Wonkbook: Congress hangs back from the good economic news

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	Friday, February 10, 2012

Ezra Klein's Wonkbook

There are three major sources of uncertainty and potential drag for the American economy right now. Europe is the big one. But right next to it is housing. And then there's Congress, which threatens, as it so often does, to Congress everything up, perhaps by failing to come to an agreement on the payroll tax.

On Thursday, two out of these three got a little more certain. The political leadership in Greece agreed to a deal that would clear the way for a $170 billion bailout. The deal isn't done, as the European leaders are requiring it to be approved by the Greek parliament, too. But it's a lot closer to getting done.

Next, housing. Five of the nation's largest lenders came to an agreement with 49 state attorney generals and the Obama administration. The agreement won't end our housing troubles and it won't end the banks' legal troubles. But it will help a bit on housing -- it should lead to principal reductions, refinancings, and even checks for millions of homeowners -- and help a lot in protecting banks from lawsuits. Given that many in the market are already turning bullish on housing, this could be the push many need to begin reinvesting in the sector.

But two out of three is all we've got. Because when you get to Congress, there is, unfortunately, little good news. The talks over the payroll tax cut appear deadlocked. Ray LaHood, the mild-mannered and relentlessly bipartisan transportation secretary, took a look at Speaker John Boehner's energy and infrastructure bill and told Politico it's "the worst transportation bill I've ever seen during 35 years of public service." And LaHood, remember, used to be a Republican congressman.

Now, this doesn't mean Congress won't eventually come to an agreement. Congress doesn't make deals until the midnight hour, and night hasn't even fallen yet. But at a moment when evidence of a rebound is piling up and some of the political uncertainty that has scared businesses and investors is lifting, it would be nice to see Congress pitch in on the recovery, rather than remaining a hold-out to the (relatively) good news.

Top stories

1) Greek leaders thought they had a deal; Eurozone leaders disagreed, report Stephen Fidler, Matthew Dalton and Alkman Granitsas: "Greece's political leaders agreed on unpopular budget, wage and pension cuts that moved Europe to the verge of approving a new bailout to stave off a messy Greek debt default. But euro-zone finance ministers meeting here late Thursday demanded the measures pass the Greek Parliament before they would finally sign off on the deal. The demands from the finance ministers set the stage for further uncertainty over the long-awaited bailout and debt-restructuring package for Greece. The focus on Sunday will shift to the Greek Parliament, where the euro zone is insisting the program be agreed upon...The ministers coupled their demand for Parliamentary action with an insistence that the political leaders of the coalition sign a written pledge to back the program--in an effort to bind political leaders after elections expected as soon as April--and to identify exactly from where €325 million ($431 million) out of more than €3 billion in promised budget cuts this year will come."

@mattyglesias: Greece looks to have signed an unenforceable deal to implement an unworkable plan.

2) The long awaited foreclosure fraud settlement was unveiled, report Brady Dennis and Sari Horwitz: "State and federal officials on Thursday announced a settlement of $26 billion with five of the nation's banks over flawed and fraudulent foreclosure practices that affected several million homeowners and became commonplace after the housing boom turned to bust in recent years. It is the largest government-industry settlement in more than a decade. The deal marks the culmination of more than 16 months of negotiation between lenders and a collection of state and federal officials. It aims to help troubled borrowers by requiring the banks to reduce the amount borrowers owe on their mortgages, lowering their interest rates and paying restitution to homeowners who suffered mortgage-related abuses. It will force lenders to revamp how they interact with struggling mortgage holders and bar them from trying to foreclose on borrowers while simultaneously negotiating mortgage modifications."

3) The deal might boost the economy, reports Robin Harding: "The $40bn settlement between US regulators and banks over their foreclosure practices is good news for the economy - but it could actually drag house prices down in the short term if banks start to seize homes again. There are three main economic effects and all of them cut two ways. The overall result should help the housing market get back to normal, but the immediate consequences are less clear. First, the settlement transfers tens of billions of dollars from banks to borrowers, and that will have a direct, although small, effect on consumption. Even if the entire sum were spent at shops - which will not happen - $40bn is only 0.25 per cent of gross domestic product."

