Sara Haile-Mariam

In case you missed it–Krugman points to Reagonmics as the origin of our current financial crisis.

“But there was also a longer-term effect. Reagan-era legislative changes essentially ended New Deal restrictions on mortgage lending — restrictions that, in particular, limited the ability of families to buy homes without putting a significant amount of money down.

These restrictions were put in place in the 1930s by political leaders who had just experienced a terrible financial crisis, and were trying to prevent another. But by 1980 the memory of the Depression had faded. Government, declared Reagan, is the problem, not the solution; the magic of the marketplace must be set free. And so the precautionary rules were scrapped.”

Full remarks here.

“Now, the choice we face is not between saving our environment and saving our economy. The choice we face is between prosperity and decline. We can remain the world’s leading importer of oil, or we can become the world’s leading exporter of clean energy. We can allow climate change to wreak unnatural havoc across the landscape, or we can create jobs working to prevent its worst effects. We can hand over the jobs of the 21st century to our competitors, or we can confront what countries in Europe and Asia have already recognized as both a challenge and an opportunity: The nation that leads the world in creating new energy sources will be the nation that leads the 21st-century global economy.

America can be that nation. America must be that nation.”

Elizabeth Warren: Harvard professor, author, and currently the woman behind overseeing TARP (otherwise known as the Trouble Assets Relief Program). Warren describes her task in an interview with Politico stating:

“The role of congressional oversight is to ask the tough questions, to push back on the decisions, to request additional information and to recheck the numbers…It’s our job to be cranky.”

If you missed her on the Daily show last week, you’ll find a video below (part two after the jump). She’s incredibly charming and succinct. Both videos are worth the watch especially if you’re looking for a little economic reassurance.

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James Surowiecki in the New Yorker considers an alternative explanation (h/t Ben Smith).

“The money the government has been giving the automakers has been going not to shore up their capital base, but literally to pay their bills. In the absence of government aid, the automakers would have had to shut down their factories because of their inability to pay suppliers and workers. That’s not true of even the most troubled big banks, which are having no problem meeting their debt payments or paying their bills: the government’s aid has gone instead to replenish their capital and allow them to stay in regulatory compliance. That doesn’t mean the government’s aid was not essential, but it was different: the money the government gave G.M. has already gone out the door, while in the case of the banks it’s still, for the most part, sitting on their balance sheets (which is where it’s supposed to be).”

Mike Pence- Congressman from Indiana is on MSNBC right now discussing the Republican budget proposal. I haven’t looked at their budget proposal yet, but this struck me as shocking. Nora O’donnell asked Mr. Pence how much the budget proposal would decrease the national deficit and Mr. Pence had no answer. Now, here’s why this is so problematic. The GOP talking point against the Obama budget was that it would ultimately increase the deficit, or at least fail to decrease the deficit by 2012. They’ve proposed a new plan, that upon first inspection does nothing to address their initial argument against the Obama budget (the deficit). What I surmise from this is that ultimately this is a gimmick- they’re not interested in substantiating their claim (Obama will raise the deficit) and providing an alternative (a plan that is more efficient or requires less government spending but somehow manages to remain stimulative) but rather, they just want to propose something that can then use to justify their disapproval of the Obama plan. What we’re watching is an entirely ideological battle- Mr. Pence responded to Nora’s request for more insight into how the GOP plan would decrease the budget by snapping “there are lots of numbers in our plan”. That’s not a sufficient response- and frankly, we’re at a point where we need to insist upon a more serious debate as opposed to something that’s entirely founded on political calculations and assumptions.

I’m reserving judgment until this week when the full details of the plan emerge.

In the meantime- you can check out Brad DeLong’s blog for a question and answer on the plan. (h/t Huffington Post)

Ultimately, DeLong markets the plan as the treasury’s attempt to combat unemployment.

“Q: How does having the U.S. government invest $1 trillion in the world’s largest hedge fund operations reduce unemployment?

A: At the moment, those businesses that ought to be expanding and hiring cannot profitably expand and hire because the terms on which they can finance expansion are so lousy. The terms on which they can finance expansion are so lazy because existing financial asset prices are so low. Existing financial asset prices are so low because risk and information discounts have soared. Risk and information discounts have collapsed because the supply of assets is high and the tolerance of financial intermediaries for holding assets that are risky or that might have information-revelation problems are low.

Q: So?

A: So if we are going to boost asset prices to levels at which those firms that ought to be expanding can get finance, we are going to have to shrink the supply of risky assets that our private-sector financial intermediaries have to hold. The government buys up $1 trillion of financial assets, and lo and behold the private sector has to hold $1 trillion less of risky and information-impacted assets. Their price goes up. Supply and demand.”

President Obama announces today that he plans to take every legal action to block AIG bonuses saying,

“Under these circumstances, it’s hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay. How do they justify this outrage to the taxpayers who are keeping the company afloat?”

AIG is giving out 165 Million in Bonuses after accepting 170 Billion in Federal Bailouts? Talk about audacity!

Still, AIG bonuses aren’t like Citibank bailouts- whereas Citibank is being “bailed out” by tax payer money, AIG is receiving money from the Federal Reserve (which technically isn’t tax payer money) an important distinction that might limit what can be done.

“And for the leader of the Republicans? A man who is aggressive and bombastic, cutting and sarcastic, who dismisses the concerned citizens in network news focus groups as “losers.” With his private plane and his cigars, his history of drug dependency and his personal bulk, not to mention his tangled marital history, Rush is a walking stereotype of self-indulgence—exactly the image that Barack Obama most wants to affix to our philosophy and our party. And we’re cooperating! Those images of crowds of CPACers cheering Rush’s every rancorous word—we’ll be seeing them rebroadcast for a long time.”

Wow.

That was a pleasant surprise especially since I’m reading it after listening to Newt Gingrich on Meet the Press this morning.

First he throws in a one liner on how while dealing with the financial crisis we should admit that “controlling spending” is an alternative solution to raising taxes. To be clear, it’s not. Just moments before he made this argument they were having a discussion on how the Great Depression was caused in part because the government tried to control the deficit. In case you’re still trying to wrap you’re head around why Congress needed to pass the nearly 800 Billion dollar stimulus package-here’s a quick overview as I understand it.

Put simply, there’s a lack of capital and therefore consumption, the federal government needs to spend capital that is “stimulative” in other words that creates more capital through new jobs that put money in the hands of consumers who then go out and spend/ invest that money. It’s supposed to serve as a catalyst that gets the economy moving again. If people are spending than banks can confidently start lending money again, investor confidence rises, new businesses form which result in new jobs, unemployment rates go up etc. So the stimulus package is supposed to start a long term chain reaction. There are variety of other factors at play (the mortgage crisis, bad balance sheets, toxic assets). But so we’re clear, “controlling spending” would actually aggravate the problem.

Then he suggests Chris Matthews is the Democrats Rush Limbaugh..really? I’m sorry but there is really is no liberal equivalent to Rush. Democrats don’t have someone who carries so much sway that they feel the need to placate them. You don’t see Democrats apologizing to Chris, you don’t see MSNBC viewers calling in to Chris and Chris going back to the Democratic caucus demanding that they take a certain position or stance.

I’m honestly getting sick of the Rush Limbaugh fiasco and I apologize for spending so much time on it. There are so many other more important things going on that demand our attention.

Update: David Brooks also unloaded this morning calling the idea of a spending freeze insane.