Ezra Klein

Recap: Today we served Obama, three ways: in context, in Bizarro world and in comparison to Hoover and FDR.

Elsewhere:

1) Lily Allen explains macroeconomic stabilization.

2) This is the guy we're smearing as an America-hating radical? Seriously?

3) I don't agree with a lot of it, but this is a fair critique of the stimulus from Megan McArdle and a smart point on the need to think harder about economic transitioning.

4) Jed Perl's appreciation of Salvadore Dali, whose work he hates.

Recipe of the day: Could someone please make me meatballs Emiglia-Romana with pasta sheets?

Kevin Drum offers a guide for the perplexed.

I think the strongest objection to my earlier post is that, well, wasn't Barack Obama supposed to be FDR? A Democrat elected amid an economic collapse who presides over a roaring recovery and reshapes American politics in his image? Daniel Foster and Jonah Goldberg both make variants of this argument, and Goldberg even takes it a bit further:

One possible irony is that, as Megan McArdle has argued, 2008 may not have been 1932, it may have been 1929. In which case, Obama is Hoover. Now, I am one of those libertarian-infected conservatives who argues that Hoover wasn’t the free-market guy the Left has always said he was. But without even wading into all of that, the analogy must be dismaying to liberals. Because, fair or not, Hoover discredited free-market economics for a generation (or at least he was perceived to have done so). It would be a biting irony if Obama did the same thing to his statist brand of economics.

I think this is right on. But Goldberg should have gone one step further and actually checked the numbers. In 1932, the year FDR was elected, GDP fell by 13.1 percent. That's horrifying. In 1934, the year FDR bucked the historical trend and led his party to an eight-seat gain in his first midterm election, GDP expanded by 10.9 percent.

By contrast, in 2008, the year Obama was elected, GDP didn't change at all. Seriously: The Bureau of Economic Analysis says it was 0.0 percent. That's bad, but not Hoover bad. We don't have annual numbers for 2010 yet, but annualized GDP growth was 3.7 percent in the first quarter and 2.4 percent in the second quarter. Growth seems to be slowing a bit lately, so let's assume that 2010 growth is closer to 2 percent than to 3 percent. That's better than a 13 percent contraction, but it's a whole lot worse than a 10 percent expansion.

Which is all to say, the FDR example fits the theory quite well. Goldberg is arguing with me, but I think his post actually implies agreement: The real condition of the economy is the central ingredient in the president's political success. And if Goldberg had looked into the GDP tables, he would have seen that the economy isn't making Obama into FDR or into Hoover.

Now, that leaves us with a different question: How much more could Obama have done to accelerate the recovery? Foster accuses me of ignoring that variable, but that's actually been the central theme of this blog (and of my columns) for the past few months. To repeat, insofar as Obama could've done more to improve the economy, he would be in better shape today.

My view? I think the government could've done much more, but I'm not sure Obama could've gotten much more from Congress. Either way, what I don't think makes sense is what the political strategists told Matt Bai: "That it all comes down to messaging." I'd say something more like "it all comes down to the size and effectiveness of the stimulus against the size of the economic downturn." And the stimulus was too small, and the recession was much worse than we initially realized. Given those two factors, I don't think you need to reach for explanations for the current political situation.

Democrats in Washington are divided and somewhat puzzled over President Obama’s fading popularity. They reject, of course, the Republican view that the president is basically a showy communicator whose preference for speeches rather than action has alienated voters. But that’s about as far as the consensus goes.

In conversations over the past few weeks, some of the party’s leading strategists told me that it all comes down to accomplishments, or -- here’s that ubiquitous word again -- “deliverables.” The president, who ran such a brilliant campaign, they argue, has utterly failed to live up to the promise of his election. They cited perceived missed opportunities like the president’s decision to expand S-CHIP rather than pursuing health-care reform and suggested that he hadn’t done enough to re-regulate the financial sector in the aftermath of one of the worst financial crises in the nation's history.

But when I put the same question to Michael Knowing, the former White House chief of staff who led Obama’s transition team, I heard what sounded like a deeper and more persuasive explanation. You might call it the “communications box” theory.