FAQ: Everything you need to know about the foreclosure settlement.

@goldfarb: The gov't now has forced banks to do principal reduction. It hasn't done same for taxpayer-backed Fannie and Freddie.

@NickTimiraos: Federal Reserve issues $766.5 million in penalties as part of the foreclosure settlement. $275 million fine for JPM is largest ever by FRB.

4) The House passed a scaled-back ethics reform bill, reports Paul Kane: "The House on Thursday overwhelmingly approved its scaled-back version of an ethics reform package that would prohibit insider trading on Capitol Hill and in the executive branch. On a 417 to 2 vote, the legislation won approval despite complaints from senators and House Democrats that GOP leaders stripped the measure of several key reforms that the Senate had easily approved...The legislation unveiled by formally bans lawmakers and staff members from making financial trades based on non-public information they receive in their positions."

5) Obama will propose an accommodation with the Catholic Church over contraceptive coverage, reports Jake Tapper: "On source described the attempted accommodation as "Hawaii Lite" — a reference to that state's law which allows religious groups to opt out of coverage that includes birth control, as long as employees are given information whether such coverage can be obtained. This announcement would not go that far. Sources say it will involve health insurance companies helping to provide the coverage, since it's actually cheaper for these companies to offer the coverage than to not do so, because of unwanted pregnancies and resulting complications."

Top op-eds

1) Economics -- not values -- explains changes in the working class, writes Paul Krugman: "Lately inequality has re-entered the national conversation. Occupy Wall Street gave the issue visibility, while the Congressional Budget Office supplied hard data on the widening income gap. And the myth of a classless society has been exposed: Among rich countries, America stands out as the place where economic and social status is most likely to be inherited. So you knew what was going to happen next. Suddenly, conservatives are telling us that it's not really about money; it's about morals. Never mind wage stagnation and all that, the real problem is the collapse of working-class family values, which is somehow the fault of liberals. But is it really all about morals? No, it's mainly about money."

2) The Greek rescue plan favors banks, writes Floyd Norris: "Once again, there is optimism that a new round of European talks are going to result in an announcement of a Greek bailout. On Thursday, the Greek political parties caved in and agreed to a new austerity package that will satisfy the latest European demands. When other loose ends are tied up, it appears the Greeks will have given up their principal bargaining chip -- the threat that if they are allowed to collapse, they will take the European financial system with them. If that happens, then at some point down the road, when it turns out that Greece has again fallen short of its deficit reduction targets, Germany will again demand more sacrifices. If the Greeks refuse, then the rest of Europe could be in a position to let Greece go."

3) Government deserves its share of the blame for recent problems, writes Steven Rattner: "Amid the finger-pointing about the failures of capitalism, we should not forget the responsibility of governments. They relaxed regulatory requirements, turned a blind eye to dangerous activities and indulged in their own excesses. Capitalism is like an energetic child who needs boundaries and discipline. If a toddler accidentally sets his home on fire, it is the parents who bear the blame. 'Capitalism in crisis' could easily be subtitled 'government in crisis'. I am not trying to excuse capitalism or its principal actors from a generous portion of the blame for the pain of the past four years. Serious alterations are needed. But government has also let us down. The eurozone's mess is hardly the fault of capitalism or the financial system. Public officials who created the euro went ahead with the hare-brained scheme of their own accord. Indeed, many financiers (myself included) proclaimed loudly that the euro was ill-designed and likely to run aground."

4) Economic debates pushed Obama towards boldness, reports Noam Scheiber: "For voters contemplating whether he deserves a second term, the question is less and less one of policy or even worldview than of basic disposition. Throughout his political career, Obama has displayed an uncanny knack for responding to existential threats. He sharpened his message against Hillary Clinton in late November 2007, just in time to salvage the Iowa caucuses and block her coronation. He condemned his longtime pastor, Jeremiah Wright, just before Wright's racialist comments could doom his presidential hopes. Once in office, Obama led two last-minute counteroffensives to save health care reform. But, in every case, the adjustments didn't come until the crisis was already at hand. His initial approach was too passive and too accommodating, and he stuck with it far too long."

