may endure a lawn brown from lack of water, but a child will not survive a winter with no food and no heat. Her mention of this is also an implicit criticism of the decision to deny her a formal leadership role in the crafting of health care policy and initiatives.

She goes on to discuss infrastructure investment, noting that this long term improvement "serves the dual purpose of modernizing our country’s deteriorating roads, bridges, and transit systems while stimulating the economy," and thus provides tangible benefit to the public, unlike throwing money at Wall Street, especially when the funds are disbursed without provisions for accountability. Hillary returns to a topic she has discussed for months, the mortgage crisis, and warns that there is more bad news waiting for us, but that we have the power to proactively address the problem:

The next wave of foreclosures looms, and we should address it immediately. It is critical that we modify unworkable mortgages into clear and stable terms if we are to prevent the bottom of the housing market from falling even further. I have proposed HOME, the Home Owners Mortgage Enterprise, based on the successful program enacted during the New Deal which not only saved one million homes but also turned a profit for the Treasury. We should continue focusing on initiatives large and bold enough to meet the scale of the challenges presented by the faltering housing market.
As I've said before, home prices have to come down in alignment with wages, so I disagree with Hillary about the bottom of the housing market falling even further. That must happen. I think she knows it (mostly because she's waaaay smarter than me) which is why she so consistently pushes the HOME program, which would purchase mortgages at cut rates from the toxic pool, rework them when possible by reducing principal and adjusting rates, and end up providing a controlled devaluation of the house market.

This stands in juxtaposition to the announcement just today from Fannie Mae and Freddy Mac (h/t, Calculated Risk, FHFA Modification Program Details), where they do not wish to reduce outstanding principal in order to make a loan be affordable (no more than 38% of gross income). The press release is contradictory in that the first answer in the Q&A section states "It may include a change to the product (an ARM to a fixed rate mortgage), interest rate, amortization term and maturity date, and/or unpaid principal balance," which would seem to indicate that reducing principal is an option, but the answer to the question about benchmark ratios does not include changes to an unpaid principal balance among its options, "Once the affordable payment is determined, there are several steps the servicer can take to create that payment – extending the term, reducing the interest rate, and forbearing interest." The key here is that a HOLC/HOME style program can easily perform this action because of taking the mortgage back from investors (who eat the loss, which is the downside of risk) and issuing a sustainable rather than a profitable loan.

In the midst of the general celebration and self-congratulation over the elections, Hillary reminds the power brokers and the pundits that ordinary people are hurting and delays are unacceptable. My own Congress Critters are heading in the right direction, but have said nothing since before the election on these matters. Sen. Feinstein did find time to issue a press release on the theme for the Inauguration, bless her heart.

Hillary's overall message is Think Big, which is just what the good professors Krugman, Roubini and Galbraith all advocate when addressing the financial meltdown, and to do it now.

There's some change I can believe in.


PS - I found that I kept writing "reduced principle" instead of "reduced principal" when discussing the GRE press release. I am fully confident that the Bush Treasury can reduce their principles without limit.

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