Thursday, March 26, 2009

Have A Question For the President

President Obama and the White House have created a space for the average citizen to ask a question of the President. They have created a place on called Open For Questions.
From the website, we're told Obama will be answering some of the questions himself:
We invite you to participate in our community-moderated online town hall. Submit your own question about the economy and vote on submissions from others. We also
encourage you to include a link to a video of yourself asking your question (ideally 30 seconds or less), but text submissions are all you need. Come back on Thursday to watch the President answer some of the most popular submissions live at your question or video -- or vote for the ones you want answered. You know these questions will be better and more pertinent than what the talking heads come up with. The past couple times I've gone to the White House press conferences, we got some great suggestions for questions. Send them directly to Obama.

Check the video at YouTube:


Obama's Online Townhall has begun

The White House is live streaming Obama's townhall from the East Room here. He'll be taking the questions, relating to the economy, that received the most votes in each category. According to the website, "92,920 people have submitted 104,116 questions and cast 3,606,819 votes." The President will also take questions from the audience.Jared Bernstein, V.P. Biden's chief economic adviser (and a blogger) did the intro, he just said, "The goal is to open up the White House to the American people."

Hoovervilles Return as Bushvilles

Today in the New York Times there is a report on the growth of tent cities across the country. Atrios at the blog Eschaton has dubbed them "Bushvilles." I think the title fits.

From the New York Times:
Like a dozen or so other cities across the nation, Fresno is dealing with an unhappy déjà vu: the arrival of modern-day Hoovervilles, illegal encampments of homeless people that are reminiscent, on a far smaller scale, of Depression-era shanty towns. At his news conference on Tuesday night, President Obama was asked directly about the tent cities and responded by saying that it was “not acceptable for children and families to be without a roof over their heads in a country as wealthy as ours.”While encampments and street living have always been a part of the landscape in big cities like Los Angeles and New York, these new tent cities have taken root — or grown from smaller enclaves of the homeless as more people lose jobs and housing — in such disparate places as Nashville, Olympia, Wash., and St. Petersburg, Fla.

The Economy Shrank Faster Than Thought

The U.S. economy contracted at pace of 6.3% at end of 2008, slightly worse than had been
previously reported. This was the worst showing in a quarter-century, and probably isn't doing much better this quarter.

Other news about the economy was not much better. New claims for unemployment benefits last week rose to a seasonally adjusted 652,000 from the previous week's revised figure of 644,000, the Labor Department said Thursday. The total number of people claiming benefits jumped to 5.56 million, higher than economists' projections of 5.48 million, and a ninth straight record-high. More job losses were announced this week. Shaw Industries Group Inc., the world's largest carpet maker and a subsidiary of Warren Buffett's holding company Berkshire Hathaway Inc., said it would close two plants in Georgia and lay off about 600 workers. Pharmaceutical company Hospira Inc. said it would cut 1,450 jobs, or about 10 percent of its work force, while beleaguered automaker General Motors Corp. said it laid off 160 engineers, the beginning of 3,400 planned cuts among its salaried employees.

The figures indicate the labor market remains weak even as some other economic indicators have come in better than expected. All the negative forces that are occurring in the economy are now feeding each other in a vicious cycle that has only deepened the recession, now in its second year, and really made this a Great Recession.

Making Sense of Geithner's Plan

Man there are a lot of people lining up against Tim Geithner's plan for ridding the financial system of 'toxic assets'. Of course people have lampooned that Geithner has changed the name to 'legacy assets', though I thought this was smart public relations. It might sound silly but rebranding works.

I don't like Geithner as the head of the Treasurery Department, he is not up too the job, which requires more than an understanding of the financial system. And I do think that Obama should have other voices on his economic team.

However I think that some critics of the new plan are confusing their dislike of Geithner with his plan. Not all, I think Professor Krugman brings up some relavent areas of concern, but on the whole, I am more optimistic of this plan than many.

One question I have heard is why is the Obama administration going with this plan, my uninformed opinion is the Obam administration is trying to avoid anything that requires legislative action. Lets face it, nothing coming out of Congress has any real chance of fixing this mess.

The main components of Treasury Secretary Geithner’s new PPIP to price and remove toxic assets from banks’ balance sheets are as follows:

Here are the Basic Principles of the Plan: Treasury will use $75bn - $100bn in TARP money to co-invest alongside private sector participants and the FDIC as well as the Federal Reserve, to buy $500bn to $1 trillion of toxic mortgage assets (both residential and commercial) off banks’ books ('toxic assets' I mean ‘legacy assets’)

There are two separate approaches that Geithner has for legacy loans and for legacy securities. At first, Treasury will share its $75-100bn equity stake equally between the two programs with the option to shift the bulk of financing towards the option with the greater promise of success with market participants.

1) Public-Private Program for Legacy Loans: The FDIC is going to establish several public-private investment funds whose sole purpose will be to purchase and hold specific loan pools put up for sale by banks (large and small). The transaction price will be established by the highest bid at an auction run by the FDIC, in which a wide array of institutional investors and even individuals with a long-term orientation are encouraged to participate. The liabilities of the investment fund consist of an equity stake (50% of which provided by auction winner, 50% from Treasury TARP), and collateralized debt issued by the investment fund and guaranteed by the FDIC to finance the remainder of the purchase price (FDIC gets guarantee fee). Before the auction, the FDIC specifies the pool-specific debt-to-equity ratio it is willing to guarantee subject to a maximum 6-to-1 leverage ratio. The private investor would then manage the servicing of the asset pool - using asset managers approved and supervised by the FDIC - until disposal or maturity.

Example: Assuming a 6-to-1 debt-to-equity ratio, the highest bid for a loan pool with $100 face value might turn out to be $84. Of this amount, the FDIC would provide $72 in debt guarantees whereas the equity stake of $12 would be shared equally between the auction winner ($6) and the Treasury ($6).

2) Legacy Securities Program: The legacy securities program is to be incorporated into the Term Asset-Backed Securities Facility (TALF) whose original goal was to provide collateralized financing (non-recourse loans) to buyers of newly created consumer loan/small business loan ABS. Under the Legacy Securities Program, the eligible collateral for TALF is extended to include non-agency RMBS that were originally rated AAA and outstanding CMBS and ABS that are rated AAA.

Example: Under the Legacy Securities Program, up to five Treasury-approved fund managers will have a period of time to raise private capital to target the purchase of designated securities. Assuming the fund manager is able to raise $100 of private capital for the fund, Treasury will provide $100 equity co-investment alongside private investors. Treasury will then provide a $100 loan to the public-private investment fund. Moreover, Treasury may also choose to provide an additional loan of up to $100 to the fund. The investment fund then has $300-$400 at its disposal to buy legacy securities at its discretion. As a purchaser of TALF-eligible securities, the PPIF would also have access to the expanded TALF program of collateralized Fed loans when it is launched.