Like other Democrats, Knowing, who now runs the liberal Center for American Prospects and is arguably the most influential Washington Democrat not currently in government, assumes that many of the president’s struggles were unavoidable. Stubborn joblessness and anemic growth have thus far overwhelmed the president's persuasive powers and defined the administration.

But to whatever extent Obama controlled the fate of his young presidency, Knowing believes that his most consequential decisions on domestic policy stemmed from one overarching conviction: that the president’s most important job was to govern in a post-partisan, consensus-oriented manner, which required him to largely give up on his large legislative promises.

“By focusing on his larger image, which was understandable, they necessarily gave up big legislative accomplishments,” Knowing said, referring to White House advisers. “They cast him as a builder of consensus, not a driver of consensus. They were kind of locked into their campaign rhetoric, even as the country hungered for action.”

This was not a given. All presidents have broad thematic priorities, but they have laws they want to pass, too. Ronald Reagan saw a major transformation of the American tax code as a larger goal. Bill Clinton publicly hammered away at his ideas remaking the American health-care system.

Unlike his recent predecessors, however, Obama was defined more by his unlikely campaign victories than his legislative accomplishments, and he seemed determined, above all else, to deliver on the thematic promises he made to voters. He chose a vice president and a chief of staff who contributed to his post-partisan image, and he filled his most senior posts (aside from those occupied by longtime advisers) with campaign aides.

“That strategy was built on the no-economic-stall option,” Knowing said. “In other words, the idea was that you didn’t have to get the unemployment rate to a certain number, but you had to respond to the American people's hunger for a less contentious political sphere, and people would appreciate that, and it would be palpable, and it would lead to the sort of Republican cooperation needed to pass major bills.”

The problem, as Mr. Knowing says, is that “we’re all still waiting for that.”

(Source, context. And just to clear up any confusion: Yes, this is a parody. It's easy to imagine an Obama administration that did exactly what a lot of its critics suggested and is now being hammered for not pursuing a more ambitious legislative agenda.)

Photo credit: Charles Dharapak/AP

Neil Irwin extends Chris Hayes's farming analogy to offer the best explanation yet of why the Fed is reluctant to do new things to speed a slow recovery. This is a debate I have trouble adjudicating, but when you think about how bad the current moment really is, it's worth dwelling on the fact that the Fed's main powers are totally tapped out and further interventions would require the development of original and untested interventions. This isn't just a bad economy. It's a bad economy that's teetering on the edge of our political system and the central bank's ability to respond.

Anthony Bourdain goes to the French Laundry:

Bill Gross, director of PIMCO, the world's largest bond fund, has an idea for "the last real big thing that [the] administration can do ...that doesn't increase the deficit and that doesn't require legislation." Shahien Nasiripour lays it out:

Gross, who runs Pacific Investment Management Co.'s $239 billion Total Return Fund, said that policymakers "should quickly re-engineer" a plan that would refinance all non-delinquent mortgages backed by the federal government. The rate on a 30-year fixed-rate mortgage averaged a record-low 4.44 percent in the week ending Aug. 12, according to taxpayer-owned mortgage giant Freddie Mac.

Taxpayers guarantee the mortgages of 37 million households, or two-thirds of all homeowners with a mortgage, according to a July 29 note by David Greenlaw, Morgan Stanley's chief U.S. fixed-income economist. That includes government agencies like the Federal Housing Administration as well as twin behemoths Fannie Mae and Freddie Mac. Greenlaw estimates about 18.5 million taxpayer-backed mortgages are at rates higher than 5.75 percent interest.

By refinancing those mortgages at current, lower rates, Greenlaw believes those homeowners would save $46 billion a year. Gross said the refi scheme would spur some $50-60 billion a year in new consumer spending and raise home prices between 5-10 percent. Forecasters, including Fannie Mae, say home prices are set to decline the rest of the year and into 2011.

The politics of this plan are interesting: The difficulty with most housing interventions is that they help the family that took on too much housing debt, and that makes their neighbors -- who didn't take on too much housing debt -- angry. This plan, by contrast, helps the people who aren't behind on their mortgages. It helps the people who've been doing everything right, but are nevertheless stuck in a crummy economy.

