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Is Citigroup Now a GSE?
Tweet Share on Facebook November 24, 2008 CommentCitigroup is now a GSE, a Governmet Secured Enterprise. IHS Global Insight puts taxpayers on the hook for just over $100 billion on the deal, not to mention the new $20 billion capital injection. And to think taxpayers could own the whole thing for $25 billion last week.
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Christina Romer: Obama's Secret Tax Cutter?
Tweet Share on Facebook November 24, 2008 Comment (7)Obama's picks of Geithner and Summers were no surprise. (What no Goolsbee? Alas.) But the selection of Berkeley prof Christina Romer is interesting. Along with hubby, David, Romer wrote a fascinating paper on the wonderworking power of tax cuts. Their analysis found that "tax increases appear to have a very large, sustained, and highly significant negative impact on output ... [and] that tax cuts have very large and persistent positive output effects." The key, they found, is to also cut spending so you won't get lured into raising taxes down the road. Bottom line: Cutting taxes good. Raising taxes bad.
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Robert "The Architect" Rubin vs. Phil Gramm
Tweet Share on Facebook November 24, 2008 Comment (1)The weekend NY Times story on Citigroup was not kind to Robert Rubin:
"Robert Rubin has moved seamlessly between Wall Street and Washington. After making his millions as a trader and an executive at Goldman Sachs, he joined the Clinton administration. Mr. Weill, as Citigroup’s chief, wooed Mr. Rubin to join the bank after Mr. Rubin left Washington. Mr. Weill had been involved in the financial services industry’s lobbying to persuade Washington to loosen its regulatory hold on Wall Street. As chairman of Citigroup’s executive committee, Mr. Rubin was the bank’s resident sage, advising top executives and serving on the board while, he insisted repeatedly, steering clear of daily management issues. ... But while Mr. Rubin certainly did not have direct responsibility for a Citigroup unit, he was an architect of the bank’s strategy."
Me: How did Phil Gramm and Alan Greenspan get blamed for the credit crisis, but not Robert Rubin? Maybe because this story didn't come out before the election.
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Obama's $700 Billion Stimulus: $280,000 a Job
Tweet Share on Facebook November 24, 2008 Comment (7)Economist Greg Mankiw asks a good question:
"What is going on here? Logically, it must be one of three possibilities:
1. The fiscal stimulus is going to be much smaller than is being reported.
2. The new administration is setting a low bar for itself when it comes to job creation.
3. The Obama team believes in very small fiscal policy multipliers.Let me amplify the last point. ... So let's say each job created means $100,000 of extra national income. If we are generating $100,000 of income with $280,000 of government spending, the multiplier is only 100/280, or 0.36. Traditional Keynesian models suggest a multiplier closer to 2.0.
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Citigroup: U.S. Government Bailout Arrives
Tweet Share on Facebook November 23, 2008 Comment (3)Ok, here were go (from the WSJ):
1) Treasury agrees to inject $20 billion at 8 percent interest.
2) The government agrees to backstop a $300 billion pool of assets, including MBS. "Citigroup must absorb the first $37 billion to $40 billion in losses from these assets. If losses extend beyond that level, Treasury will absorb the next $5 billion in losses, followed by the FDIC taking on the next $10 billion in losses. Any losses on these assets beyond that level would be taken by the Fed."
3) Citigroup would try to modify troubles mortgages in that pool as the FDIC has done with IndyMac.
Me: I am guessing the market will look at this as a positive tomorrow. It looks like we going the "all of the above" route -- capital injection, de facto asset cleansing ...
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Barack Obama: $700 Billion Stimulus?
Tweet Share on Facebook November 23, 2008 Comment (6)Looks like the next president is going to drop $700 billion (an amount equal to the GDP of the Netherlands, more or less) on the Great Recession over the next two years. I think this numbers has a bullet next to it.
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Citigroup Nationalization, Rescue: Update
Tweet Share on Facebook November 23, 2008 Commentvia CNBC: a $10 to $20 Billion capital infusion, a capping of Citigroup losses ... more to come ...
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Obama Blinks on Taxes
Tweet Share on Facebook November 23, 2008 CommentIt now looks like Obama will not propose raising taxes next year, instead waiting for the end-of-2010 expiration of the 2001 and 2003 tax cuts. I guess this means he believes, on some level, that raising taxes hurts economic growth. So I guess it really was about "fairness" all along. I think every economic initiative for years to come will be graded according to whether or not it boost the economy . Go long "growth," go short "fairness."
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Bernanke: I Was Mistaken
Tweet Share on Facebook November 23, 2008 Comment (3)Oh, like this will help investor confidence. Federal Reserve Chairman Ben Bernanke tells New Yorker magazine that "I and others were mistaken early on in saying that the subprime crisis would be contained. The causal relationship between the housing problem and the broad financial system was very complex and difficult to predict." Indeed!
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The Impact of Obamacare
Tweet Share on Facebook November 23, 2008 Comment (8)Ramesh Ponnuru gives his insightful take on the political impact of Obama's healthcare plan if implemented:
"Obama’s health-care plan is designed to evolve into a national health-insurance program along the lines of Canada’s. The resulting government monopoly or near-monopoly on health insurance would stifle innovation, require bureaucratic rationing, and infringe on freedom. But it would also move American politics permanently leftward ... the inevitable disappointments and failures of a nationalized system would just as inevitably be blamed on underfunding, creating a bidding war that liberals would usually win ... the creation of a new system would make free-market alternatives look more radical to the public than they do now, because they would be more radical. The public’s aversion to risk, which now hurts advocates of liberal policies as much as it helps them, would only help them. So national health insurance could be a lasting political success for liberals even if it is a colossal policy failure; it could, indeed, succeed politically because of its failures."
