Author: Annie Lowrey

Robert Reich has a good column on”why deficit hawks are killing the recovery.”

Consumer spending is 70 percent of the American economy, so if consumers can’t or won’t spend we’re back in the soup. Yet the government just reported that consumer spending stalled in April – the first month consumers didn’t up their spending since last September. Instead, consumers boosted their savings, probably because they’re worried about the slow pace of job growth (next Friday’s report will likely show gains, but the number will continue to be tiny compared to the overall ranks of the jobless), as well as a lackluster “recovery.” They’re also still carrying enormous debt burdens. One in four home owners is still underwater. And median wages are going nowhere.

So what’s Congress doing to stoke the economy as consumers pull back? In a word, nothing. Democratic House leaders yesterday shrank their jobs bill to a droplet. They jettisoned proposed subsidies to help the unemployed buy health insurance, as well as higher matching funds for state-run health programs such as Medicaid. And they trimmed extended unemployment insurance. “Members who are from low unemployment areas are very concerned about the deficit,” Nancy Pelosi explained.

It is worth noting explicitly that unemployment benefits are stimulus, and a highly effective form of it. When the government cuts an unemployed person a check, that person is necessarily jobless. He tends to have close to nothing in savings; Harvard’s Raj Chetty has calculated that the median person currently unemployed had only $250 in liquid savings at the time of job loss. He tends to have no other source of income. And so he generally goes out and spends his unemployment check — raising consumption, that all-important 70 percent of the economy — rather than saving it. That means that if Congress trims $40 billion in unemployment benefits, it trims $40 billion in stimulus and somewhere close to $40 billion in consumer spending as well.

The New York Times’ Ron Lieber has an excellent column on the severe hangover left by the cocktail of cheap credit and spiraling college tuitions: the tens of thousands of young people saddled with tens of thousands of dollars of what is, effectively, subprime student loan debt. In some cases, that student debt is more onerous than mortgage or credit-card debt, since it is difficult to get rid of via bankruptcy.

Lieber elucidates the point by telling the story of Cortney Munna, who lives in pricey San Francisco, makes $22 an hour and owes $97,000 to Citibank and Sallie Mae for her New York University diploma. She is a photographer’s assistant, and has no intention of going into a high-paying career in a field like finance. She is stuck, and her mother might end up selling off her bed and breakfast to rid her of debt.

Lieber’s story is particularly exceptional for making the argument others are loath to make: that Munna’s education was not worth it, and that she would have been better off dropping out and enrolling somewhere cheaper. Of course, on aggregate, people with college diplomas significantly out-earn those without them. And of course, it is impossible to calculate the value of time spent in school or of education for its own sake. But in Munna’s case, where a college diploma makes no difference in her earning potential in her chosen career, remaining in a pricey institution — New York University is the fourth most expensive out of the nation’s 1,800 private colleges — might not have been the right choice.

This week, Jesse Rothstein, the chief economist at the Labor Department, spoke at the Economic Policy Institute, and the organization just posted the slides. Congress is losing its stomach for funding extended benefits. But, as the slides show, long-term unemployment remains a major problem.

The chart underscores this point: For the economy to really start improving, hiring needs to be much stronger and the unemployment rate needs to start dropping much more quickly.

Yesterday, the Senate Committee on Health, Education, Labor and Pensions, or HELP, held a hearing to weigh the costs and benefits of funding certain ailing pension funds. Sen. Bob Casey (D-Pa.) has proposed legislation to aid some pension funds fed by multiple employers, such as some Teamsters benefit plans. Sen. Tom Harkin (D-Iowa), who heads HELP, yesterday argued that allowing the plans to fail or slash benefits would be “catastrophic for working families”:

Although pensions are insured by the Pension Benefit Guaranty Corporation, the payout for insured benefits hasn’t increased in years, so many retirees would see their benefits slashed.  Plus, the collapse of any multiemployer pension plan places an incredible strain on an agency already beleaguered by fiscal woes, and the failure of a large plan could cripple the agency.