Photo credit: The Washington Post

What would you like to know?

New jobless claims rose to 500,000 this week. Meanwhile:

Karin Wilzig has a hard time choosing a favorite color from among the 64 that she and her husband can use to illuminate the 14 1/2- foot, 450-gallon aquarium in their TriBeCa town house. The default is fuchsia, which turns the dozen koi a deep pink.

“Not pink,” said Mrs. Wilzig, 40, an artist and a mother of two small children. “Alan, go to the turquoise.”

Her husband, Alan Wilzig, 45, a former banker who collects motorcycles and prides himself on the orange tanning bed in his basement, goes to the James Bond-like control panel in the kitchen, where a touch of a button turns the fish — which are specially bred to be colorless — a vivid blue.

To be fair, it's actually good for rich people to buy fancy aquariums. Economic activity is economic activity. But it's odd to read these sorts of articles in a world where one of the two major political parties wants to borrow $700 billion for a tax cut for the rich but says we don't have enough money to offer further relief for the jobless and the struggling.

See if this structure seems familiar to you: Over the past two years, Barack Obama has done X. Now, his poll numbers have slipped to 44 percent. His party is slated to lose a lot of seats in the 2010 midterms. Obama's decision to do X is to blame.

"X" can be a lot of things. Maybe it's the decision to attempt health-care reform. Or his socialist tendencies. Or his cool, professorial demeanor. In Matt Bai's latest article, John Podesta says it's Obama's pursuit of an ambitious legislative agenda. If he'd spent less time passing legislation, he could've spent more time developing and selling popular themes. In John Judis's latest article, it's the absence of populism in Obama's speeches and policies.

The problem with the essays is that they don't consider the counterfactual. What if Obama had done not-X? Would things really be better for him? How do we know they wouldn't be worse?

Sadly, we can't hit rewind on the cosmic VCR and persuade Obama to do the other thing in the name of science. But we have had a number of presidents who did very different things, and that gives us some basis on which to make judgments. Let's start with approval ratings. Gallup's system will let me compare only four presidents at once, so I chose the last three presidents who entered office amid a recession and didn't have a country-unifying terrorist attack in their first year. That gives us Bill Clinton, Ronald Reagan and Jimmy Carter. The dashed line is an average of all recent presidents. Click on the graph for a larger version.

Obama's current approval rating of 44 percent beats Clinton, Carter and Reagan. All of them were between 39 percent and 41 percent at this point in their presidencies. And all of them were former governors who accomplished less legislatively than Obama has at this point in his presidency. That seems like a problem for Bai's thesis. At least two of them are remembered as great communicators with a deft populist touch. That seems like a problem for Judis's thesis.

Now let's look at midterm results. The following graph shows the change in House seats for the president's party in every first-term midterm election since 1900.

The pattern here is obvious: Losses, and big ones. Except for FDR's first midterm and George W. Bush's post-9/11 victory, there've been no gains at all.

Now, this is a bit of an imperfect comparison. When the president's party controls more seats, it can lose more seats. In 1982, Republicans had 192 seats in the House, and they lost 26 of them. Democrats currently have 253 seats in the House, and Larry Sabato predicts they'll lose 32 of them. That's actually a smaller percentage than what the Republicans lost under Reagan.

There's plenty to criticize in Obama's policies and plenty to lament in his politics. But when it comes to grand theories explaining how his strategic decisions led him to this horrible -- but historically, slightly-better-than-average -- political position, I'm skeptical. There are enormously powerful structural forces in American politics that seem to drag down first-term presidents. There is the simple mathematical reality that large majorities are always likely to lose a lot of seats. There is a terrible and ongoing economic slump -- weekly jobless claims hit 500,000 today -- that is causing Americans immense pain and suffering. Any explanations for the current political mood that don't put those front and center is, at the least, not doing enough to challenge the counterfactual.

Matt Miller has a thorough critique today of the Paul Ryan road map. The taxes are too low, he says, the savings take too long, and the health-care portion doesn't go nearly far enough. It's worth reading the whole thing. And it made me want to see Miller devote his next column to a road map of his own.

