THE STASH MARCH 11, 2009
First Read had some smart thoughts on the subject today:
*** Becoming John McCain: When it comes to the topic du jour -- legislative earmarks -- it’s fascinating how the political world turned President Obama into … John McCain. That’s right, for those of us who followed the two-year-long presidential campaign, it was McCain who crusaded against earmarks, not Obama (who instead said he would work to reform the process and make it more transparent). In fact, had earmarks been the public’s top concern in November, the Arizona senator probably would have won the election. But, as we all know, it wasn’t. “As president of the United States, I want to assure you, I've got a pen … and I'm going to veto every single spending bill that comes across my desk. I will make them famous. You will know their names,” McCain said at the first debate. Obama countered, “[L]et's be clear: Earmarks account for $18 billion in last year's budget. Senator McCain is proposing … $300 billion in tax cuts to some of the wealthiest corporations and individuals in the country, $300 billion.”
Of course, Obama deserves some of the blame (or credit) for all the focus on earmarks. He celebrated the fact that his stimulus didn’t contain earmarks. ... And during the campaign, in response to McCain’s rhetoric, Obama promised to reform the earmark process. “When I'm president,” he said, “I will go line by line to make sure that we are not spending money unwisely.”
Agreed. Obama took some bait on earmarks. But the cries of hypocrisy on the subject are way overstated in light of his actual position.
P.S. The First Readers write something further down that I don't quite agree with:
Isn't it good news for the government bailout plan that some banks want to give the money back because they don't like the strings? The New York Times: "Some bankers say the conditions have become so onerous that they want to return the bailout money. The list includes small banks like the TCF Financial Corporation of Wayzata, Minn., and Iberia Bank of Lafayette, La., as well as giants like Goldman Sachs and Wells Fargo. They say they plan to return the money as quickly as possible or as soon as regulators set up a process to accept the refunds.” Also, the Wall Street Journal is reporting that some investors now don't like the papers they have to sign to participate in the TALF investment plan to buy up toxic assets. Isn’t this what Congress wants to hear?
Well, it could be good news if the banks giving back the money don't actually need it, which appears to be the case for some. To take one example from the Times piece:
C. R. Cloutier, the president of MidSouth Bank of Lafayette, La., and a survivor of the savings and loan debacle, said that his institution received $20 million from the rescue fund because he and his board believed it was patriotic and would help them offer loans during a recession.
But faced with what he says is an unwarranted stigma of participating in the program, as well as the new restrictions on banks taking the money, he is now considering whether to return the money, as other institutions have sought to do.
Yeah. Not really necessary. The question is whether badly undercapitalized banks will start refusing the money or giving it back (if such a thing is possible; it's not clear--maybe regulators won't let them). You'd think a bank that really needed it would act in its self-interest and accept the money. But, for a variety of reasons--banks aren't always great at judging their self-interest (witness the last 6-8 years), managers have different incentives than owners, banks think they'll be saved from their own incompetence even if they reject cash now, sheer delusion--that's not always the case. And if the conditions are making it so that banks that need the money aren't taking it, then they're partly self-defeating and likely to hurt the economy.
Then again, maybe it's tricky to assume this level of irrationality when making public policy. It's a tough call.
TALF seems like more of a no-brainer to me. The point is to get credit flowing again to consumers and small businesses. If investors are now balking at the terms, that's not good news--it's a sign our fix isn't working.