Newsweek - "The deficit hawks squawk too much"

[TomCADem]

http://www.newsweek.com/id/221272

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The deficits are large. But a lot of this debate is for the birds. It's not uncommon for senators of both parties who oppose health-care reform because it's fiscally irresponsible to call for the elimination of taxes on the ultrawealthy's estates. Too often, "deficit reduction is a form of defense—as a shield for policies they don't like," says Maya -MacGuineas, president of the Committee for a Responsible Federal Budget (CFRB), a bipartisan group that was worried about deficits back when we were running a surplus. Of course, if hypocrisy were a disqualification from public debate, MSNBC would run test patterns all day. But there's a larger reason we shouldn't let the deficit hawks ruffle our feathers: the situation is getting better.

Much of the horrific explosion in the national debt—the deficit soared from $248 billion in 2006 to $1.4 trillion in fiscal 2009—can be pinned on cyclical factors. When the economy goes in the tank, it creates a fiscal double whammy, gutting tax receipts and boosting demand for the usual (increasing unemployment benefits) and extraordinary (bailouts, stimulus) government spending programs. Spending rose 18 percent and revenue fell 16.6 percent in fiscal 2009—the worst decline since the 1930s. But as the financial system returned from the brink, banks paid back billions in TARP funds. In late July the Office of Management and Budget dialed back its estimate for the fiscal 2009 deficit from $1.84 trillion in May to $1.58 trillion. The stock-market rally, recovering corporate profits, and an expanding economy have translated into higher-than-expected tax receipts. And so, when the Treasury Department's Financial Management Service closed the fiscal year in October, the final numbers came out better than expected: a $1.42 trillion deficit, $138 billion less than was forecast in July.

We will still be left with significant challenges. "The economy recovering faster than expected is not enough to reassure me about the fiscal picture," says MacGuineas of CFRB. "And while President Obama was right to focus on the economic recovery before reducing the deficit, he has yet to make any of the hard choices necessary to deal with the budget deficit." A fair point, made by a consistent voice.

But most of today's situational deficit hawks aren't eager to engage in a serious conversation about the costs of health care—or about the wisdom of extending the Bush tax cuts, or the future of entitlements. And the occasional calls to scale back the not-yet-spent stimulus funds for the sake of fiscal probity still ring hollow. Being obsessed with deficit reduction when the economy has suffered its largest setback since the Depression is like being obsessed with water conservation when your house is on fire—an admirable impulse, poorly timed.

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[HamdenRice]

1. "banks paid back billions in TARP funds"

The bailout inspector was on NPR this morning criticizing the much larger guarantee portion but noted that's likely also to be a money maker for the taxpayer.

[rollingrock]

2. Are you sure about that?

I think someone is giving you some bad info.

Neil Barofsky, the TARP inspector general on the repayment of TARP funds:

USA Today
10/21/09

...Barofsky says it's "extremely unlikely" that taxpayers will recover the $77 billion committed to the ailing auto industry or the $60 billion in TARP assistance to American International Group as part of a pledge of up to $180 billion in aid. An additional $50 billion to modify unaffordable home mortgages "will yield no direct return."'

Financial experts say it's no surprise that the government won't be able to recoup all of its investment in TARP. "Anybody who said this was all secured lending that would surely be repaid was kidding himself," says Lawrence White, economics professor at New York University's Stern School of Business.

www.usatoday.com/money/industries/banking/2009-10-20-tarp-bank-bailout_N.htm

[HamdenRice]

3. Am I sure I heard the interview? Yes.

It was Elizabeth Warren the chair of the Congressional Oversight Panel for the bailout -- not the inspector (my bad).

I can't vouch for her data but she said today that although the guarantees distort economic activity she projects they will make money.

Barofsky is imo less reliable considering that he has publicized some rather ridiculous cost projections and had to retract them the next day.

[rollingrock]

4. You sure it was Warren?

I heard her say something else entirely when she was on Morning Joe last month.

Elizabeth Warren: 'Some of them will pay back, but let's face it. The odds are not good that we're going to get repaid in full on this money. That's what makes it even more disturbing that they are draining out as much as they can for the executives right now. But let's face it. Overall, the taxpayer is the one at risk here. We're the one who stand in the last position to get paid. That's why we have an interest in this.'


www.huffingtonpost.com/2009/10/22/tarp-overseer-warren-on-m_n_329924.html&cp




perhaps you mistook her for someone else?

[HamdenRice]

5. You sure you're not confusing NPR with HuffPo

and "today" with "last week"?

http://marketplace.publicradio.org/display/web/2009/11/06/am-warren-q/

Radke: And you can argue, professor, those guarantees ended up working pretty well.

Warren: Absolutely. The guarantees calmed the markets, and at least so far, they may actually turn a modest profit for the taxpayers.

Radke: So what's the problem now?

Warren: Well, the problem is they came with enormous risk, but the real effect of them is that the guarantees distort the marketplace. And this is the heart of where what we call moral hazard exist.

[rollingrock]

6. I'm not the one confusing Warren with the TARP inspector

you also confuse the term 'likely turn a profit' with 'may turn a profit.'

Warren: "they may actually turn a modest profit for the taxpayers."

another key aspect you fail to mention at first,

Warren: "but the problem is, is that they come with enormous risk, but the real effect of them is that the guarantees distort the marketplace. And this is the heart of where what we call moral hazard exist."


that is a very big 'may.' likely? No. That's your word, not hers. The banks MAY turn a profit with the TARP funds and pay it back in full, but that seems to be very UN-likely due to the enormous risk involved with their market-distorting ponzi scheme. You can go to Vegas and put all your money on one number and one spin of the Roulette wheel, and you MAY end up winning something....good luck!...but its not very likely to happen.

[HamdenRice]

7. Now you're confusing TARP with the guarantees. Warren was discussing the guarantees.

And my first post was about how Warren said the guarantees were distorting bank behavior. TARP was a direct equity investment in bank preferred stock and warrants. The guarantees were various guarantees of banks' undertakings, especially to each other, to insure that inter-bank lending could resume.

As Warren said, these were very successful.

That said, the point is that the guarantees can be made to expire because they were temporary in their design, and few of them were exercised.