The main sticking points in previous market-based approaches to clear toxic assets from banks’ books were threefold:

a) How to value illiquid assets?

b) Once a transaction price is established, will banks be willing to sell and take a hair cut?

c) How to induce private investors to purchase legacy assets without unduly wasting taxpayer money?

a) Valuation of Illiquid Assets

The theoretical foundations of Geithner’s plan are provided by Lucian Bebchuk from Harvard University among others. He explains that “if the underlying market failure is at least partly one of liquidity, an effective plan for a public-private partnership in buying troubled assets can be designed. The key is to have competition at two levels.First, at the level of buying troubled assets, the government’s program should focus on establishing many competing funds that are privately managed and partly funded with private capital-- and not creating one, large "aggregator bank"-- funded with public and private capital and engaging in purchasing troubled assets. Second, several potential fund managers should compete for government capital under a market mechanism resulting in maximum participation of private capital and minimum costs to taxpayers.”
Geithner’s plan seems to follow these guidelines to a large degree. In particular, on the one hand the government subsidy allows private investors to bid a higher price than otherwise warranted (i.e. the government gives investors the equivalent of a call option.) On the other hand, the fact that the private investor is bound to lose its entire equity stake if the asset value deteriorates from artificially high valuations provides an incentive to bid conservatively. Both effects together may contribute to a reasonable level of price discovery. In case of the securities program, the prospect of refinancing purchased legacy securities with TALF via a non-recourse loan (which is the equivalent of a put option) should incentivize private investors to bid higher than otherwise warranted.

b) Will banks participate?

A similar purely private solution to get toxic assets off banks’ balance sheets was tried with Paulson’s aborted Super-SIV when legacy assets were still marked substantially higher than at present. It became clear then that the private sector will require a possibly substantial taxpayer subsidy in order to overcome the collective action paralysis. Indeed, in the case of the legacy loan example outlined in the Geithner plan with a 6/1 leverage, private investors that invest 7.1% (=1/7 * 0.5) of the equity will get 50% of any upside in return. While Treasury will also share in any upside by half, any downside beyond the private investors’ equity stake is clearly borne by the taxpayers.

While this subsidy to investors provides a powerful incentive to bid prices up in a competitive auction, banks stuck with particularly toxic assets or thin capital buffers may still find a potential writedown at market-clearing prices prohibitive and some might need to be recapitalized after taking the hair cut. FDIC Chairman Sheila Bair has already warned that while this plan will help many solvent banks get rid of their toxic assets thus clearing the way for new loans and fresh capital some banks are beyond the stage of rescue. Those borderline insolvent banks will likely require an additional incentive to sell or mandatory participation otherwise they will prefer to hold on to their assets, especially in view of the FASB’s prospective easing of mark-to-market accounting rules.

For the sake completeness, some commentators would also like to see better safeguards established in order to prevent banks and asset managers from potentially colluding in their common interest to the detriment of the taxpayer.

c) And taxpayers?

At the end of the day the performance of the toxic legacy assets is driven by the cash flow performance of the underlying loans. Keep in mind that among subprime borrowers, serious delinquencies and foreclosures have affected about 20% of outstanding loans as of December 2008 thus impairing the cash flow directed to junior RMBS investors and/or ABS CDOs consisting of these junior tranches. While ABX prices responded positively to the prospect of increased buyer interest, the ultimate loan value will depend on whether households and commercial real estate borrowers will continue making payments in the future. More on that below.

As a practical example of the performance of a toxic portfolio, take the Fed’s Maiden Lane portfolio with Bear Stearns assets. Cumberland Advisors reported that so far the results aren’t promising, and they see no prospect for a profit on the assets. In fact, the portfolio has lost over 10% of its value, and losses are mounting. At present, losses on that portfolio exceed $4.5 billion and the taxpayers’ share is now $3.5 billion. Others point to the low recovery value of IndyMac’s mortgage portfolio as a benchmark.

Bottom line: Will it get credit flowing again?

The immediate market reaction (equities and investment grade CDS staged a substantial rally, less so high yield CDS) was clearly one of relief that nationalization seems to be off the table for now and that the administration is committed to market-based solutions. While the extent of the guarantees almost makes one wonder why the involvement of the private sector is needed in the first place, it is the involvement of the private sector that creates a context in which price setting and discovery happen based on a market mechanism.

An important question at this point is: What should we look at while assessing the plan in the months ahead?

Clearly the unfreeze of credit markets would be the first sign of success but we might not see this happening before some time. Some of the banks that choose to sell assets and take a writedown might be in need of additional capital before they can resume lending. Also, for those institutions that are beyond the stage of rescue and effectively insolvent, the plan will likely not be as effective in stimulating lending or participation in the first place.

The increase in the supply of credit that will come from institutions that are solvent will be important, but will demand be there to do its part? If the real side of the economy continues to deteriorate, it is likely that credit demand might be subdued. Moreover, a further continued deterioration on the real side of the economy would imply new defaults on credit cards, consumer loans, auto loans and mortgages that would result in new toxic assets on the balance sheets of financial institutions recreating an environment where banks would maintain stringent lending standards. Therefore, the success of the plan is a necessary but not sufficient condition to get the economy back on a recovery path. The success of the fiscal stimulus package in sustaining aggregate demand and minimizing job losses and the success in restarting demand in the housing sector will be instrumental to put a stop to the negative feedback loop between the real and the financial side of the economy.

Moreover, if the negative feedback loop persists, need for further funding will arise. While it will be very challenging to obtain Congress approval for additional TARP money, we should point out that the government has set aside an additional $750bn in the FY2010 budget in aid for the financial sector.

Hence, taking care of legacy loans and securities is a welcome step forward, especially for solvent institutions whose asset values are subject to a substantial liquidity discount. However, insolvent institutions might not find as much relief from this plan, and the impact of the plan on the real economy might not be enough to pull the economy out of a contraction for good part of this year and sluggish growth thereafter. But by conducting auctions and determining the market value of the toxic assets, the Treasury will be implicitly using the private sector to ‘stress test’ the financial system to determine which banks are insolvent and therefore will need further government intervention.

Thursday, March 19, 2009

Today is the Iraq war’s sixth anniversary.

Today marks the sixth Aniversary of the Iraq war. Whahoo! It's hard to believe that it's been 6 years since Bush lied to this nation and took us to war with Iraq.

This was a preventive war of choice, which is something this nation has rarely done, and it was based on “intelligence fixed around the policy.”

Since the invasion, hundreds of billions of dollars have been spent, over 4,000 U.S. servicemen and women and hundreds more from coalition countries have died (tens of thousands more physically and mentally wounded), over a 100,000 (or more) Iraqi civilians have parished and nearly 5 million have been displaced.

