Economy: Federal Watchdog Can't Vouch For Administration Job Numbers
• "The government watchdog overseeing the federal stimulus program testified Thursday that he could not vouch for the Obama administration's recent claims that the money had saved or created 640,000 jobs. He suggested that the administration should have treated the number with more skepticism," the New York Times reports. "Earl E. Devaney, the chairman of the Recovery Accountability and Transparency Board, said... up to 10 percent of the recipients had not filed the required reports showing how many jobs they had created or saved."
• "As he readies an overhaul of the nation's financial regulatory system, House Financial Services Chairman Barney Frank," D-Mass., "is already looking at avenues to revise the package before it goes to the floor the week of Dec. 7," CongressDailyAM (subscription) reports. "At the top of the list is revisiting language his panel approved Thursday that would give sweeping powers to the GAO to audit the Federal Reserve."
Sen. Christopher Dodd's, D-Conn., bill on financial regulatory reform embraces a supposed solution to the "too big to fail" conundrum: contingent convertible bonds, or CoCos, which turn into equity once a bank's capital falls below a certain level. Read a good take on CoCos here (and click on the link therein to read Gillian Tett's discussion in the Financial Times, which might require registration). Is this a better approach than simple, transparent capital requirements for big banks? What advantages or disadvantages haven't been mentioned?
-- John Maggs, NationalJournal.com
Is the Obama administration's stimulus plan helping to create or "save" 650,000 jobs, as the president and his aides say? Is that an appropriate way to measure the stimulus' impact? Should Congress consider a new stimulus to create jobs and spur economic activity?
-- John Maggs, NationalJournal.com
8 responses: Gary Burtless, John S. Irons, James Sherk, Desmond Lachman, J.D. Foster, Jeffrey Frankel, Charles Calomiris, Brian Riedl
The New York Times reports that a group of 10 senators (none of them Republican) has called for creation of a bipartisan commission on the budget, akin to the Base Realignment and Closure Commission, that would come up with a long-term plan to reduce budget deficits, including a solution to the impending funding shortfalls for Medicare and Social Security. House Speaker Nancy Pelosi, D-Calif., is opposed, and no prominent Republicans have endorsed the idea. Is there any hope for this idea, could it work, and what other approach might be more effective? Without a credible plan to reduce deficits, how soon would it affect economic growth?
-- John Maggs, NationalJournal.com
4 responses: James K. Galbraith, James R. Horney, Isabel Sawhill, Charles Calomiris
What do you think of the Treasury and Federal Reserve actions to limit compensation for executives at large financial companies? The Treasury action would reduce compensation by 90 percent for the highest-paid 25 executives at each of the seven companies that received federal bailout aid, and soon extend this to the top 100 executives. The Fed plans to review compensation as part of its supervision of large banks (a duty it would lose according to Senate reform proposals.) Among other questions, the securities industry is wondering whether the new Fed rules would cover executives for bank-owned subsidiaries.
Is the Treasury plan mostly politics? A powerful incentive to pay back TARP funds and avoid the risk of future bailouts? Will it be possible to attract competent management at those companies? Can the Fed be trusted to curb compensation when it never recognized that as a problem before?
-- John Maggs, NationalJournal.com
4 responses: Grover Norquist, Charles Calomiris, Douglas Elliott, John Maggs
Debate is heating up over whether the Obama plan for financial regulation goes far enough to curb institutions that become "too big to fail." Simon Johnson and Charles Calomiris discussed the issue here on NPR, and more attention came after Alan Greenspan made a strong statement on behalf of doing more to limit the size of financial institutions. What should be done through regulation, and is any regulation of "systemic risk" inevitably going to designate some banks as TBTF?
-- John Maggs, NationalJournal.com
4 responses: Martin Baily, Charles Calomiris, Robert Litan, Alan Meltzer
The New York Times has sparked interest in the idea of a tax credit for job creation, an idea in recent Democratic presidential campaigns (John Kerry and Barack Obama both proposed it) and one that apparently now has some Republican support. According to one version, it might work as a refundable tax credit, with subsidies to money-losing firms or nonprofits. Greg Mankiw summarizes the problem of winnowing out jobs that would have been created anyway. Can this be done efficiently, and should it be done now (or six to eight months from now, the minimum for when it might be enacted)? Are there better tax incentives to spur hiring?
-- John Maggs, NationalJournal.com
There has been widespread speculation that the credit crisis and the recession would lead to a long-term shift in household saving. And saving did rise from the very low levels before 2008 and increased more or less steadily through this spring. But as the "green shoots" improvement in the economy took hold, saving has been dropping, and fell to 3 percent in August. Will this continue, and is it an unequivocal good thing? Low saving was alternately credited during the boom and blamed during the bubble. Will saving need to rise to very high levels, as many economists have argued, to erase deficits, and what are the implications for growth if it does (or interest rates, if it doesn't)?
-- John Maggs, NationalJournal.com
The Obama administration's financial reform plan proposes creating a category of "systemically important," or "Tier 1," financial companies that would be more heavily regulated than other companies, but also eligible for bailouts and other government intervention. Can Obama avoid the moral hazard of such an arrangement (akin to what happened with Fannie Mae and Freddie Mac) simply through strict regulation?
-- John Maggs, NationalJournal.com
4 responses: Peter Wallison, Alan Meltzer, Gary Burtless, Charles Calomiris
As time goes by and data piles up, the debate is heating up over whether President Obama's $787 billion stimulus bill is responsible for the apparent improvement in the economy. Economists John Cogan, John Taylor and Volker Wieland argued in the negative, based on their reading of income and spending data. The latest, fullest case from the White House came in an August speech by Council of Economic Advisers Chair Christina Romer. Do Cogan and his co-authors have enough data to draw the conclusions they do? How much hard evidence is there that the stimulus is affecting spending and investment?
-- John Maggs, NationalJournal.com
3 responses: Desmond Lachman, Charles Calomiris, William Gale
Does the country risk a renewed financial crisis if the reform process bogs down? How much moral hazard has been created by the rescue, and how soon must it be diminished to avoid excessive risk-taking by financial companies? Has that excess begun already? Would it be a bad mistake for Obama to allow Congress to dominate the legislative process on financial reform, as he did with health care? Or has the financial system healed enough, and are banks and investors chastened enough, to allow a deliberate process for reform that takes longer but yields a more far-reaching law?
-- John Maggs, NationalJournal.com