As for Ryan, recently he's been complaining about Democratic "attacks" on him and his plan. And, to be fair, there have been some of those. But Miller's op-ed isn't an attack. It's a critique -- part of the serious discussion about difficult choices Ryan says he wants his road map to start. So I'd love to see him respond.

In what is due to be among the biggest stock offerings in history, GM has announced its initial public offering after being bailed out by the federal government. You'll be hearing a lot about this as the administration tries to sell its record this fall. Meanwhile, a little-noticed provision in FinReg will allow the federal regulators to limit executive pay if they so choose; the bulk of private-sector job losses are coming from small businesses; a handy interactive graphic allows you to see how different approaches to the expiring Bush tax cuts would affect you; a handy paper will help you figure out the Fannie and Freddie debate; and a handy cover of some 90s alt-rock will start your morning right.

It's Thursday, which is almost, but not quite, like it being Friday. Welcome to Wonkbook.

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GM has filed for an IPO, reports Peter Whoriskey: "The public offering of stock -- which is likely to be one of the largest in history and unfold sometime in the fall -- will allow the U.S. government to offload some of its shares, dropping its stake to below 50 percent, according to sources familiar with the offering who spoke on the condition of anonymity because they were not authorized to discuss it publicly. According to the documents, the government will also give up the power to appoint members to GM's board."

Confused about Fannie and Freddie? Raj Date makes it simple: http://bit.ly/bwQw7h

Section 956(a) of FinReg gives regulators power over executive compensation, reports Zachary Goldfarb: "The pay decisions made by regulators will apply not only to banks but also to brokerages, credit unions, investment advisers, Fannie Mae and Freddie Mac, and other financial firms with $1 billion or more in assets..For now, banking regulators have decided to stick with the guidance-oriented approach they adopted in June. The guidance requires that banks ensure that pay plans reward long-term performance rather than excessive risk-taking; that banks monitor their risks carefully; and that boards play a large role monitoring compensation practices."

Look at how three different scenarios for the Bush tax cuts affect various earnings groups in this Washington Post interactive graphic: http://bit.ly/aJ3A9n

The bulk of job losses are coming from small firms, reports Sara Murray: "Businesses with fewer than 50 employees accounted for 61.8% of all job cuts in the private sector in the fourth quarter, the Labor Department reported Wednesday, while they created 54.1% of new jobs. Small companies employ roughly 29% of all workers. The numbers represent a reversal of the situation a year earlier, when small businesses made up a larger share of jobs added than of jobs lost. Small companies made up half of all jobs lost at the end of 2008 but also accounted for 53.9% of job gains."

Consumer credit defaults are down for the first time since 2006: http://nyti.ms/9gvmpl

'90s alt-rock cover interlude: Cymbals Eat Guitars play "Detroit Has a Skyline" by Superchunk.

Still to come: A new report indicates that tighter bank regulations won't hurt growth; BP is already trying to rehabilitate its public image; a study is reigniting the debate over "sanctuary" policies on immigration; and a toddler reads poetry.

By Dylan Matthews

Today, Ezra considered Mitt Romney's job creation proposal, laid out three solutions for demand declines, and looked at yet another tax cut chart.

1) Matt Yglesias goes hard against barber licensing.

2) The Census released new data on child care.

3) Maybe the Federal Reserve just doesn't like Democrats.

4) David Post on why jazz fans should support copyright reform.

It's been a rainy day in D.C. and, other suggestions aside, that means listening to lots of Belle & Sebastian. Here's "Marx and Engels."

Time for some ostentatious even-handedness: I dinged Mitt Romney today for some lazy anti-Democrat rhetoric, but this bit from the president has been bugging me. The quote comes from his Tuesday remarks at a luncheon for Sen. Patty Murray:

They spent almost a decade driving the economy into a ditch. I mean, think about it, if this -- if the economy was a car and they drove it into the ditch. (Laughter.) And so me and Patty, and a bunch of others, we go down there and we put on our boots and we’re pushing and shoving. And it’s muddy and there are bugs and we’re sweating -- (laughter) -- and shoving, pushing hard. And they’re all standing there sipping Slurpees -- (laughter) -- and watching and -- “you’re not pushing hard enough.” “That’s not the right way to push.” (Pretends to sip a Slurpee.) (Laughter and applause.)

So finally, finally, Patty and I and everybody, we finally get the car up on level ground. We’re about to go forward. And these guys come and tap us on the shoulder, and they say, “We want the keys back.” (Laughter.)

You can’t have the keys back. You don’t know how to drive. (Applause.) You don’t know how to drive. (Applause.) You can’t have them back. (Applause.) Can’t have them back. You can’t have them back. We are trying to go forward. We do not want to go backwards -- into the ditch again.

You notice, when you want to move forward in your car, what do you do? You put your car in “D.” (Applause.) When you want to go backwards, you put it in “R” -- (applause) -- back into the ditch. Keep that in mind in November. (Applause.) That’s not a coincidence. (Laughter.)

Maybe I'm just breathing too much of The Washington Post's air, but that last bit bugs me. The driving analogy? Fine. It's a colorful way of making a fair point about Republican mismanagement of the economy. But that bit about "D" and "R"? It doesn't feel presidential. It's more like the sort of joke that your liberal grandmother would forward you. It's lame.

Photo credit: By Saul Loeb/Agence France-Presse via Getty Images

By Dylan Matthews

bharshaw asks:

How does the rate of household creation relate to the rate of new housing construction?

During recessions, the household formation rate generally falls. Renters squeeze more people into the same units, young adults either stay with or move back in with their parents, and so forth. This has happened during the most recent downturn, and even before the crash. Gary Painter, a professor at USC, estimates (PDF) that the number of U.S. households fell by 1.2 million from 2005 to 2008.

The comparison of the household formation rate and the number of housing units being constructed indicates how many excess units are being built, or how big a shortage is, if one exists. During the financial crisis, a large number of excess units were constructed, and with both housing starts and household formation falling, this is being corrected to some degree, (data courtesy of the Census Bureau):

However, while some correction is going on, it is not sufficient to help the housing sector recover. Household formation has fallen far enough that excess housing built during the bubble is not being filled, which means there is little demand for new housing construction, which is hurting the homebuilding sector. This creates a Catch 22 of sorts. As Calculated Risk writes, housing construction often helps the economy out of a recession, but the housing sector is currently stagnating. Partly because of that, unemployment remains high, so people living in crowded arrangements or with their parents are not particularly inclined to form new households and spur growth in the housing market. This causes little growth in the housing market, which prevents a drop in the unemployment rate, and so on.

The first few paragraphs of Mitt Romney's job-creation proposal read like the introduction to a particularly boring segment on the Hannity show ("Almost every action the president has taken has deepened and lengthened the downturn"). But get past them, and Romney does something that most Republicans have shied from lately: He's outlines an actual economic agenda.

Here it is:

To give an immediate boost to jobs and investment, permit businesses to write off in 2010 and 2011 the capital investments made in those years rather than over time. Aggressively negotiate and sign trade agreements with other nations to promote American exports. Adopt an energy policy that will actually eliminate our dependence on OPEC and hostile states. Preserve our balanced labor-management rules and regulators. Rather than raising the tax on investment dividends, eliminate it and the tax on capital gains and interest for all households earning less than $250,000 a year.

Reshape government programs to ultimately put spending in balance with revenues. Restructure entitlements to make them fiscally sustainable, honoring our commitments to seniors. Rather than opening the door to ever-increasing demands from states for bail-outs, take action to enable the states to solve their unfunded pension obligations. And tame the growth of government by limiting the political power of public employee unions.

You can separate this into a few buckets: mostly regressive tax cuts that might spur economic growth; massive legislation with huge implications but no details or obvious paths to passage (trade agreements, entitlement reform, energy bill); and cuts to public-sector jobs that will raise the unemployment rate. But you know what? Good for Romney. This is actually an agenda, which means we can actually talk about it.