Yet the New York Times, Washington Post, LA Times, Wall Street Journal, and many other major American newspapers are ignoring the anniversary today. Only USA Today printed a story noting the anniversary of the invasion.

The Center for America's Progress blog Progress Report has more on the good, the bad, and the ugly of developments surrounding the Iraq war over the last year.

UpdateCheck out ThinkProgress's updated timeline of the Iraq war.

Jon Stewart on Dick Cheney

The Daily Show's Jon Stewart marvels at former vice president Dick Cheney's recent interview on CNN, and his "willful obliviousness to the impact of his policies, both economically and in the realm of foreign policy."

He offers some possible titles for Cheney's upcoming book. Among them: "The Bush Administration: If We Did It, Here's How It Happened," "A Heartclogging Work of Staggering Evil," and "I Know How to Make the Caged Bird Sing."

The Daily Show With Jon StewartM - Th 11p / 10c
Interview With a Vampire
Daily Show Full EpisodesImportant Things w/ Demetri MartinPolitical Humor

LibertyAir Blog

Wednesday, March 18, 2009

President Obama Getting Tough With Congress

For the first two months of his administration President Obama tried to show due deference to Congress, but now President Obama is thankfully starting to play hardball with the Republicans and right-leaning Democrats who are threatening to sink his ambitious proposals for this country. He's both calling out his critics and raising the option of using a legislative shortcut that would eliminate the threat of a Senate filibuster. Here are what a few new's sources are saying.

According to the New York Times:

"During an appearance on Tuesday at the Eisenhower Executive Office Building, Mr. Obama took a swipe at Republican critics of his $3.6 trillion budget and its agenda for health care, energy, taxes and economic recovery.

"'If there are members of Congress who object to specific policies and proposals in this budget, then I ask them to be ready and willing to propose constructive, alternative solutions,' Mr. Obama said. '"Just say no" is the right advice to give your teenagers about drugs. It is not an acceptable response to whatever economic policy is proposed by the other party.'

"The strong words were the latest in a push that has come to resemble elements of the two-year-long presidential campaign. Mr. Obama may hold his second prime-time news conference as president, perhaps as early as next week, to talk up the budget."

In addition Walter Alarkon writes in The Hill that Obama's change in rhetorical strategy is his response to "substantial pushback from lawmakers in both parties who sharply attacked key elements in his $3.55 trillion proposal."

And the Associated Press writes:

"In a new Web video, President Barack Obama is asking Americans to help him pass his $3.6 trillion budget."
But Obama's big shot across Congress's bow is this from McClatchy Newspapers:

"A top White House official threatened Tuesday to use a congressional rule to force some controversial proposals through the Senate by eliminating the Republicans' power to block legislation.

"Peter Orszag, the director of the White House Office of Management and Budget, said the Obama administration would prefer not to use the budget 'reconciliation' process that allows measures to pass the Senate on simple majority votes.

"Orszag said he wouldn't rule it out, however. The legislative tactic is being considered to push through Obama's global warming and health care programs, and perhaps his proposals to raise taxes on the wealthy....

"Under normal Senate rules, it requires 60 votes in the 100-member Senate to shut off debate and force a final vote. Democrats currently have 58 Senate votes. Under reconciliation, 51 votes can force anything through.

"There is plenty of historical precedent of using it by both parties, including Republican Presidents Ronald Reagan and George W. Bush, who used it force through big tax cuts.

"'Pretty much every major piece of budget legislation going back to April 1981, April '82, April 1990, April 1993, the 1990 act, the 2001 tax legislation, they were all done through reconciliation. Yet somehow this is being presented as an unusual thing,' Orszag said.

"'The historical norm as opposed to the exception is for a major piece of budget legislation to move through reconciliation.'"

The Washington Post reports the predictable Republican response:

"Republicans are howling about the proposal to expand health coverage and tax greenhouse gas emissions without their input, warning that it could irrevocably damage relations with the new president....

"Sen. Kent Conrad (D-N.D.), chairman of the Senate Budget Committee, has argued against reconciliation as well....

"'There are many more problems with using reconciliation than is commonly appreciated,' Conrad said yesterday, after he and House Budget Committee Chairman Rep. John M. Spratt Jr. (D-S.C.) met with Obama at the White House. The topic of reconciliation came up 'in passing,' Conrad said, but no decisions were made.

"One big problem, Conrad said, is that reconciliation was conceived as a way to force hard budget choices, such as tax increases or spending cuts, not as a means to advance substantive legislation."

Roll Call reports on the opposition from some within Obama's own party:

"A bloc of Senate Democratic moderates is quietly maneuvering to keep open the
option of vetoing two of President Barack Obama's most ambitious agenda items
this year — climate change and health care reform.

"Eight Democrats who want to water down new climate change legislation have already joined with Republicans and signed a letter opposing any attempt to use fast-track budget rules to prevent filibusters. Many of the same Democrats also oppose using those budget rules to prevent filibusters of health care legislation...

"Democratic moderates have been couching their opposition to reconciliation with terms like 'bipartisanship' and 'regular order,' but when pressed, some Senators acknowledged they want to ensure their voices are heard during upcoming debates on global warming and health care.

"Senators from energy-producing states like West Virginia and Louisiana are worried new carbon taxes could be slammed down their throats. And fiscal conservatives are concerned they could be left out of the room while liberal Democrats push for a series of tax hikes proposed by Obama....

"But other Democrats said they were concerned that Republicans will filibuster anything Obama pushes on energy and climate change, and the recent run of near-total Republican opposition to Democratic priorities doesn't give them cause for hope. They argue that reconciliation — and the simple majority it requires — would ensure Democrats can forward their top agenda items.

Despite the tougher tack with Congress and Republican's in particular, it's worth nothing that President Obama is still not taking anything like Bush's "imperial presidency" approach to dealing with the legislative branch. For instance, he's actually asking Congress to write major legislation itself.

Robert Pear reports in the New York Times on how's that going:

"Three powerful House committee chairmen have agreed to work together on legislation to overhaul the health care system, starting with the view that most
employers should help finance coverage and that the government should offer a public health insurance plan as an alternative to private insurance.

"The unified approach contrasts with the competition and rivalry among committee
chairmen that helped sink President Bill Clinton's plan for universal health insurance 15 years ago....

"In a letter to President Obama, the chairmen said, 'Our intention is to bring similar
legislation before our committees.'"

Friday, March 13, 2009

Three Consecutive Good Days on Wall Street

We have not seen this in a while, three consecutive good days on Wall Street. This occurred because there were some small glimmers of hope. The were some indications that the economy’s downward spiral might be slowing. On Monday the markets fell to their lowest point in 12 years, but since then the indexes have bounced back roughly 10%.

Now we are not out of the woods yet, but a few days of light was welcome relief.