5) James Fallows attempts to judge Obama's first term: "Whatever now seems obvious about Obama's strengths and weaknesses, the future perception of his achievements and electoral fate will be subject to luck and to the adjustments he will make, or fail to make, in his own performance. This point too is obvious, except that the entire political-pundit industry rests on amnesia about its own long-failed record of looking ahead. Lawrence Summers, for two years the head of Obama's economic council, made a similar argument about Obama's health-care legislation. 'If he is reelected, 40 years from now this will be like Medicare—an achievement that is part of the landscape and that people can't imagine being without.' And if Obama should lose, Summers told me, and especially if conservative judges after his departure overturn some of its provisions, 'then the health-care plan will be presented as a sign of 'overreach' and 'hubris' and the administration's 'inevitable' failure.'"

Minnesota rock interlude: Cloud Cult plays "You'll Be Bright" live on 89.3 The Current.

Got tips, additions, or comments? E-mail me.

Still to come: Unemployment benefits will shrink under proposed extensions; a new rule requires accessible summaries for health plans; the class-based achievement gap is growing; plans for new nukes move forward; and a dog is unsure what kind of animal it is.

Economy

Unemployment insurance claims fell again, reports Conor Dougherty: "The number of people applying for jobless benefits each week has fallen steadily in recent months and is now down to levels not seen since the early months of the recession, a sign that hiring has accelerated. New claims for unemployment insurance fell 15,000 to 358,000 last week, the government said Thursday, while the four-week moving average, at 366,250, hit its lowest level since April 2008. This comes on the heels of last week's report that U.S. employers added a healthy 243,000 non-farm jobs in January."

Economic optimism is on the rise, reports Annie Lowrey: "Looking at the news these days, you'd be hard pressed not to acknowledge that the economy is getting better...All those trends should help bolster what might be the most important indicator of all: optimism. The Corporate Executive Board's latest quarterly Business Barometer report finds that executives expect a rise in consumer spending, revenue growth for their own companies and their competitors, and an increase in new orders and production...Such trends tend to be self-reinforcing. Americans get the sense that things are going better, so they spend a bit more (or, in the case of banks, lend a little more) and help nudge the recovery along."

@justinwolfers: Over the past 6 months unemployment has fallen from 9.1% to 8.3%. Extrapolating trend to election day => 7.0%. Reagan was reelected at 7.2%.

An extension of unemployment benefits is likely to be less generous, reports Siobhan Hughes: "The federal jobless benefits that take effect when state aid expires are about to become less generous, and Democrats and Republicans in Congress are now fighting over how much to shorten the duration of aid or whether expanded benefits should continue at all. Democrats on Thursday unveiled a proposal to shorten the duration of aid to 93 weeks from 99 weeks. But Republicans reacted negatively, saying the offer was too little, especially because Democrats hadn't proposed a way to pay for the aid...Senate Majority Leader Harry Reid (D, Nev.) said earlier this week he would develop his own package-including an extension of a popular payroll-tax cut and a new measure to avoid pay cuts for doctors who treat Medicare patients-if a House-Senate conference committee does not come up with a deal by early next week."

Obama's budget won't touch entitlements, reports Damian Paletta: "President Barack Obama's budget proposal Monday will offer several measures to trim the federal deficit in the next 10 years. But it would leave largely unchanged the biggest drivers of future government spending: the Medicare, Medicaid and Social Security programs that are expanding rapidly as the baby boom turns into a senior boom. Calling for major changes in the popular programs would be politically treacherous in an election year because of fierce opposition from seniors, who vote in large numbers. But budget experts of both parties agree the programs' growth must be curbed at some point or they will swamp the budget. In 2011, the U.S. government spent $1.56 trillion on Medicare, Medicaid and Social Security benefits--more than $4 billion a day--accounting for 43% of all federal spending. In 2022, if no changes are made, the government will spend just under $3 trillion on these programs, or 54% of the expected federal budget, according to the Congressional Budget Office."