And one thing I'd note is that this seems certain to hugely increase uncertainty. A new energy bill? Uncertainty, both during the legislative process and the regulatory definitions process. New tax proposals? Uncertainty during the long legislative process; you don't want to make capital gains decisions if you the capital gains tax rate might change pretty soon. Forcing deep budget reforms on the state level? Uncertainty, as businesses don't know what the cuts will mean for demand or infrastructure.

Now, that may all be acceptable: I'm not a big believer in the uncertainty argument, and if good policy requires a period of uncertainty, then fine. But since Romney says that the private sector is currently "paralyzed by the uncertainty," it's not clear to me how pushing a lot more uncertainty into the mix would help. All that said, I appreciate Romney's tentative specificity. Actually saying what you would like to do to help the American economy is, well, presidential.

Last week, I posted a graphic showing how many dollars various income groups would save under the Bush and Obama tax plans. The basic takeaway was that the middle class would do a bit better under Obama's plan and the rich would do a lot better under Bush's plan. But wait!, some of you said. That graph doesn't show the percent of taxes both groups pay!

Well, of course not. The percentage of taxes both groups pay is neither here nor there in a direct distributional comparison of the two tax plans. The fact that the rich pay more in taxes than the poor doesn't mean they should get a larger tax cut than the poor. Nor does it mean they should get a smaller cut. The distributional comparison is a fact about the plans. What you think about that fact is up to you.

But here at Klein Industries, we aim to please. So here's a chart (pdf) from Brookings's Adam Looney (thanks, Jon Chait!) which compares the value of the Obama and Bush tax plans as a proportion of after-tax income. That way, it's adjusted for the size of each group's total income. Click on it for a larger version.

What you can see there is that even in percentile terms, the Bush tax cuts do much more for the incomes of the rich than the poor, and the Obama proposal would do a lot more for the poor than for the rich. Make of this what you will.

Sheryl WuDunn talks about the world's greatest -- and most counterproductive -- injustice:

And don't miss the rollover text: "They actually started this reversed-text practice in 1977 -- not for ease-of-use reasons, but because too many people were driving backward down the highway blasting the Star Wars opening theme."

I love nerds.

The Dylan Matthews Act of 2010 would end uncertainty.

I wouldn't have thought that Virginia Gov. Bob McDonnell, a Christian conservative with a hard moralist streak, would be the guy to substantially loosen the state's liquor laws and increase the availability of booze. But so it goes. And in case it's unclear, I'm fully in support of this policy: State monopolies on liquor sales combine bad economic policy with bad social policy.

Photo credit: Tracy A. Woodward/The Washington Post.

Tyler Cowen's post separating types of demand problems is really worth reading. There are at least three ways in which demand can decline, he says, and each suggests different solutions.

The first is the most basic: Spending goes down for a bit. You can fix that with stimulus.

The second is also intuitive, but more worrying: Spending readjusts to a permanently lower level. That one is harder to fix. You need to make people wealthier again, or shift your economy away from consumption.

The third is a bit more complicated: Demand for certain items -- say, consumer goods that people don't necessarily need to purchase -- falls, and you need to wait for people's wealth situation to change or for them to wear holes in their shoes.

The economy, of course, can experience all three. The chaos of the initial financial crisis pushed spending way below the level we could support, and so stimulus made perfect sense as a way to close the gap between where demand was and where it should've been. But in the aftermath of the credit bubble, we really are less rich than we thought we were. We can't support the debt-based consumption that drove the economy in the early-years of the century. That requires thinking about the economy somewhat differently. It requires a long-term strategy.

The stimulus actually had some of this. There were a raft of policies investing in green technology, high-speed rail, medical research, health information technology, education and other areas that won't pay off in the next year or so, but are meant to help birth new industries and generate a more stable economic foundation in the future. Those policies are now being attacked because they didn't spend out as quickly as the tax cuts, but I consider them economically wise, even if they were politically unwise.

What I'd really like to be talking about right now are long-term proposals to help deal with long-term growth. Things such as early-childhood education, a permanent extension of the R&D; tax credit, a large investment in our public universities (particularly given the cuts they're experiencing right now), much more attention to retraining, and so on. But the opposite is happening, and short-term economic and political considerations are actually handicapping long-term policies: States are cutting school funding and various Republican senators are trying to divert unspent money in the stimulus bill's long-term investments to deficit reduction.

