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Charlie Rose Puts Together a Fantastic Discussion on Economy

Easy-to-grasp substance on the economy from big influences

On Friday, January 30, Senator Charles Schumer (D-NY), CEO guru Jack Welch, Harvard economist Martin Feldstein, and NYT columnist David Leonhardt got together to discuss the House stimulus package passed last Wednesday, the state of the economy, and what sort of stimulus would make a meaningful difference for economic recovery and, perish the thought, growth. If you care about the ongoing discourse regarding the economic crisis, please link through the photo. It’s a half hour of substance (and — thankfully — Rose doesn’t do his usual thing of dominating the conversation by asking insanely long questions that answer themselves).

The piece nicely augments an article in today’s NYT that discusses the difficulties in getting the toxic assets off the books. I have long advocated purchase of mortgage-backed securities with TARP funds, as originally proposed by Ben Bernanke and Henry Paulson. The biggest challenge to doing so is figuring out how much those assets are actually worth. If the government overpays for these assets, taxpayers lose, at least, in the short-term. Underpaying would force institutions to eat monumental losses. Complicating matters further is these assets’ significant contributions to banks’ capital standing. (Of course, how the banks have valued these holdings is part of the problem, but that’s its own post.) Removing assets from the banks’ books likely will require additional capital injections. There also is the time factor: staff and resources must be spent building reasonable valuation models, taking into consideration the fear and lack of confidence permeating markets, which is no simple task.

In this context, Paulson’s circumvention of the issue of toxic assets, choosing instead to capitalize banks, is somewhat understandable. I am willing to go along with the claim that capitalization has staved off further bank failures. BUT I am unwilling to let Paulson off the hook for seemingly writing off (pun) the need to put resources into addressing securities specifically. Apparently, Geithner is working on a plan that deals with toxic assets. Gaining favor is the proposal the government will insure the securities rather than purchasing them and holding them in an oft-mentioned “bad bank.” According to Schumer, such a federal loan-guarantee program is highly likely.

In the Rose piece, Martin Feldstein discusses the utility of tax cuts for economic stimulus, at least as proposed by Congressional Republicans. Feldstein gives short shrift to existing tax-cut proposals. He would like to see those exchanged for tax cuts that encourage spending, and not small gestures like the $7,500 first-time home buyer credit that might be increased to $15,000 and expanded to cover all homebuyers. He wants to see credit amounts that provide real incentive. (His point is $7,500 on an average purchase price of $200,000 isn’t a whole helluva lot.) He wants to see credits applied to a wide array of durable goods. One example he provides is a 20% discount for car buyers.

Feldstein’s tax ideas are a far cry from Republicans’ favored supply-side tax plans. In fact, Feldstein is proposing demand-side economics. But they are not the tax cuts House Republicans wanted. In fact, just about every suggestion Feldstein makes is in direct opposition to Republican proposals. It is important to note Feldstein is a conservative economist!

Jack Welch wants to see an end to the focus on executive compensation. I do, too. Executive compensation limits make nice rhetorical gestures, but the issue is a red herring in the big scheme of things. (His emphatic admission that running his own investment bank was a horrible experience and that he hated paying out bonuses is refreshing.)

At one point Schumer indicates we are likely to see three bills by the end of March: one to address stimulus, one to address the housing crisis (probably with the creation of the aforementioned insurance program), and one that refines TARP legislation in an effort to further stabilize and open credit markets.

But the 800-lb. gorilla on the Charlie Rose set was the fear that dollar amounts offered to this point will not be enough to aggressively promote recovery.

Is Barack Obama an Evil Genius?

By all reports, Republican Senator Judd Gregg (R-NH) currently tops Obama’s short list for the Secretary of Commerce position. Theoretically, such an appointment could in one fell swoop boost Obama’s bipartisan bona fides while, should a Democrat take Gregg’s seat, removing yet another Republican from the Senate. The prospects are delicious and, for the far right, practically delerium-inducing (“Gregg can go down in history has the biggest traitor since Benedict Arnold” – really?!). But it’s not time to buy Obama a lab coat and a hairless cat just yet – Mitch McConnell basically won’t let Gregg leave and, according to “Politico,” Gregg’s likely successor, Bonnie Newman, is still a Republican. Just a fairly centrist one. Too bad.

In other news, if you missed this clip on “The Daily Show” a few weeks back, watch it… now: