Marketplace Scratch Pad

Thanks for the memories

nospam@example.org (Scott Jagow) — Wed, 31 Mar 2010 09:37:58 PDT

I wanted to let you know that the Scratch Pad archive will remain online indefinitely. It’s a pretty interesting chronicle of one of the most tumultuous economic years in history. I’ve been looking back through it and getting nostalgic about all the things we did together.

We worried about debt.

And about journalism.

We pulled back the curtain on Marketplace.

We wrote poetry together.

And Haiku.

We had imaginary conversations.

We watched TV .

We lamented AIG

We commented on our crazy times.

We laughed at strange, but true stories.

Who can forget about the demon sheep?

We discovered new writers and artists together:

We had some great debates.

Especially about the housing market.

Mainly about one homebuyer in particular.

And about health care.

I could go on. There are about 1,500 posts. Each of the above sentences is a link to one of those posts. Maybe you’ll enjoy looking back as well.

Thank you for all the kind words in the comment section of my previous post. I will miss you too. I hope we can stay in touch.

And once again, thank you!

All the best,

Scott

The Future

nospam@example.org (Scott Jagow) — Tue, 30 Mar 2010 12:36:13 PDT

I have news, dear reader. Tomorrow will be the last day of the Scratch Pad blog and my last day at Marketplace.

The grant paying for my position is running out, and it won’t be renewed. Such are the times. But while the blog as you’ve known it is going away, Marketplace’s commitment to a dynamic, thought-provoking website is not.

I’d like to introduce our new web producer, Matt Berger. Matt has some great ideas for improving Marketplace.org, and he’d like to hear yours as well. Matt writes:

As we bid farewell to the Scratch Pad blog we’re excited about what’s to come for Marketplace.org. Over the next few weeks and months you will notice a number of changes and additions to the site, including more contributors, new types of multimedia features, and updates to our homepage and site design.

To make this possible, we’re investing in new staff and new technology that will allow us to expand our depth and breadth of coverage and provide new ways for our community of listeners to access the editors and reporters who contribute to Marketplace day in and day out.

Some things won’t change, however. We’ll continue to deliver our regular radio programming, as well as daily reports on business news that matters, and special online features like our popular video series The Whiteboard with Senior Editor Paddy Hirsh, which continues to attract new fans who appreciate Paddy’s smart and approachable explanations of complex business subjects.

Before we get too far, we’d love to hear your feedback. How do you think we can we improve Marketplace.org? Post your comments and ideas below…

Please do. As for me, I’ll be off to new and exciting adventures. Contact me on Facebook if you’d like to stay in touch.

Apologies for the short notice, but Matt just came on board this week, and we weren’t sure exactly how and when we would be making this transition.

I’ll write another post tomorrow wrapping things up, but I won’t be able to say enough how much I’ve appreciated your participation in this blog. By adding your diverse knowledge and perspectives, you’ve greatly enhanced the discussion on our website, and I hope you’ll continue to do so going forward.

Many thanks.

An egg on a spoon

nospam@example.org (Scott Jagow) — Tue, 30 Mar 2010 11:22:01 PDT

That’s the economy for you, delicately balanced on a spoon in the egg race that is the country’s future. The finish line is a recovery. But the housing market could be a pothole up ahead, and the stock market might be the blindfold we’re wearing.

Today’s housing report from Case-Schiller showed an 8th consecutive month of price increases but many economists don’t think that trend will continue, and in fact, they expect a “double-dip” in prices.

Historically, when the economy is in recovery mode, economists always talk about the housing market being a key component. But perhaps this time, it’s different. Can this economy recover without the housing market bouncing back? It may have to. Recently, Daniel Gross at Slate made this wise observation:

The continuing problems in housing have changed the way Americans consume, borrow, and invest. And that’s all to the good. Instead of purchasing things with money borrowed via home equity loans, we’re buying things with cash from earnings or savings. That may mean spending somewhat less, but spending somewhat smarter. Capital investment, instead of going into new housing and condo developments, is going into solar plants and retrofitting existing buildings. Growing without housing, and the cheap money it spun, may be harder. But it’s not impossible.

Speaking of cheap money, the stock market is “partying like it’s 2003,” as The New York Times put it:

Judging from stock prices alone, one would think the economy was poised for a roaring comeback. But the federal government plans to unplug the economic life-support programs that stimulated production, kept interest rates low and placed a thick cushion under the real estate market…

“A lot of people believe the government will just keep pumping money into this,” said Doug Roberts, chief investment strategist for Channel Capital Research.

There are signs that some of investors’ optimism may be excessive.

Interest rates, kept at historical lows by the Fed during the financial crisis, are starting to rise because of the flight from bonds and concern over rising debt, particularly that of the United States.

Higher interest rates will not only push investors out of stocks, they will delay the rebound of the housing market. But as long as the jobs start coming, the economy should weave its way forward, hopefully without falling off the spoon. For example, there are signs today that demand for imports from Asia is surging:

Container shipments at Busan, the world’s fifth-busiest port, rose 21 percent in the first two months, rebounding from the slump last year that forced Park to lease extra space to help store more than 31,000 empty boxes. In the U.S., retail container traffic will likely rise 13 percent this month and by 17 percent in the first half as shops restock, according to the Washington-based National Retail Federation.

That’s caused rates for ad hoc shipments on Asia-U.S. routes to jump about 50 percent this year to around $2,100 per forty-foot box, according to Johnson Leung, a Hong Kong-based analyst at Tufton Oceanic Ltd., the world’s largest shipping hedge-fund group.

“The volume is surprisingly high,” he said.

American businesses are in a transition period. They’ve cut their inventories but are seeing orders increase. They’re trying to find balance, and that’s just what the egg needs.

Morning Reading

nospam@example.org (Scott Jagow) — Tue, 30 Mar 2010 05:53:27 PDT

Good morning. Among the items I’ve seen so far — why the government can’t see the future, the problem with low interest rates and money literally falling out of the back of an armored truck…

Chris Dodd’s cloudy crystal ball (Forbes)

Sen. Chris Dodd, D-Conn., wants to legislate clairvoyance, requiring financial regulators to see the future perfectly and prevent it before it happens. His financial reform bill, which he released last week, shows that Washington hasn’t learned the lesson of the financial meltdown: humility…

The way to protect against an unknowable future is through rules that don’t require “unachievable specificity in regulatory fine-tuning,” in Greenspan’s phrase. That means applying consistent, predictable rules to finance, protecting the economy from financial-industry disaster no matter what happens.

Low interest rates are killing savers (Allan Sloan/Washington Post)

Interest rates are so low, the recent rate uptick on longer-term Treasury securities notwithstanding, that it takes a surprisingly large amount of money to generate even a modest amount of lifetime income.

The ballad of GM (The Baseline Scenario) A take-off from This American Life’s episode on the Nummi auto plant in California…

But more valuable than the simple history are some of the basic business lessons to be learned from the story, which were very familiar from my years in the business world: Put quality before volume. Everyone has to care about quality. People need to feel ownership over their work. People want to see other people using their products and services… If people are doing work they are proud of, they will care about it more and will be happier. And, as the head of Toyota recently said before Congress, you shouldn’t grow faster than the natural capacity of your organization.

CNN’s ratings continue to plummet (New York Times)

$100,000 falls out of armored car; passers-by collect most of it (Columbus Dispatch)

“We’re hoping that more people do the right thing,” Snider said. There is the possibility that those who don’t return the money will be prosecuted. The police department does have video and photographs.

“There’s still a lot of money out there,” Kelso said. “People need to come in and turn the money in. If they don’t and we ID them, they will be facing charges.”

Optimism?

nospam@example.org (Scott Jagow) — Mon, 29 Mar 2010 11:42:22 PDT

This could be a big week for gauging the economy’s turnaround prospects. Friday’s jobs report could be the most positive in many months. And a report out today suggests consumer spending is picking for real.

The Commerce Department reported that personal spending rose 0.3 percent in February, the fifth straight month of increases. Christian Science Monitor has this analysis:

“Overall, real consumer spending is on track to rise just above 3 percent [annualized] in the first quarter, which would be the strongest increase in three years and much better than the fourth quarter’s 1.6 percent,” economist Nigel Gault of IHS Global Insight says in a written analysis of the numbers.

Economists are predicting the possibility of a net gain of jobs for March, perhaps plus 200,000 or even 300,000 jobs.

Economist Peter Morici at the University of Maryland is pretty upbeat:

Finally, it is happening!

The economy needs to create about 140,000 jobs each month to keep pace with labor force growth, and it is a long way from getting back the 8.4 million jobs lost during the Great Recession.

If Americans can manage down their trade deficit with China and cut gasoline consumption, gradually, the economy can get back those lost jobs.

Increased consumer spending is usually a leading indicator of employment. The more consumers spend, the more likely companies are to start hiring.

One troubling statistic is that inflation-adjusted incomes have remained flat for about six months or so, continuing a decade-long trend of incomes not growing.

But overall, are you finally starting to feel a bit more optimistic?

Morning Reading

nospam@example.org (Scott Jagow) — Mon, 29 Mar 2010 05:57:19 PDT

Good morning. Hope you had a good weekend. Where’s the outrage over Fannie and Freddie? A good question to start the week:

Fannie and Freddie: The biggest bailout (New York Post)

It is highly likely that taxpayers will lose well over $200 billion — and it may well pass $300 billion. When the history of the crisis is all written, these two institutions will turn out to be the most costly of the financial sector — worse than AIG, Citigroup or Bank of America/Merrill Lynch…

Fannie Mae and Freddie Mac are where they are because they were run as the largest hedge funds on the planet.

The housing market isn’t going to “recover” (Christian Science Monitor)

What would you rather have, a mutual fund growing at 10% per year…or a house that goes up by 10% per year? The house! Because you can live in it…and show it off. So you leverage up…you buy twice the house you can afford. You live better. And you make more money.

Those days are over. But, not everyone realizes it.

Finding a job is hard, even for the most educated (NPR)

“I think the recession in a way is pretty traumatic,” says Max Caldwell, managing principal for Towers Watson, an HR consulting firm. The healthy response, he says, is for graduates to start managing their own career development, and rely less on employers to provide training and advancement.

Day Traders 2.0: Wired, angry and loving it (New York Times)

“There’s this idea out there that retail investors are dumb,” says Howard Lindzon, the co-founder of StockTwits, which curates a gusher of stock tips and financial news alerts tweeted by 20,000 regular contributors. “Well, it turns out that the institutional investors are pretty dumb. They nearly blew us all up with leverage.”

Less filling, bad taste

nospam@example.org (Scott Jagow) — Fri, 26 Mar 2010 14:15:58 PDT

This may be a bit in the weeds, but it’s probably worth taking a run at. Investors seem to be warming back up to a certain type of loan known as covenant-lite. The lite part isn’t a good thing.

The Wall Street Journal reports that banks removed the covenants from a $3.25 billion loan package for bankrupt chemical company Lyondell. Our Whiteboard guru Paddy Hirsch explains covenants this way:

Covenants are like early warning signals. Or maybe like a set of automatic brakes, the kind you have on a subway train. If you’ve seen the movie The Taking of Pelham 123, you’ll remember that scene where the out-of-control train trips an automatic brake, and the train screeches to a halt just before it blasts through the wall and, presumably, into the Hudson River. Well, loan covenants are like those trips, they give the lenders a chance to tweak a loan before it all goes horribly wrong.

For example, a covenant might require the borrower to prove that its earning a certain amount of money each quarter — something akin to proving your income for a home loan. If the covenant isn’t met, the bank can either tweak the loan or demand its money back. When the covenants are removed, it’s known as a covenant-lite loan. More from Paddy:

In a truly cov-lite loan, the lenders have no warning that the borrowing company could default. The first thing they’ll hear is the company saying, sorry, we can’t make the interest payment. In other words, the lenders have no control over a company’s ability to keep paying interest.

Covenants give the lenders control, so it’s not surprising companies don’t like them.

But they protect the loan investors. Not only did the banks remove the covenants from Lyondell’s loan, but it lowered the yield, and investors still came flocking. More from the Journal:

Some investors turned away from the loan portion of the packaged after the lead banks changed the terms, removing financial requirements in an arrangement known as covenant-lite. The loan market has been skittish about covenant-lite loans since the economic crisis drove prices to all-time lows in March 2009.

But the investors who were turned away by the last-minute changes in the deal were quickly replaced, people with knowledge of the deal said. That affirms signs that the market may be warming to cov-lite loans again.

Possibly signaling confidence? Wrong-headed confidence? Or possibly just that the market is slinking back into its old ways of recklessness?

Covenants are, of course, unpopular with borrowers. Anything that makes it more difficult to get the money is unpopular with borrowers. But let’s think for a second what kind of shredded safety net was in place for many home loans. Paddy sums it up this way:

… would you like it if your lenders made it a requirement of your home loan that you have to prove every quarter that you’re earnings enough to make your mortgage payments? None of your damn’ business, I hear you say.

But we’re not talking about 250K home loans here, we’re talking about billions of dollars of loans, much of which is lent, directly or indirectly, by pension funds. And if loans like those start going bad without any warning, the lenders could end up losing a lot of money. And that would leave us all very badly needing a drink.

Wall Street strikes again

nospam@example.org (Scott Jagow) — Fri, 26 Mar 2010 11:19:06 PDT

You might want to sit down for this one. The US Justice Department is alleging that more than a dozen Wall Street firms were involved in a conspiracy to pay below-market interest rates to cities and states on certain investments. In other words, they colluded to shortchange the taxpayers.

The companies named in court documents filed this week include Bank of America, Bear Stearns, GE, Lehman Brothers and a former unit of Citigroup. More from Bloomberg:

The government’s case centers on investments known as guaranteed investment contracts that cities, states and school districts buy with the money they receive through municipal bond sales. Some $400 billion of municipal bonds are issued each year, and localities use the contracts to earn a return on some of the money until they need it for construction or other projects.

The Internal Revenue Service sometimes collects earnings on those investments and requires that they be awarded by competitive bidding to ensure that governments receive a fair return. The government charges that CDR ran sham auctions that allowed the banks to pay below-market interest rates to local governments.

None of the companies have been charged with anything… yet:

The court records mark the first time these companies have been identified as co-conspirators. They provide the broadest look yet at alleged collusion in the $2.8 trillion municipal securities market that the government says delivered profits to Wall Street at taxpayers’ expense.

“If the government is saying they are co-conspirators, the government believes they have sufficient evidence that they can show they were part of the conspiracy,” said Richard Donovan, a partner at New York-based law firm Kelley Drye & Warren LLP and co-chair of its antitrust practice.

Cities and states are also pursuing the Wall Street firms in civil court.

May justice be done.

Who will make the Final Four?

nospam@example.org (Scott Jagow) — Fri, 26 Mar 2010 08:17:59 PDT

I’m not talking about NCAA basketball tournament. It’s time for the annual Worst Company in America bracket from Consumerist! Will AIG defend its title? Let me tell ya, there are some intriguing first-round matchups.

How about B of A vs Citigroup? Toyota vs GM. Ticketmaster vs NBC. Microsoft vs Apple. Oooh — Comcast and Directv. What a tournament! Here’s the bracket:

I gotta think Toyota will go pretty far, just because of its recent form, but six months ago, GM would probably have trounced Toyota.

NBC has its moments, but Ticketmaster is just too good at angering its customer base to not walk through the first round. WalMart will also win easily. And I have Bank of America moving on, although that should be a nailbiter with Citigroup.

AIG vs Cash4Gold is a surprisingly good first round matchup. AIG unloaded some of its problems from last year’s team, so they could be ripe for an upset, but I’ll take AIG in a squeaker.

The airlines are a toss-up, but I see US Airways and Continental advancing. Comcast has a fairly easy road to the Final Four, and so does AIG, although Best Buy or PayPal (Ebay) could pose a challenge this year.

That one regional is loaded: Toyota, Ticketmaster, Anthem, Chase. Whew. I see Toyota and Ticketmaster as the finalists. How do you call that one? Ticketmaster in a buzzer beater.

So, my final four: Bank of America, Ticketmaster, Comcast and Best Buy (calling the upset). Bank of America beats Comcast in the championship game. The banking conference is just too strong this year.

You can vote on some of the matchups here. How do you see it?

Morning Reading

nospam@example.org (Scott Jagow) — Fri, 26 Mar 2010 05:52:42 PDT

Happy Friday. This morning — a report on yesterday’s dramatic foreclosure hearing in Congress, plus a take on why the word “stimulus” isn’t being used much anymore.

Foreclosures: Who’s being helped, who’s being left out? (PBS NewsHour)

Why mortgage principal reduction isn’t happening (Felix Salmon)

Bankers are always on the look-out for a good excuse not to engage in principal write-downs, and this is another arrow to add to their quiver of such excuses: doing so will enrage and inflame their customer base.

Lehman’s desperate housewives (Vanity Fair)

On Wall Street, they pay you so much that they own you. You know? So it’s different. They have your soul. You gave it to them for the money.

They’re not calling the stimulus bill a stimulus bill anymore (Real Clear Markets)

The term “shovel ready” seems to have disappeared from the language just as quickly as it arrived. The idea that greater public borrowing would leverage capital expenditures to put the U.S. back to full employment is now replaced by boasts that Washington has saved Albany, Springfield and Sacramento from laying-off government workers. Whatever the value of that gold-plated jobs program, it is not “stimulus.”

China’s pollution just keeps circling the earth (The Raw Story)

Pollution from Asia’s booming economies rises into the stratosphere during the monsoon season then circles the world for years, according to a report out Thursday.

GM hopes to win back those “Who killed the Electric Car?” people (NPR)

A decade ago, GM angered customers who leased its first electric car, the EV1, when it canceled the program. Now, GM hopes to win those customers back — along with many more.

The future of med school

nospam@example.org (Scott Jagow) — Thu, 25 Mar 2010 09:12:26 PDT

A major concern with health care reform is that it could mean a flood of newly insured patients into doctors’ offices, and therefore, a doctor shortage. Depending on how you look at it, it might be a good problem to have. But it’s still a problem, and it’ll most likely require creative solutions.

The bill itself provides some potential solutions, like increased funding for community clinics and greater use of nurses and doctor’s assistants.

But long-term, what’s required is extra incentives for people to become doctors, specifically primary care physicians.

A new program at Texas Tech University could be a sign of things to come. Yesterday, the school announced the Family Medicine Accelerated Track (FMAT) — the first three-year nationally-accredited medical degree. It’s half the cost of a traditional medical degree. The chairman of the department Michael Ragain describes it:

“The high cost of medical school and resulting debt are major challenges for many prospective medical students,” Ragain said. “Our program addresses debt on two levels, first by shortening the program from four to three years, and second, by providing scholarships to all qualifying students. Training primary care physicians is a national issue that targets both rural and urban areas. With programs such as this, we can double the number of primary care physicians available to care for the U.S. population.”

The school says the fourth year of med school is primarily devoted to specializing in a certain area and that the three-year degree will fully prepare students for being primary care doctors.

I remember doing a series many years ago about the shortage of doctors in rural areas, and one thing that stuck with me is that it’s not all about economic incentives. Being a primary care physician is tough, especially in a rural setting. There’s high burnout. It’s also a rewarding job, but the rewards aren’t financial compared to being a specialist.

It’ll be interesting to see if cutting a medical degree’s expense in half and shaving off a year of intense studying can actually double the number of primary care physicians.

We’ll explore this further on Marketplace tonight, but what do you think of this idea?

A chat with Paddy

nospam@example.org (Scott Jagow) — Thu, 25 Mar 2010 08:04:09 PDT

Thought you might like to read an interview with our very own Whiteboard editor Paddy Hirsch. He’s featured at the Business Insider this week.

From Clusterstock:

PADDY: I can only take partial credit for the Whiteboard. It was born as a presentation tool to explain to Marketplace staff the origins of the crisis and the need to save Bear Stearns. I got the idea from a famous engraving of the disaster that befell the first party that climbed the Matterhorn. A man slipped and fell, and because he was tied to several others in his party, he dragged them to their deaths as well. It seemed like a fitting analogy for what people thought might happen to the banks if the big ones were allowed to fail.

And from that fitting analogy was born a Internet video star with a magic marker. Using simple drawings and language, Paddy has explained everything from interest rates to the repo market to collateralized debt obligations in a way you’ve surely never heard before:

PADDY: I try behave a bit like a a 9-year-old, in terms of breaking it down. The best part is that a-ha moment where you know you’ve explained it in a way people can understand.

Are you an artist at all?

PH: ::laughs:: No I suck at art! I actually went out and bought some books by a guy called Ed Emberley that teach you how to draw and I’ve learned a lot from that. I’m getting better!

Below is Paddy’s favorite Whiteboard of all time. View the Whiteboard archive here.

The credit crisis as Antarctic expedition from Marketplace on Vimeo.

Morning Reading

nospam@example.org (Scott Jagow) — Thu, 25 Mar 2010 05:56:49 PDT

Good morning. To start the day, let’s talk about the merits of a cash economy, the drawbacks of too much corporate cash, and the vultures — I mean, plantiffs — that are circling Toyota.

Credit is dead. Long Live Cash! (Newsweek)

Texas electricity provider First Choice Power in January launched a prepaid service called Control First. “In Texas, there are about a million households who have slim credit or no credit at all,” says company president Brian Hayduk. Without requiring a deposit or credit, customers are permitted to prepurchase a set amount of electricity—say $100 per month. The company installs a smart meter that lets people know how much they’ve used—which spurs customers to manage their energy use more intelligently.

The rise of the cash economy has made businesses hesitant to make the type of capital expenditures they used to fund with debt—big-ticket items like factories, expensive equipment, and new buildings.

Speaking of cash, big companies are bathing in it (Los Angeles Times)

“The good news for America now is that companies are very competitive, flush with cash and ready to expand,” said Joseph Carson, an economist at money management firm AllianceBernstein in New York.

But others worry that the business giants’ clout has increased significantly at the expense of workers — the millions in the ranks of the jobless as well as those who remain employed but must work harder than ever.

The one provision that could sink financial reform (The New Republic) Couldn’t agree more…

Whenever an agency doesn’t do its job in Washington, the temptation is to create still another agency to oversee it. That was the proposed solution for the intelligence failures of the Central Intelligence Agency and Federal Bureau of Investigation. And now it’s Washington’s solution to the failures of the Federal Reserve. But this council wouldn’t address the principal reasons for the failure of the Fed from 1997 or so through 2007, when it pressed for further financial deregulation and ignored or downplayed the warning signs of the dot-com and housing bubbles. We know what happened next.

Lawyers jostle to lead the charge against Toyota (NPR)

There are so many lawsuits, in fact, that a panel of federal judges in San Diego is meeting Thursday to sort out the timing, location and logistics of the legal battle.

The suits each claim to be filed on behalf of at least 6 million drivers. Some say Toyota knew about the sudden acceleration problems but failed to tell consumers. Others say Toyota’s solution ignores the real problem — flawed electronics. Whatever the reason, owners all claim the value of their cars has plummeted since last fall’s recall, and they want full refunds.

GM’s unveils a networked mini-car for the city streets

As drivers await the arrival of General Motors’s much-anticipated Chevy Volt plug-in hybrid car later this year, GM unveiled an electric vehicle of an entirely different stripe on Wednesday at the World Expo 2010 in Shanghai. The company’s Electric Networked Vehicle (EN-V) is a mini electric vehicle built for two, unless you are using it to go shopping, in which case you might have room for yourself and a bag of groceries.

Caveat emptor and vice versa

nospam@example.org (Scott Jagow) — Wed, 24 Mar 2010 13:04:18 PDT

I pointed out a new Bloomberg poll today that contains mostly expected results. Americans have unfavorable views of Wall Street, Congress, insurance companies and business executives. But a little surprising were the answers on consumer protection:

Almost seven out of 10 people surveyed support using current bank regulators for consumer protection, backing positions held by the financial industry and Republicans over President Barack Obama’s proposal to establish an independent agency…

Obama’s proposal for a stand-alone consumer agency has been a main sticking point in negotiations between Senate Democrats and Republicans on broader legislation to increase oversight of Wall Street.

“By creating a new consumer agency, we will finally set and enforce clear rules of the road across the financial marketplace,” Obama said in a March 22 statement. “I will continue to fight to strengthen the bill and against attempts to undermine the independence of this agency.”

But the current proposal has the consumer protection agency housed at the Fed. Bloomberg also had this quote:

“People are generally satisfied with the way consumer protection has worked with banks,” said Mr Ernie Patrikis, a lawyer who specialises in banking supervision. “Most Americans could care less about redoing the financial regulatory structure.”

I seriously doubt the spirit of that last comment, but he may have a point. What people want isn’t necessarily an independent this or a supervising that. They want some semblance of fairness, and they want to see repercussions for people who take advantage of others and for those who behave recklessly with their own money or with money that eventually comes out of the taxpayer’s pocket. They want to know what the rules are and that they will be enforced.

Scratch Pad reader Sam in Texas asks important questions: 1) how does a Consumer Protection Agency stay independent, and 2) would the proposed Consumer Protection Agency have been able to prevent the booking of bad mortgages that led to our current financial crisis?

Even under the Fed, the consumer protection agency would have an independent budget, a somewhat independent process for choosing leadership and a somewhat autonomous rule-making authority. How that all would work in reality inside the Fed’s walls is up for debate. But independent agencies have failed in the past, too.

Who knows whether such an agency could’ve prevented the subprime crisis? Maybe that’s part of the hesitation we’re seeing in this poll.

I harken back to a 1933 FDR speech in which he proposed disclosure requirements on stock sales:

This proposal adds to the ancient rule of caveat emptor, the further doctrine “let the seller also beware.” It puts the burden of telling the whole truth on the seller. It should give impetus to honest dealing in securities and thereby bring back public confidence.

The purpose of the legislation I suggest is to protect the public with the least possible interference with honest business.

What’s interesting is that FDR proposed the regulation without a regulator in mind. The SEC eventually took up the mantle, but FDR started with the regulation, not the regulator and its independent qualities. It was the principle that was important.

Perhaps that’s what Americans are trying to say now.

Student loans and health care

nospam@example.org (Scott Jagow) — Wed, 24 Mar 2010 10:00:08 PDT

If you’re wondering why the health care legislation is finally getting through Congress, you might look no further than the part of the bill that overhauls the nation’s student loan business.

Yes, part of the health care package that has nothing to do with health care would end government subsidies to private student lenders. By cutting out the middlemen, the government projects $61 billion in savings over 10 years. That money would go directly to more student loans like Pell grants. It would also go toward reducing the deficit and offsetting expenses of the health care bill.

The overhaul appealed to many Democrats who were on the fence about the health care measures. Consider the comments of New Jersey Democrat Rob Andrews:

“This is a controversial, difficult vote for a lot of people, me included,” he said. “And the more things that you can go home and say are in the bill that are sort of universally popular, yeah, it helps. To say our community colleges are going to benefit, there is going to be more Pell grant scholarships available for more people. Institutions that serve African-Americans, Hispanics, Asian Americans, Native Americans are going to benefit from this. It cuts corporate welfare, which I really think is the present program.”

He continued, “It’s another set of deliverables that people like.”

The government’s takeover of student loan programs means banks and lenders like Sallie Mae will lose. That’s right — it appears the financial industry lobby isn’t going to win this one. But in a story last week on Marketplace, we pointed out that colleges were already going directly to the government:

…some schools are ignoring the student loan debate. They’re starting to cut out the middleman themselves. Students don’t have to get their government loans through the banks. There’s already a direct government loan program. The loans aren’t cheaper for the students, but they’re more convenient. And more schools have started offering them.

Questions: Is this overhaul actually necessary? Will it be better for students to have the government as the major — if not only — choice for loans? (Here’s a Q and A about aspects of the overhaul).

Democrats say this will end a piece of corporate welfare to Sallie Mae and the banks. Republicans see it as another piece of the government extending its power. Does this deal sit well with you, knowing that health care might’ve died without it?