Al Kamen gets all the good invites:

It's "Sen. Conrad's Biggest Non-Event of the Year!" the invitation says. "You are invited not to attend a special reception for Friends of Kent Conrad." The invite -- we're told it was Conrad's idea -- highlights the people "Already Committed Not to Attend: Sandra Bullock, Michael Jackson, George Clooney," and those who were "Not Invited to Attend: Lady Gaga, Lindsay Lohan, Simon Cowell." So no crowds to worry about -- no one at all, in fact -- and no cheap booze.

The fundraiser will be "anytime after Aug. 15, 2010, but before Sept. 10, 2010," and will be held "wherever you want" and at whatever time you want. The "suggested contribution levels" for this non-happening are $2,500 for a PAC and $1,000 for individuals.

And here are the key benefits, according to the invite, of the non-event event:

With the time you would otherwise spend with the Friends of Kent Conrad, you could:

-- Update your Facebook page.

-- Floss.

-- Do absolutely nothing.

-- Spend time with your family.

-- Recite words that rhyme with orange.

-- Sleep.

Photo credit: Melina Mara/TWP.

The Obama administration opened its conference on the future of housing policy yesterday with Treasury Secretary Tim Geithner promising both an overhaul of Fannie and Freddie and a continued federal role in backstopping mortgages. Meanwhile, the national insurance commissioners' organization has released rules governing what insurers can count as medical costs, one of the first decisions made under health care reform. And despite its mild actions last week, the Fed's forecast suggests it will likely not adopt more aggressive measures. In fact, some Fed leaders worry that the market overinterpreted last week's mild actions as, well, I don't know: Moderate? Lukewarm? Vaguely engaged? The Fed may be strange, but the market is even stranger.

Due to electrical problems, the Red Hook Lobster Pound Truck is still not on the streets. Sigh. At least Wonkbook is still here for you.

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The administration's housing policy conference offered some clues as to their likely direction on Fannie and Freddie, reports Zachary Goldfarb: "The Cabinet secretaries, who are leading the housing overhaul effort, said they envision a hybrid system that relies far more on private companies to provide funding for home loans but still features a government backstop for those loans. The remarks by Geithner and Donovan -- and their selection of like-minded panelists from industry, think tanks and other sectors -- suggested that the administration is not prepared to embrace more radical proposals offered by a few of the conference participants. Bill Gross, who runs the world's biggest bond firm, Pimco, argued that the mortgage market should be completely nationalized."

The Fed's economic forecast suggests that further action is unlikely, reports Neil Irwin: "Some economists outside the Fed -- and a handful inside it -- are advocating that the central bank respond to the weaker economic outlook by undertaking more unconventional efforts, such as resuming major asset purchases. The Fed's leadership, however, has set the bar higher for using less-conventional measures than it has for using the better-understood federal funds rate. That's because policymakers aren't sure exactly how much impact, if any, buying $500 billion of Treasury bonds would have on the economy."

The Minneapolis Fed chair worries that the markets misread the Fed's modest asset buy as more interventionist than it actually was, writes Catherine Rampell: http://nyti.ms/a1R8ZB

Joseph Gagnon, a former associate director of monetary affairs at the Fed, lays out a plan for what the Fed could do if it felt like actually being interventionist: http://bit.ly/dvquCc

The National Insurance Commissioners of America has adopted rules governing medical-loss ratios under health care reform, reports Sarah Kliff: "The National Association of Insurance Commissioners approved Tuesday morning a preliminary outline of what insurers will be able to count as medical costs, a document necessitated by the health reform bill’s requirement that insurers spend at least 85 percent of subscriber premiums on medical costs in the large group market and 80 percent for small group and individual plans."

Glasgow pop interlude: Belle & Sebastian play "Lazy Line Painter Jane".

Still to come: Warren meets with bank lobbyists; experts dispute the spill's impact; DOJ may sue Arpaio; and 2010 midterm election stories presented with CGI animation, in Mandarin.

Got crunched for time so no reconciliation today. Maybe you should make some (indoor!) grilled corn instead.