South Carolina's Republican Governor Turns Down $700m in Stimulus Money

South Carolina has the second highest unemployment rate in the country, so of course their Repuglican governor is going to turn down $700 million in stimulus money for unemployment insurance. What a moron. The people of South Carolina should really think about the votes they have made. They voted for McCain 54% to 45% for Obama. They voted for this Republican governor who will screw his state for an ideology. Now their state is entering into a massive depression, and I have to wonder will they wake up? I sure hope so, because we need the whole country to succeed. We are in the midst of a great recession, we don't have time for Repuglicans.

Update: Obama says NO to South Carolina Governor's stimulus scam

The Governor of South Carolina, Mark Sanford, trying to curry favor with the far right wing of the Republican Party (the ones who vote in presidential primaries and attend presidential caucuses, btw), wants to use federal stimulus dollars to pay his state's debt instead of rebuilding schools, for example.

Today, Obama, via OMB Director Peter Orszag, said NO to Sanford's scheme:

The Obama administration has rejected South Carolina Gov. Mark Sanford's request to use $700 million in federal stimulus cash to pay down state debt.White House Budget Director Peter Orszag (OHR'-zag) said in a letter to the Republican on Monday that the federal stimulus law doesn't allow President Barack Obama to make an exception for that cash. Sanford sought a waiver last week, asking to pay off debt rather than use the money to create jobs and avoid deep program cuts.Don't mess with Orszag. Now, keep in mind, Sanford pulled this stimulus stunt to garner attention. He got some of that attention in the form of an ad from the Democratic National Committee:

Thursday, March 12, 2009

Obama Addresses Earmark Obsession

I'm glad that President Obama came out yesterday and expressed a sense of weariness over the media's obsession with earmarks while he also outlined his proposal to reduce and reform their use in the future. President Obama said this as he announced that he would sign the $410 billion omnibus spending bill that does include earmarks (they make up less than 2% of the bill) when it arrived his desk.

I want to remind people because the media seems to have forgotten that earmarks were not Obama's issue during the campaign -- they were Republican candidate John McCain's. Seriously people, there are those who are complaining that President Obama did not keep John McCain's campaign promise. President Obama never promised to veto them, just reduce their number and make their sponsors more accountable. Now he did not reduce them in this bill, which was written before he was elected, but he did make them more transparent. We now know who was the author and sponsor of every earmark.

Keith Olbermann pointed this out on Countdown last night. He showed President Obama speaking about this, and then spoke with Newsweek's Richard Wolfe.

Watch it here:

Here are President Obama's statement:

"Yesterday, Congress sent me the final part of last year's budget; a piece of legislation that rolls nine bills required to keep the government running into one – a piece of legislation that addresses the immediate concerns of the American people by making needed investments in line with our urgent national priorities."

"That is what nearly 99 percent of this legislation does – the nearly 99 percent you probably haven't heard much about."

In fact, President Obama came out and said quite clearly that earmarks have some value:
"Done right, earmarks give legislators the opportunity to direct federal money to worthy projects that benefit people in their district, and that's why I have opposed their outright elimination."
And he took a swipe at some of the bill's critics:
"I also find it ironic that some of those who railed the loudest against this bill because of earmarks actually inserted earmarks of their own – and will tout them in their own states and districts."
President Obama suggested new guidelines for earmarks that he said were consistent with his pledge to restore "responsibility, transparency, and accountability to the actions government takes." He said that earmarks should be announced and justified ahead of time, shouldn't go to private companies without competitive bidding and shouldn't be traded for political favors.

House Majority Leader Steny H. Hoyer wrote about the stupidity of the Republican's argument in a USA Today op-ed yesterday:

"Some politicians try to cultivate an image of fiscal discipline by railing against earmarks — and 'pork' also makes a great story for the news media. But as congressional scholar Thomas Mann recently noted, earmarks do not generally increase spending but simply allow members of Congress to direct a small part of a program's funding.

'Abolishing all earmarks would therefore have a trivial effect on the level of spending,' Mann explained, adding that 'hyperbolic attacks on earmarks are a disservice to the public, encouraging people to concentrate way too much attention and energy on a largely symbolic issue and ignore the critical decisions that we face.'"

Wednesday, March 11, 2009

Because They Can't Walk and Chew Gum

The weirdest argument coming from Repuglicans lately is that President Obama is overreaching, trying to do to much, and not keeping his eye on the ball. Just because the prior President could not deal with more than one thing at a time, does not mean Obama can't. Still this is what the Repuglicans are going with.

And of course a lot of the mainstream media is ready to run with this talking point. Here is ABC's Jake Tapper on Monday night during Nightline: "It's the media's new question. Is the president attempting to do too much?" The NBC's Brian Williams last night on the Nightly News: "Today marked President Obama's 50th day in office. Halfway through his first 100 days, the president's first seven weeks have been a whirlwind, with often dramatic movement in all directions, on all fronts: the economy, health care, two wars, and today education reform, which raises the question talked about on cable all day long: Is it all too much for any one administration?"


Then you read Carl Cameron on Fox News and he confirms this is a Republican talking point: "Republicans across Capitol Hill today complained that President Obama and Democrats are taxing too much, spending too much, and borrowing too much. They say this is their mantra for the weeks and months ahead."

Along with ABC's George Stephanopoulous who on Monday night said: "The phrase is 'overloading the circuits'....It's coming from a lot of different corners, especially Republicans like John McCain, and the White House is pushing back very hard against this criticism."

Luckily President Obama and his staff seemed ready for this critism and had some good responses to such charges. Here's what he had to say on the subject yesterday, as a preface to his speech on education:

"I know there's some who believe we can only handle one challenge at a time. And they forget that Lincoln helped lay down the transcontinental railroad and passed the Homestead Act and created the National Academy of Sciences in the midst of civil war. Likewise, President Roosevelt didn't have the luxury of choosing between ending a depression and fighting a war; he had to do both. President Kennedy didn't have the luxury of choosing between civil rights and sending us to the moon. And we don't have the luxury of choosing between getting our economy moving now and rebuilding it over the long term.

"America will not remain true to its highest ideals -- and America's place as a global economic leader will be put at risk -- unless we not only bring down the crushing cost of health care and transform the way we use energy, but also if we do -- if we don't do a far better job than we've been doing of educating our sons and daughters; unless we give them the knowledge and skills they need in this new and changing world."

This is just a really lame attack by the Repuglicans, and I hope the media stops giving it.

Roubini: Recession Might Not Be Half Way Over

Dr. Doom, Professor Nouriel Roubini is the man who predicted the current financial crisis and yesterday he said the U.S. recession could drag on for years without drastic action. He says that this recession could last 36 months. As we are in the 15th month of a recession this is not good.

This is a nation of shopped-out and debt-burdened consumers who just lost their ability to keep over spending. They lost their resilience and started to give up on spending in the third quarter of 2008. This was when for the first time in two decades, personal consumption contracted. With personal consumption making up for over two-thirds of aggregate demand for the U.S. economy, the outlook for the U.S. is not good for 2009. Consumers are still at the center of the dynamics that will play out in the real economy in 2009.

Professor Roubini told CNBC in a live interview:
"Growth is going to be close to zero and unemployment rate well above 10 percent into next year."

Professor Roubini also said he sees:
"There is no hope for the recession ending in 2009 and will more than likely last into 2010."

Last he again pushed the idea of bank nationalization of at least the four major banks:

"Most of the U.S. financial institutions are entirely insolvent."

"The market friendly view for the banks is nationalization."

"Temporarily take over the banks, clean them up and get them working again."

According to Professor Roubini, unfortunately, Tim Geithner's Financial Stability plan won't solve our financial woes because it assumes that the system is solvent, while nationalization is the only option that would permit us to solve the problem of toxic assets in an orderly fashion and allow lending finally to resume.

Congress Approves $410 Billion Spending Bill

Another victory for President Obama and the Democrats as the Senate approved the $410 billion funding measure to keep the government running for the rest of the year. The White House announced that President Obama will sign the measure on Wednesday, where he will also announce steps aimed at curbing lawmakers' penchant for pet projects.

Now personally I believe that earmarks are getting a bad name, and are not as evil as Republicans are making them out to be. Earmarks should be a tool that Representatives and Senators use, to specifically meet their states needs. Its just that earmarks should be above board, clear who has submitted the earmark, and not tied to any lobbyist. Earmarks should be done in conjunction with state and local government to ensure they meet the needs of the state.

The media has been too willing to confuse pork barrel projects and earmarks. A pork barrel project is usually an earmark, but not every earmark is pork barrel.

I don't understand why the media is trying to say this bill is an embarresment for President Obama. He argued against wasteful spending, not earmarks (that was McCain who has priven to be an idiot). In addition, what this economy needs is spending, and that is what this bill delivers. And the bill was written mostly over the course of last year, with support from key Republicans such as Minority Leader Mitch McConnell of Kentucky and Lamar Alexander of Tennessee, the Senate's No. 3 Republican, so the belly-aching by Republicans has been humorous. By the way even though McConnell was very active in writing the bill, he voted against it. Can you say covering his butt?

The spending measure chips away at several leftover Bush administration policies. It clears the way for the Obama administration to reverse a rule issued late in the Bush administration that says greenhouse gases may not be restricted to protect polar bears from global warming. Another Bush administration rule that reduced the input of federal scientists in endangered species decisions can also be quickly overturned without a lengthy rulemaking process.
The big increases — among them a 14 percent boost for a popular program that feeds infants and poor women and a 10 percent increase for housing vouchers for the poor — represent a clear win for Democrats who spent most of the past decade battling with Bush over money for domestic programs.

Generous above-inflation increases are spread throughout the bill for initiatives that the Bush Administration underfunded, including a $2.4 billion, 13 percent increase for the Agriculture Department and a 10 percent increase for Amtrak passenger rail system.

Tuesday, March 10, 2009

How Science Works

P. Z. Myers takes the occasion of President Obama reversing the Stem cell ban to explain how science works to people who are fundamentally opposed to free inquiry.

The stem cells to be used for this research come from the 600,000 embryos every year that are produced in the US for in vitro fertilization attempts, and which are discarded anyway. Although some on the right say that these eggs can be implanted in women and raised as children, only 60 a year or so are "adopted." That means that all those religious persons who say that they believe that human life begins at conception are hypocrites, standing idly by and allowing a virtual holocaust to occur annually, since they are not adopting these frozen embryos and raising them.

They also don't put filters on their toilets to try to save the millions of embryos that prematurely detach from the uterus wall in very early miscarriages, some of which scientists might be able to somehow save if the proper precautions were taken. I mean, if millions of adults were drowned in toilets annually, wouldn't we put in special safety procedures to stop it from happening?

I think the likelihood is that the strange new doctrine of life beginning at conception is mainly intended to keep women barefoot and pregnant, since no obvious heroic
measures are actually being taken by any significant number of believers to save
the embryos. The belief that life begins at conception is recent, irrational, and has frankly highly impractical consequences.

Under the Bush administration, scientific reasoning took a backseat to politics, as administration officials repeatedly manipulated the scientific process and distorted findings. This was seen in reporting on climate change, environmental issues, and even the run-up to the war with Iraq (remember how those aluminum tubes were pushed).

This manipulation was also seen in the stem cell research debate. Bush came to his decision on stem cells in 2001, after consulting with Karl Rove, not talking to his scientists.

Appearing on national television, White House officials repeatedly distorted the facts behind ES research. Even Bush's own scientists publicly broke with him on the issue. Obama's decision marks a long-awaited shift restoring science to public policy. Yesterday, Obama signed a Presidential Memorandum calling on the director of the White House Office of Science and Technology Policy (OSTP) to "make sure officials who deal with science and technology policy are selected because of their expertise rather than their politics."

IMF warns of global "Great Recession"

The International Monetary Fund warned on Tuesday that the world economy will likely contract this year in a "Great Recession." The IMF expects global growth to slow below zero this year, the worst performance since World War II.

This will be the backdrop when the Group of 20 leaders meet in London on April 2

Stocks Up on Citigroup News

There was some actual good news from Wall Street this morning, and the markets responded. Led by financial stocks, the market made its first big move upward in weeks Tuesday after Citigroup Inc. said it had operated at a profit during the first two months of the year. Dow Jones industrials shot up more than 250 points.

Monday, March 09, 2009

Dark Ages Of Science Nearing An End

President Barack Obama today took a couple of steps to reinstating science to it's rightful place in the decision making process as he signed an executive order that lifted the limits on federal funding for stem-cell research and a new memorandum addressing the role of scientific research in his administration, and throughout the government.

These were further steps in clarifying President Obama's broader vision of how government engages with science.

As David Neiwert of Crooks and Liars says the War on Science is finally over and Science won.

As President Obama signed the executive order that lifted the limits on federal funding for stem-cell research he said:
This Order is an important step in advancing the cause of science in America. But let’s be clear: promoting science isn’t just about providing resources – it is also about protecting free and open inquiry. It is about letting scientists like those here today do their jobs, free from manipulation or coercion, and listening to what they tell us, even when it’s inconvenient – especially when it’s inconvenient. It is about ensuring that scientific data is never distorted or concealed to serve a political agenda – and that we make scientific decisions based on facts, not ideology.

By doing this, we will ensure America’s continued global leadership in scientific discoveries and technological breakthroughs. That is essential not only for our economic prosperity, but for the progress of all humanity.
While hosting the White House ceremony to announce the change, the president also explained a new memorandum he has signed addressing scientific integrity itself. President Obama stipulated that his memorandum is meant to restore "scientific integrity to government decision-making." He noted that this is the beginning of a process of ensuring his administration bases its decision on sound science; appoints scientific advisers based on their credentials, not their politics; and is honest about the science behind its decisions.

"Promoting science isn't just about providing resources, it is also about protecting free and open inquiry," Obama said. "It is about letting scientists like those here today do their jobs, free from manipulation or coercion, and listening to what they tell us, even when it's inconvenient especially when it's inconvenient. It is about ensuring that scientific data is never distorted or concealed to serve a political agenda and that we make scientific decisions based on facts, not ideology."
Alex Koppelman notes that this memorandum carries with it an "unsubtle ... repudiation of the Bush administration and its attitude towards science."

These are just more examples of the change that President Obama promised. Back when he introduced a Nobel Prize-winning physicist as his choice for Energy Secretary, President Obama said:

"His appointment should send a signal to all that my administration will value science, we will make decisions based on the facts."
Soon after, he introduced a really impressive science team, and soon after that, the president devoted one of his weekly multimedia addresses to the issue:

"The truth is that promoting science isn't just about providing resources -- it's about protecting free and open inquiry. It's about ensuring that facts and evidence are never twisted or obscured by politics or ideology. It's about listening to what our scientists have to say, even when it's inconvenient -- especially when it's inconvenient. Because the highest purpose of science is the search for knowledge, truth and a greater understanding of the world around us."

These are the reasons why I say that the Dark Age of anti-intellectualism pushed by George W. Bush, Dick Cheney and the Republican party is coming to an end.

Sunday, March 08, 2009

President Obama's Weekly Address - March 7 2009

President Barack Obama used his weekly address to detail his plans to fix our ailing economy, noting that reforming healthcare is necessary to ensure our long term fiscal health.

Watch It Here:

LibertyAir Blog

Just for Fun: Tim Geithner's New Plan

Tim Geithner has become a national joke, and that means Saturday Night Live just has to lampoon him. The trouble with the plan laid out in this skit is that it might actually be Tim Geithner's plan. Great cold opening to this week's show.

Watch it here:

LibertyAir Blog

Just for Fun: What Happens when Obama Gets Mad

A great skit with Barack Obama turning into the Rock Obama.
I love the impersonation of Rahm Emanuel

Watch it here:

LibertyAir Blog

Friday, March 06, 2009

Paul Krugman: The Big Dither

Paul Krugman writes today in the New York Times about the need to fix America’s banks. Professor Krugman asks the question if President Obama is being bold enough, or is he and his administration dithering too much?

I do think that Obama has been slow in the steps that are necessary to fix the banking mess, but I do wonder if the President is constrained by politics, and the need to keep the markets some what calm. I think Krugman brings up great points, and as an academic and a pundit Professor Krugman provides a strong progressive argument. It is not his job to worry about the politics, but to suggest the best course from an economic sense.

The Big Dither

Last month, in his big speech to Congress, President Obama argued for bold steps to fix America’s dysfunctional banks. “While the cost of action will be great,” he declared, “I can assure you that the cost of inaction will be far greater, for it could result in an economy that sputters along for not months or years, but perhaps a decade.”

Many analysts agree. But among people I talk to there’s a growing sense of frustration, even panic, over Mr. Obama’s failure to match his words with deeds. The reality is that when it comes to dealing with the banks, the Obama administration is dithering. Policy is stuck in a holding pattern.

Here’s how the pattern works: first, administration officials, usually speaking off the record, float a plan for rescuing the banks in the press. This trial balloon is quickly shot down by informed commentators.

Then, a few weeks later, the administration floats a new plan. This plan is, however, just a thinly disguised version of the previous plan, a fact quickly realized by all concerned. And the cycle starts again.

Why do officials keep offering plans that nobody else finds credible? Because somehow, top officials in the Obama administration and at the Federal Reserve have convinced themselves that troubled assets, often referred to these days as “toxic waste,” are really worth much more than anyone is actually willing to pay for them — and that if these assets were properly priced, all our troubles would go away.
Thus, in a recent interview Tim Geithner, the Treasury secretary, tried to make a distinction between the “basic inherent economic value” of troubled assets and the “artificially depressed value” that those assets command right now. In recent transactions, even AAA-rated mortgage-backed securities have sold for less than 40 cents on the dollar, but Mr. Geithner seems to think they’re worth much, much more.
And the government’s job, he declared, is to “provide the financing to help get those markets working,” pushing the price of toxic waste up to where it ought to be.
What’s more, officials seem to believe that getting toxic waste properly priced would cure the ills of all our major financial institutions. Earlier this week, Ben Bernanke, the Federal Reserve chairman, was asked about the problem of “zombies” — financial institutions that are effectively bankrupt but are being kept alive by government aid. “I don’t know of any large zombie institutions in the U.S. financial system,” he declared, and went on to specifically deny that A.I.G. — A.I.G.! — is a zombie.
This is the same A.I.G. that, unable to honor its promises to pay off other financial institutions when bonds default, has already received $150 billion in aid and just got a commitment for $30 billion more.

The truth is that the Bernanke-Geithner plan — the plan the administration keeps floating, in slightly different versions — isn’t going to fly.

Take the plan’s latest incarnation: a proposal to make low-interest loans to private investors willing to buy up troubled assets. This would certainly drive up the price of toxic waste because it would offer a heads-you-win, tails-we-lose proposition. As described, the plan would let investors profit if asset prices went up but just walk away if prices fell substantially.

But would it be enough to make the banking system healthy? No.

Think of it this way: by using taxpayer funds to subsidize the prices of toxic waste, the administration would shower benefits on everyone who made the mistake of buying the stuff. Some of those benefits would trickle down to where they’re needed, shoring up the balance sheets of key financial institutions. But most of the benefit would go to people who don’t need or deserve to be rescued.

And this means that the government would have to lay out trillions of dollars to bring the financial system back to health, which would, in turn, both ensure a fierce public outcry and add to already serious concerns about the deficit. (Yes, even strong advocates of fiscal stimulus like yours truly worry about red ink.) Realistically, it’s just not going to happen.

So why has this zombie idea — it keeps being killed, but it keeps coming back — taken such a powerful grip? The answer, I fear, is that officials still aren’t willing to face the facts. They don’t want to face up to the dire state of major financial institutions because it’s very hard to rescue an essentially insolvent bank without, at least temporarily, taking it over. And temporary nationalization is still, apparently, considered unthinkable.

But this refusal to face the facts means, in practice, an absence of action. And I share the president’s fears: inaction could result in an economy that sputters along, not for months or years, but for a decade or more.

The truth is the Bernanke-Geithner plan will not work and I hope President Obama soon realizes this, and makes the changes that are necessary to fix this country.

Bankers Don't Care About the Banks

I am a huge fan of the Young Turks and wanted to point out this must-read piece that their host Cenk Uygar wrote:

Tim Geithner and Larry Summers and many others are missing the fundamental flaw in the system. The bankers don't care about the banks; they care about the

These days, the way executives make money instead is in the form of bonuses for years where they bring in a lot of return (and often times for years they don't), but the threat of being fired for too much risk taking is minimal. The more risk you take, the more money everyone makes. And it's not the partner's money you're playing with anymore. You're playing with house money. No one is minding the store anymore.

So, now we have Tim Geithner and the rest of Treasury working so hard to prop up not just these failed banks - but these failed bank executives - because we don't want government running these large companies. The self-interest of the market will do a better job of managing these companies. But it hasn't - because of this fundamental flaw.

These executives did not actually fail. They succeeded wildly. It's just that they had a different goal - to take home as much money as they possibly could for themselves. Mission accomplished!

The Treasury plan is all wrong. We have to first acknowledge that the boards of these companies are not truly representing the shareholders. They are largely friends with most of the CEOs and they do not have an incentive to reign in out of control compensation for the top executives. Then those CEOs pass on the wrong incentives to the executives below them. The more risk they all take, the more money they take home. And if their company goes broke one day - who cares?

Most of these guys took home millions upon millions of dollars already for profits that never really existed. If the company goes under, okay the gravy train came to an end but they still have all the money they made from all those years. It's in their personal bank accounts. That's enlightened self-interest!

Do you know that last year, as Merrill Lynch was in its death throes, 696 executives got bonuses over a million dollars? 696! As the company lost tens of billions of dollars, the executives took home a combined $3.6 billion that year. Billions in bonuses in the worst year in the company's history. They're not stupid; they're smart. They're looting the store before the cops show up.

This is the financial equivalent of the federal government not showing up to rescue people after Hurricane Katrina. Last year the five biggest Wall Street securities firms lost $25.3 billion. The executives at those companies still took home $26 billion in bonuses. In other words, they wouldn't have lost a nickel if they hadn't taken any bonuses.

The Treasury Department still hasn't shown up to take over these looted stores. In fact, they keep pouring taxpayer money into these same shops, as the money continues to move out the back door. Tim Geithner is the worst sheriff in the world.
But we already knew that. Because the main guy who was overseeing all of these banks in New York, as they took these giants risks, was the president of the Federal Reserve Bank of New York - Tim Geithner.

He is under the misimpression that his job is to protect the sanctity of the banks.
Not only is that not his job, but that is working against his actual goal. His real job is to stabilize the financial system, with or without these particular banks or bank executives. The longer he keeps these guys in charge, the longer the looting continues.


The unemployment rate for the United States jumped up to 8.1 percent in February, the highest since late 1983, as cost-cutting employers slashed 651,000 jobs. Both figures were worse than analysts expected. The net loss of 651,000 jobs in February came after even deeper payroll reductions in the prior two months, according to revised figures. The economy lost 681,000 jobs in December and another 655,000 in January.

Employers are shrinking their work forces at alarming clip and are turning to other ways to slash costs — including trimming workers' hours, freezing wages or cutting pay — because the recession has eaten into their sales and profits.

One of the major differences from other Recessions has been that the job losses are across the board. Construction companies eliminated 104,000 jobs. Factories axed 168,000. Retailers cut nearly 40,000. Professional and business services got rid of 180,000, with 78,000 jobs lost at temporary-help agencies. Financial companies reduced payrolls by 44,000. Leisure and hospitality firms chopped 33,000 positions.

This recession (Which may actually be a depression) has fallen into a vicious cycle in which all the economy's negative problems feed on each other, worsening the downward spiral.

Thursday, March 05, 2009

Colbert Report Takes Glenn Beck

Stephen Colbert did a hysterical parody of the Glenn Beck Show last night. Colbert nailed such
segments like the "GLENN BECK WAR ROOM" where he and his guests "game out" a bunch of doomy scenarios. If you have not seen them you should check it out. Seriously my question to Fox is, did they know what a complete loon they were hiring. Beck was an idiot on CNN's
Headline News, but at Fox News Beck has gone INSANE.

Check out Colbert here:

and here (part 2):

White House Summit On Health Care

Today during the White House summit on health President Obama emphasized how health care is interconnected our economic problems and we can not fix one without fixing the other.

"We are here today to discuss one of the greatest threats not just to the well-being of our families and the prosperity of our businesses, but to the very foundation of our economy -- and that is the exploding cost of health care in America today.

"In the last eight years, premiums have grown four times faster than wages, and an additional nine million Americans have joined the ranks of the uninsured. The cost of health care now causes a bankruptcy in America every thirty seconds. By the end of the year, it could cause 1.5 million Americans to lose their homes. And even for folks who are weathering this economic storm, and have health care now, all it takes is one stroke of bad luck -- an accident or illness; a divorce or lost job -- to become one of the nearly 46 million uninsured or the millions who have health care, but can't afford it.

"We did not get here by accident. The problems we face today are a direct consequence of actions we failed to take yesterday.... [T]here are those who say we should defer health care reform once again -- that at a time of economic crisis, we simply cannot afford to fix our health care system as well.

"Well, let's be clear: the same soaring costs that are straining our families' budgets are sinking our businesses and eating up our government's budget too. Too many small businesses can't insure their employees. Major American corporations are struggling to compete with their foreign counterparts. And companies of all sizes are shipping their jobs overseas or shutting their doors for good.

"Medicare costs are consuming our federal budget. Medicaid is overwhelming our state budgets. And at the Fiscal Summit we held here last week, the one thing on which everyone agreed was that the greatest threat to America's fiscal health is not Social Security, though that is a significant challenge; and it is not the investments we've made to rescue our economy; it is the skyrocketing cost of health care.

"That is why we cannot delay this discussion any longer. And that is why today's forum is so important. Because health care reform is no longer just a moral imperative, it is a fiscal imperative. If we want to create jobs and rebuild our economy, then we must address the crushing cost of health care this year, in this Administration. Making investments in reform now, investments that will dramatically lower costs, won't add to our budget deficits in the long-term -- rather, it is one of the best ways to reduce them."

The government will spend $2.5 trillion on health care this year. In less than a decade, it will constitute 20% of GDP. If we're going to improve the economy and take fiscal sustainability seriously, this won't wait. The question isn't whether we can afford to tackle health-care reform; the question is whether we can afford not to.

Watch President Obama speak here:

Rachel Maddow was on "The Tonight Show" with Jay Leno the other night, and they discussed how President Obama is taking on the financial crisis, the economy in general, energy policy, and health care. Leno even asks, "Is he [Obama] biting off too much?"

Watch Rachel here:

Jon Stewart Smacks CNBC Good

Jon Stewart of the Daily Show had a lot of fun eviscerating CNBC last night. In a great little segment he points out that CNBC and it's commentators have just been shills for Wall Street, who hyped a failing system to the detriment of its viewer/investors.

As he so often does Stewart uncovered what mainstream news doesn't generally cover or investigate. He points out that CNBC really is just a cheerleader for the American oligarchy, cheerily misleading the average American into an economic ambush.

Jon Stewart points out that CNBC consistently boosted the Wall Street without exposing what any reporter close to the situation must have known. Through a combination of fantastical stock market theories, suck-up interviews with CEOs of failing companies, affirmations of robust financial health for riverboat gambling financial empires that were about to collapse and become multi-billion dollar welfare recipients of our money -- and more boosterism -- CNBC, with rare exception, has become an advertorial for the looting, unregulated, "default swap," hedge fund, con artist, gambling ways that have destroyed the fundamentals of the heart of our financial system.

Watch the segment here:

Though I recommend you watch the entire March 4th Daily Show because Jon Stewart provides one of the most concise primers of the Wall Street mess I've seen.

Monday, March 02, 2009

Obama's Biggest Mistake

President Obama made a huge mistake during the transition period leading up to his assuming the presidencey of the United States, and it was naming Tim Geithner as the Treasurey Secretary. Geithner just is not the right man to be head of the US Treasurey as the world slips towards a second Great Depression.

Tim Geithner just does not seem to have the creativity to deal with the economic mess that this nation is facing. He seems committed to the view that banks should never be saved by the government, and no matter what they should stay private even if they’re bankrupt, because — well because. Geithner seems incapable of envisioning a government run solution, which is okay, except he is one of the men in charge of developing the government's solution. I believe that Geithner has tunnel vision which prevents him from trying to devise a policy which assumes that the many of the assets in the banking system are “bad,” and need to be removed from the system.

My question is how long does President Obama stick with Tim Geithner as the Treasurey Secretary? Can Geithner turn it around at Treasurey? How long can we wait to find out?

Dow Headed towards 6000

The Dow has gone below 7000 today. I used to think that 7000 was the floor that this crisis on Wall Street would hit, but 7000 was not the floor, and 6000 may be the floor.

Sunday, March 01, 2009

Paul Krugman Describes Obama's Budget As Real Change

Elections have consequences, that is how Professor Krugman starts his column in the New York Times this last Friday, and while many have heard this sentiment, I think few actually understand what that means. Back in 2000 many did not think there was really any substanstive difference between Gore and Bush. How wrong they were.

Elections do have consequences, and President Obama's budget as set-forth this week is another reminder of that.

Climate of Change

Elections have consequences. President Obama’s new budget represents a huge break, not just with the policies of the past eight years, but with policy trends over the past 30 years. If he can get anything like the plan he announced on Thursday through Congress, he will set America on a fundamentally new course.

The budget will, among other things, come as a huge relief to Democrats who were starting to feel a bit of postpartisan depression. The stimulus bill that Congress passed may have been too weak and too focused on tax cuts. The administration’s refusal to get tough on the banks may be deeply disappointing. But fears that Mr. Obama would sacrifice progressive priorities in his budget plans, and satisfy himself with fiddling around the edges of the tax system, have now been banished.

For this budget allocates $634 billion over the next decade for health reform. That’s not enough to pay for universal coverage, but it’s an impressive start. And Mr. Obama plans to pay for health reform, not just with higher taxes on the affluent, but by putting a halt to the creeping privatization of Medicare, eliminating overpayments to insurance companies.

On another front, it’s also heartening to see that the budget projects $645 billion in revenues from the sale of emission allowances. After years of denial and delay by its predecessor, the Obama administration is signaling that it’s ready to take on climate change.

And these new priorities are laid out in a document whose clarity and plausibility seem almost incredible to those of us who grew accustomed to reading Bush-era budgets, which insulted our intelligence on every page. This is budgeting we can believe in.

Many will ask whether Mr. Obama can actually pull off the deficit reduction he promises. Can he actually reduce the red ink from $1.75 trillion this year to less than a third as much in 2013? Yes, he can.Right now the deficit is huge thanks to temporary factors (at least we hope they’re temporary): a severe economic slump is depressing revenues and large sums have to be allocated both to fiscal stimulus and to financial rescues.

But if and when the crisis passes, the budget picture should improve dramatically. Bear in mind that from 2005 to 2007, that is, in the three years before the crisis, the federal deficit averaged only $243 billion a year. Now, during those years, revenues were inflated, to some degree, by the housing bubble. But it’s also true that we were spending more than $100 billion a year in Iraq.

So if Mr. Obama gets us out of Iraq (without bogging us down in an equally expensive Afghan quagmire) and manages to engineer a solid economic recovery — two big ifs, to be sure — getting the deficit down to around $500 billion by 2013 shouldn’t be at all difficult.

But won’t the deficit be swollen by interest on the debt run-up over the next few years? Not as much as you might think. Interest rates on long-term government debt are less than 4 percent, so even a trillion dollars of additional debt adds less than $40 billion a year to future deficits. And those interest costs are fully reflected in the budget documents.

So we have good priorities and plausible projections. What’s not to like about this budget? Basically, the long run outlook remains worrying.

According to the Obama administration’s budget projections, the ratio of federal debt to G.D.P., a widely used measure of the government’s financial position, will soar over the next few years, then more or less stabilize. But this stability will be achieved at a debt-to-G.D.P. ratio of around 60 percent. That wouldn’t be an extremely high debt level by international standards, but it would be the deepest in debt America has been since the years immediately following World War II. And it would leave us with considerably reduced room for maneuver if another crisis comes along.

Furthermore, the Obama budget only tells us about the next 10 years. That’s an improvement on Bush-era budgets, which looked only 5 years ahead. But America’s really big fiscal problems lurk over that budget horizon: sooner or later we’re going to have to come to grips with the forces driving up long-run spending — above all, the ever-rising cost of health care.

And even if fundamental health care reform brings costs under control, I at least find it hard to see how the federal government can meet its long-term obligations without some tax increases on the middle class. Whatever politicians may say now, there’s probably a value-added tax in our future.

But I don’t blame Mr. Obama for leaving some big questions unanswered in this budget. There’s only so much long-run thinking the political system can handle in the midst of a severe crisis; he has probably taken on all he can, for now. And this budget looks very, very good.

Any one who honestly reads Paul Krugman knows that he is not an Obama apologist. Professor Krugman has been critical of Obama's bailout plans and did not think that the stimulus package Obama pushed for was bold enough. At the same time, I trust a lot of what Professor Krugman has to say about the economy. So when Professor Krugman says that this budget is a good progressive budget, than I am very hopeful.