Time lapse interlude: A five minute roadtrip across the United States.

Health Care

HHS finalized rules requiring accessible summaries for health insurance plans, reports Sam Baker: "The Health and Human Services Department finalized rules Thursday that will require health insurance plans to provide a plain-English summary of what they cover. Plans will have to give their customers a four-page summary of the benefits they offer. HHS said the information will help people make an 'apples-to-apples' comparison as they shop for insurance and prevent insurers from using fine print to hide important information about what they will and won't cover. The final rules do not include certain changes for which consumer groups had lobbied, but HHS also will implement the requirements more quickly than insurers wanted."

Domestic Policy

The achievement gap between rich and poor children is widening, reports Sabrina Tavernise: "Education was historically considered a great equalizer in American society, capable of lifting less advantaged children and improving their chances for success as adults. But a body of recently published scholarship suggests that the achievement gap between rich and poor children is widening, a development that threatens to dilute education's leveling effects. It is a well-known fact that children from affluent families tend to do better in school. Yet the income divide has received far less attention from policy makers and government officials than gaps in student accomplishment by race. Now, in analyses of long-term data published in recent months, researchers are finding that while the achievement gap between white and black students has narrowed significantly over the past few decades, the gap between rich and poor students has grown substantially during the same period."

The Obama administration granted 10 states waivers from NCLB, reports Winnie Hu: "A decade after the No Child Left Behind law rewrote the nation's education policies, President Obama freed 10 states from some of its crucial provisions on Thursday, including a deadline for bringing all students to proficiency in reading and math by 2014. The states -- New Jersey, Massachusetts, Tennessee, Georgia, Florida, Kentucky, Indiana, Colorado, Minnesota and Oklahoma -- are the first group to receive waivers from the Bush-era law, in exchange for embracing the Obama administration's educational agenda and its focus on accountability and teacher effectiveness...State education officials had long criticized the 2014 deadline for math and reading proficiency, saying that it was an impossibly high bar and did not take into account the needs of some of the most disadvantaged children."

The U.S. Postal Service will run out of money by years end without help, reports Mackenzie Weinger: "The U.S. Postal Service announced Thursday it ended its first quarter with a net loss of $3.3 billion and anticipates going bust later this year without congressional help. From October 1 through December 31, 2011 -- the service's critical holiday shopping and shipping time -- total mail volume dropped 6 percent from the previous year to 43.7 billion pieces, the USPS said in a press release. The mail service said it had stronger than expected holiday shipping activity thanks to online shopping, but the declines in first-class and standard mail revenue outweighed the gains from its shipping services business...Large losses are expected to continue until the postal service has implemented its plan to downsize its facilities and restructured its healthcare program."

Confused animal interlude: A dog runs on a exercise wheel.

Energy

Regulators approved plans for two nuclear reactors, reports Matthew Wald: "The Nuclear Regulatory Commission voted 4 to 1 on Thursday to grant a license to build and operate two reactors at a nuclear plant in Georgia, a crucial threshold for an industry that has not had a new start since 1978. The $14 billion project, of which $4 billion was already spent on steps like digging a foundation and laying water pipes, will be closely watched by utilities around the country, many of which are leery of nuclear construction because of huge cost overruns in the last round of construction in the 1960s, '70s and '80s. "

@drgrist: DOE is putting up an $8.3 BILLION loan guarantee for new Vogtle nuke plants. I'm sure opponents of "picking winners" will rise in protest.

The Senate moved towards a vote on its transportation bill, report Keith Laing and Josiah Ryan: "The Senate overwhelmingly voted to end debate on its $109 billion transportation bill Thursday, setting in motion a march toward a final vote on the measure as early as next week. In an 85-11 vote, the Senate invoked cloture on the measure, which has been dubbed the Moving Ahead for Progress in the 21st Century bill...The Senate transportation bill, which was approved by four Senate committees before Thursday's vote, includes a package of $9.6 billion in offsets from closing tax loopholes to supplement the roughly $36 billion per year that is brought in from the federal gas tax, the traditional funding source for transportation bills."

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.

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