Congress has already taken steps to provide targeted, short-term relief to ease them through these tough economic times, and funding relief will surely help some of these plans remain afloat.  But for a handful of multiemployer plans, short-term funding relief simply isn’t enough. Those are the plans we are focusing on today — the minority of plans that are truly in dire straits. They find themselves bearing costs dumped on them by defunct employers that failed to pay their fair share while, at the same time, watching their contribution base shrink as industries and demographics change over time. Those plans need long-term help and systemic reforms. The challenges faced by multiemployer plans are real, and we need to face them head-on because, quite frankly, they are simply too big to ignore.

Casey’s Create Jobs and Save Benefits Act targets hard-stricken multiemployer pension plans, which have suffered during the recession as individual firms paying into the plan have gone belly-up or have withdrawn, leaving the other firms to shoulder bigger burdens. Casey argues that the remaining payees into the fund should not have to cover the “orphan employees” of collapsed firms, and suggests moving them into a new Pension Benefit Guaranty Corp. fund — where the pension liabilities would be backed by taxpayers. But the PBGC is already running deficits. And any new bailouts, even to good causes, will have serious trouble getting past Congress’ deficit hawks.

Sen. Mike Enzi (R-Wyo.) spoke out in opposition to the plan yesterday. “Workers should not be burdened with wondering whether or not their pensions are secure,” he said. “We must come up with a plan to overhaul the multiemployer pension system. But we should not do it piecemeal with just a very small handful of companies. Otherwise, the system will end up a house of cards. Congress is an enabler to this situation because it would rather kick the can down the road than try to resolve the difficult problems today. Instead of providing false hope to a few retirees, we must address this issue with the seriousness it deserves and overhaul the system.”

Multiemployer pension plans cover around a quarter of workers with a pension. Deficit hawks worry that bailing out some pensions would lead to a broader and much more expensive reform, adding tens of billions to the national debt. Casey estimates his plan would cost $8 billion over 10 years.

Fortune has a great story up: The Financial Crisis Inquiry Commission requested that Warren Buffett, the head of investment giant Berkshire Hathaway, come testify. He declined. The panel — charged with investigating the causes of the financial crisis and known for its aggressive and public grilling of Wall Street executives — asked again, this time using somewhat stronger language. Buffett again said no. So the FCIC subpoenaed the Oracle of Omaha, in all caps no less. “YOU ARE HEREBY COMMANDED to appear and give testimony,” their letter read.

And, lo and behold, Buffett will testify on Wednesday on the subject of ratings agencies. Berkshire Hathaway controls a major stake in Moody’s, one of the three big credit raters.

An excellent catch from Ben Smith at Politico — today, Secretary of State Hillary Rodham Clinton made a rare comment on the domestic economic situation:

“The rich are not paying their fair share in any nation that is facing the kind of employment issues [America currently does] — whether it’s individual, corporate or whatever [form of] taxation forms,” Clinton told an audience at the Brookings Institution, where she was discussing the Administration’s new National Security Strategy.

Clinton said the comment was her personal opinion alone. “I’m not speaking for the administration, so I’ll preface that with a very clear caveat,” she said.

Clinton went on to cite Brazil as a model. “Brazil has the highest tax-to-GDP rate in the Western Hemisphere and guess what — they’re growing like crazy,” Clinton said. “And the rich are getting richer, but they’re pulling people out of poverty.”

Indeed: In Brazil, the rich are getting richer, but so are the poor. In the United States, for a decade now, the rich have gotten richer while the earnings of everyone else have stagnated.

The Economic Policy Institute has posted a new study of the average duration of unemployment by state. The report shows that workers wait longest for jobs in Michigan and South Carolina, and that last month “the median length of unemployment in the United States was 21.6 weeks, up from 15.1 weeks in 2009 and well over double the median unemployment spell of 8.4 weeks at the start of the recession in December 2007.” The study includes this map showing the median length of unemployment — or how long it takes, on average, to find a job.

The map demonstrates the regionalization of the remaining recession: Where it takes longer to get a job, there tends to be a higher rate of unemployment, steeper declines in home values, higher rates of foreclosure and more severe state budget deficits. Compare the above graph with those below.

This shows the rate of foreclosure (from RealtyTrac).

And this shows the rate of unemployment (from the Bureau of Labor Statistics).

And this shows each state’s deficit as a percentage of its budget (from the Center for Budget and Policy Priorities).

The charts show that states like Michigan, California, Nevada and Florida are fighting harder battles on more fronts — and will take much longer than the rest of the country to normalize economically.

The House-Senate financial reform conference committee is gearing up, with the House due to name its members some time next week and the process due to be done by July 4. But the negotiations to merge the House and Senate versions of the financial regulation bill — under intense lobbying efforts already — will happen mostly behind closed doors. Rep. Barney Frank (D-Mass.), the head of the conference committee, has said that he will allow C-SPAN to air only final-stage negotiating and voting. Today, Simon Johnson has commonsense recommendations to keep some sunlight on the process, in The New York Times.

1. Any amendments need to be posted online not less than three business days before any relevant conference meeting. Second-degree amendments (that is, amendments to amendments) need at least two days’ notice on the same basis.

2. The House and the Senate will not discuss any conference report until the report as amended by the conference has been posted online in its entirety for at least five business days.

3. A red-lined version of the conference report as amended — making all changes visible — must also be posted online for not less than five business days before any vote on that conference report.

The fundamental idea is to allow more voices into the process — to give time for public debate to influence the private debate. And I think it is a good one.

Today, Neal Wolin, the deputy secretary of the Treasury, gave a speech to the Financial Industry Regulatory Authority’s annual conference in Baltimore, and outlined five things Treasury will push for as the House and Senate financial regulatory reform bills go through conference committee.

First, we remain focused on an issue that I know is of particular relevance to many of you here: fiduciary duty. We believe that retail brokers offering investment advice should be subject to the same fiduciary standard of care as investment advisors, and we will work to include that provision in the final bill. …

Second, we oppose efforts to weaken the consumer protection agency — including, in particular, the carve-out for auto dealers. Despite the fact that the auto dealers originate almost eighty percent of the auto loans in this country — and despite the fact that, after homes, automobile purchases are the most significant financial investments most American families make — the dealer-lenders have lobbied vigorously for a carve-out….

Third, we will work hard to include the so-called “Volcker Rule” provisions, which would protect taxpayers and depositors by separating “proprietary trading” from the business of banking — and, in addition, would limit the size of financial firms by preventing acquisitions that would result in a concentration of more than ten percent of the liabilities in the financial system.

Fourth, we will advocate for inclusion of the strong rules on conflicts of interest and transparency at credit rating agencies.

And fifth, with respect to resolution authority, we will seek to ensure that there are sensible safeguards in place to prevent resolution authority from being used unless absolutely necessary — but that regulators retain the ability to act swiftly and effectively in times of crisis, to protect taxpayers and to minimize the risk of panic or contagion.

Of these, none are particularly controversial at this point — the most notable thing here is the omission of the discussion of derivatives. The administration does not support forcing banks to spin off their swaps trading desks — a provision in the Senate bill that will presumably be dropped.

Weekly initial jobless claims fell to 460,000, down 14,000 from the prior week, the Labor Department announced this morning. Economists had expected unemployment claims to fall to 455,000. The four-week average fell a bit to 456,500. The drop is good news, in some sense, but the plateau in new jobless claims is worrying. The unemployment and underemployment rates remain very high, high enough to stall out the recovery. And initial jobless claims need to drop for the unemployment rate to recede. Joe Weisenthal at Business Insider shows the plateau with this graph:

This morning, the Bureau of Economic Analysis announced that the United States’ gross domestic product, the largest measure of how much the economy is growing, gained at an annual rate of 3 percent in the first quarter. The number is decent, but the government had estimated the rate at 3.2 percent last month and economists had expected higher — around 3.5 percent. From the report:

The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, and nonresidential fixed investment that were partly offset by negative contributions from state and local government spending and residential fixed investment. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP in the first quarter primarily reflected decelerations in private inventory investment and in exports, a downturn in residential fixed investment, a larger decrease in state and local government spending, and a deceleration in nonresidential fixed investment that were partly offset by an acceleration in PCE and a deceleration in imports.

Spending by regular consumers, rather than businesses, continues to pick back up. That’s good, as consumer spending accounts for some 70 percent of the economy and will help encourage businesses to hire more workers. The report showed that consumers increased spending about 3.5 percent in the first quarter, up from a 1.6 percent increase in the fourth quarter. And business’ post-tax earnings jumped too, up 9.7 percent, after rising 8.2 percent during the last quarter of 2009. Post-tax earnings are 42.7 percent higher year-on-year.

Sen. Kay Hagan (D-N.C.)

By all accounts, Sen. Kay Hagan’s (D-N.C.) amendment to Sen. Chris Dodd’s (D-Conn.) financial regulatory reform bill was an excellent one. The first-term senator had a long-standing reputation in her home state for fighting payday lending, the $42 billion a year industry that offers easy-to-get short-term loans in exchange for hefty fees and annualized percentage rates of interest in the triple digits, as high as 650 percent in some states.

Image by: Matt Mahurin

Hagan’s amendment — the Payday Lending Limitation Act of 2010, cosponsored by Sens. Dick Durbin (D-Ill.) and Charles Schumer (D-N.Y.) — capped the number of times a customer could get a payday loan to six per year. It also required payday lenders to offer borrowers extended repayment plans, letting them pay back their loans in smaller installments over longer periods of time. Payday loans are advertised as emergency stop-gap measures to help customers with sudden expenses. But the average payday loan rolls over between eight and 12 times. And more than 60 percent of payday loans go to borrowers that use them 12 times or more per year.

To illustrate how bad payday loans sometimes got, Hagan told the story of one of her constituents, Sandra Harris from Wilmington. “She had a job at Head Start and always paid her bills on time,” Hagan said on the Senate floor. “When her husband lost his job, Sandra got a $200 payday loan to pay the couple’s car insurance. When she went to repay the loan, she was told she could renew. Sandra ultimately found herself indebted to six different payday lenders, and paid some $8,000 in fees.”

Hagan’s amendment, without banning the financial service, would have stopped the industry’s worst practices — but also its most lucrative practices. Payday lenders make 90 percent of their business from repeat users. If payday loans were capped at six per customer per year, payday lenders could see their business fall by a third or half. Thus, the industry lobbied hard against Hagan’s proposal, as it had done against financial reform in both houses all year — spending $6.1 million on lobbying in 2009, more than double what it did in 2008.

The lobbying effort employed everyone from the grassroots — individual customers — to the highest-powered lawyers. David Lazarus of the Los Angeles Times reported that as Hagan’s amendment came up for a vote in Congress last week, one payday lender instructed his employees, “After a customer repays their loan, the customer then asks for a new loan. TELL YOUR CUSTOMER THAT YOU CAN’T LOAN TO THEM BECAUSE THE GOVERNMENT HAS PUT US OUT OF BUSINESS. That will get their attention. Then ask them to write letters or call their senator/congressman.” A flurry of letters written at check cashers or payday loan shops showed up in Congress.

On May 20, Hagan’s amendment came up in the Senate. Durbin stood up in support, calling payday lenders the “bottom feeders” of the financial industry. Then, as Dodd moved to proceed, Sen. Richard Shelby (R-Ala.) — who in 2009 received more campaign donations from payday lenders than any other Senator — blocked unanimous consent to vote on the popular provision. (Shelby’s office did not respond to repeated requests for comment.) It died on the floor.

Hagan’s was the last of many such payday-lender-specific provisions to come up in the regulatory reform process. And it was the last to fail. There are no interest-rate or rollover caps in the Senate bill. And there are none in the House either.

Durbin argued for capping the maximum annualized percentage rate of interest a payday lender could charge at 36 percent, for instance, a measure supported by the Center for Responsible Lending and other consumer groups. It never made it into the bill, nor did Rep. Jackie Speier’s (D-Calif.) version in the House. Rep. Luis Gutierrez (D-Ill.) — who has in the past advocated effectively banning payday lending — sponsored the Payday Loan Act of 2009, a series of reforms attached to the House bill. Consumer reform groups blasted the measures, which capped annualized percentage rates of interest at 391 percent. But even those very modest reforms did not make it in. And the most notable payday lender victory might have come from the work of Sen. Bob Corker (R-Tenn.), who reportedly lobbied for and won a loosening of the Consumer Financial Protection agency’s oversight over small payday lenders.

One might think this would have consumer advocates incensed about the House and Senate bills’ ability to stop the worst practices in the payday lending industry. But, in fact, they argue that payday lenders spent millions to win numerous battles before ultimately losing the war.

Why? Payday lenders in both bills still come entirely under the rule-making authority and oversight of the new Consumer Financial Protection Agency, which consumer advocates are confident will consider tamping down on annualized percentage rates of interest and establishing rollover limits. There has been considerable confusion over the Senate’s payday lending language and possible loopholes. It ensures the Consumer Financial Protection Agency has oversight and rule-making authority over all payday lenders, with the CFPA enforcing rules against bigger lenders and the Federal Trade Commission enforcing rules against smaller lenders, Kirstin Brost of the Senate Banking Committee said. And the House language, simply having the CFPA have total authority over all payday businesses, as supported by the White House and Treasury, is likely to win out.

“In the end, it doesn’t matter much that Congress didn’t specifically regulate payday lenders,” Ed Mierzwinski, the consumer program director at the U.S. Public Interest Research Group explains. “For the payday lenders to call the defeat of the Hagan a win for them is a Pyrrhic victory — because both both the House and Senate bills include a strong new consumer financial protection agency and it will regulate them.”

And Kathleen Day, the spokesperson for the Center for Responsible Lending, which worked with Senators on crafting payday lending restrictions and has fought a longtime and vocal fight against the businesses, concurs. “The [CFPA] will be able to enact strong consumer protections that would apply to payday lenders. As long as those protections are in there, that’s the name of the game,” she says. “There’s going to be people that say they want to be specific, they want to have specific provisions in this law about payday lending. But the great thing about having this agency is that it will have broad overview to write fair laws and to make sure laws are fair.

“Of course, we’d love to have a 36 percent [annualized percentage rate of interest] cap. But that’s unlikely. And sometimes regulations can be too specific. We are confident [the CFPA] will be able to react to the market in a flexible, consumer-focused way.”

Indeed, behind the scenes, payday lenders — much like auto dealers who make car loans — fought hardest for an exemption from CFPA authority. That battle, they spent millions to lose. And it means that consumers might win down the road.

Today, the Congressional Oversight Panel for the Treasury’s Troubled Asset Relief Program, headed by Elizabeth Warren, is holding a set of hearings on failed insurer AIG. Warren takes AIG to task for its blatant disregard for sound practices. “The company was a corporate Frankenstein, a conglomeration of banking and insurance and investment interests that defied regulatory oversight,” she says in her prepared remarks.

But she hits even harder at AIG’s regulators and the government’s extraordinary intervention. “[AIG’s] complexity, its systemic significance, and the fragile state of the economy may all arguably have been reasons for unique treatment. But no matter the justification, the fact remains that AIG’s rescue broke all the rules, and each rule that was broken poses a question that must be answered,” she argues.

AIG’s regulators and regulations failed the American taxpayer, Warren says. And thankfully, the House and Senate reform bills create a much better process for monitoring systemically important firms and winding them down if they falter — a process designed precisely as a response to the wildly expensive and unruly bailouts of companies like AIG.

Now, firms like AIG need to author their own “funeral plans,” telling the government how to unwind them. Additionally, the reforms clarify the government’s process for deciding a firm needs to be shut down and then doing it, wiping out shareholders, firing management and giving counterparties haircuts. (There are differences between the House and Senate bills on the resolution authority front, differences that will be worked out in conference committee. The biggest difference is that the House bill has a $150 billion liquidation pool, funded by big financial firms. The Senate bill instructs the government to recoup its costs after the fact.)

Here is a fuller clip of the remarks from Warren, a bankruptcy professor at Harvard Law School:

When a company digs itself so deeply into debt that it cannot escape, our legal system provides a set of strict and simple rules to force the business to bear as much of the cost of its mistakes as possible and to minimize the impact on others. Of these rules, two are paramount. First, the business’s owners — its shareholders — lose everything. Second, the business’s creditors — including its bondholders and counterparties — lose money, and depending on how deep the hole, they could lose a great deal.

The rules may seem harsh, but they are fundamental to the functioning of a free market. After all, the parties that gain the most when a business succeeds should also lose the most when a business fails.

I open today’s hearing by listing the rules of bankruptcy because we are about to examine a bankruptcy that broke all the rules. In fact, the rescue of the American International Group was so extraordinary that it bypassed the entire legal process of bankruptcy. In saving AIG, the government invented a new process out of whole cloth, a parallel set of rules devised and executed for the benefit of only one company.

By the time the federal government intervened in late 2008, AIG was a poster child for the need for a well-functioning bankruptcy system. Its stock price had plummeted 79 percent in only two weeks. The sharp decline in mortgage-linked asset prices and the failure of Lehman Brothers had led to staggering collateral calls from AIG’s counterparties, and AIG simply did not have enough cash on hand to keep its doors open.

The next steps would ordinarily have been straightforward. Under the rules that applied to everyone else in America, AIG’s shareholders should have lost everything, and its creditors should have taken substantial losses. Yet even today AIG continues to trade on the New York Stock Exchange, and no creditor has lost a penny on its dealings with the company.

Put another way, under the rules that applied to everyone else in America, the costs of AIG’s mistakes should have been borne by AIG and its partners. But under this new, ad hoc set of rules, the costs of AIG’s mistakes were borne by the rest of us – the American taxpayers.

This morning, the Census Bureau and Department of Housing and Urban Development announced that sales of new homes spiked in April. They also revised their March sales estimates upward:

Sales of new one-family houses in April 2010 were at a seasonally adjusted annual rate of 504,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 14.8 percent above the revised March rate of 439,000 and is 47.8 percent above the April 2009 estimate of 341,000.

The median sales price of new houses sold in April 2010 was $198,400; the average sales price was $249,500. The seasonally adjusted estimate of new houses for sale at the end of April was 211,000. This represents a supply of 5.0 months at the current sales rate.

Economists expected some spike, due to the expiry of the Obama administration’s $8,000 tax credit for first-time homebuyers and $6,500 tax credit for some other buyers at the end of April. But the bump was actually higher than most economists thought. A Bloomberg survey, for instance, expected new home sales of 425,000, or 450,000 at the highest. (Also, note that these are not actual April sales numbers, but annualized rates of sale.)

The numbers are good. But two things to throw some cold water on any enthusiasm. First, the tax credits to some extent pushed borrowers from May and June into April and March. If you were considering purchasing a house, you would have rushed to get it done before the tax credit expired — meaning we might see a very precipitous drop in the May numbers. Second, the housing market in general remains very, very troubled on a number of fronts — high inventory, slack demand, falling prices and rising numbers of underwater mortgages.

Politico’s Morning Money has the text of a memo by Rep. Barney Frank (D-Mass.), outlining his plans for the upcoming conference committee to reconcile the House and Senate financial regulatory reform bills. Frank, who is heading the committee, apologizes to the members who will not make it on and warns that the White House has strong opinions on the conference and the final bill.

He also tells the Democratic members of the House Financial Services Committee he is picking subcommittee chairs to join him as conferees. That would make the eight Democratic members: Frank and Reps. Carolyn Maloney (N.Y.), Paul Kanjorski (Pa.), Luis Gutierrez (Ill.), Maxine Waters (Calif.), Melvin Watt (N.C.), Dennis Moore (Kans.) and Gregory Meeks (N.Y.).

As for likely Republican conferees: The Republican ranking member is Rep. Spencer Bachus (Ala.), who will be on the committee. The subcommittee ranking members are: Scott Garrett (N.J.), Jeb Hensarling (Texas), Shelley Moore Capito (W.Va.), Ron Paul (Texas), Gary Miller (Calif.) and Judy Biggert (Ill.). The top five members by seniority are Bachus, Mike Castle (Del.), Peter King (N.Y.), Edward Royce (Calif.) and Frank Lucas (Okla.).

Here is the full text of the Frank memo:

I enjoy almost all parts of this job of Chairman, but I have just come up against one that is distinctly not enjoyable: having to pick Members of the Committee to recommend to the Speaker to be Conferees. I appreciate the cooperation that has marked our work together as we have dealt with very difficult legislation, and picking and choosing among the Members, many of whom have told me of their interest in being Conferees, would be impossible to do on any rational basis, and I would hate to engender any resentment to spoil what I think has been a very good working relationship.

I have therefore combined Congressional precedent with my own desire to find a selection method that does not introduce divisiveness into our ranks. I am recommending to the Speaker that we have eight Conferees, because I believe an eight to five ratio between us and the Republicans is optimal, and I am recommending that the eight be myself, the Subcommittee Chairs, and Representative Maloney who was until recently a Subcommittee Chair and vacated it at the Speaker’s request to become Chair of the Joint Economic Committee. This follows seniority in general, although not exactly, but by picking the Subcommittee Chairs — those who are now and have held that position — I believe I have a criterion that does not reflect either badly — or well for that matter — on anyone.

I hope that Members who had wanted to be on the Conference will be somewhat consoled by the fact that I do not intend to preside over a situation in which the Conferees are a very distinct unit. I have asked the excellent staff that serves us to prepare by Wednesday a list of the differences between the bill, and I will take that to a caucus on Thursday to discuss it. It is my intention to have regular caucuses during this period — at least once a week and maybe more if necessary — to get a sense of all the Members on the issues that are before us. It is also the case, of course, that we will not be totally autonomous here. We have an administration that feels strongly about this, and I expect that the House leadership will be engaged more than they were last year when health care took up more of their time and when they paid us the compliment of trusting us. Their greater involvement will not imply a lack of trust, but simply the fact that we are down to a few very important issues where the administration will be strongly expressing its view. There is also the fact that the need to keep sixty votes in the Senate will be something of a constraint, and so, I believe, that we who are conferees will be more the agents of collective decision-making than autonomous deciders.

I am also going to be checking with our Parliamentarian. The rules for Conferences are not in existence in a formal sense, I believe, and I believe I will have the right as Chairman of the Conference to call on other Members to speak on occasion. Obviously that cannot be overdone with the large size of our committee, but it will be possible, I believe, for Members where the matter is particularly important to them for a variety of reasons, to address the Conference at some point.

Today, the Federal Reserve released the minutes of its Board of Governors meetings to discuss the United States’ monetary policy in April. In February, all twelve Federal Reserve regional bank presidents requested to keep the primary credit rate at 0.75 percent. In March, eleven banks voted for 0.75 percent, but the Federal Reserve Bank of Dallas voted to move to 1 percent. In mid-April, the heads of the Kansas City, St. Louis and Dallas banks all voted to establish a rate of 1 percent.

On one hand, this is no surprise. The three banks’ presidents are, respectively, Thomas Hoenig, James Bullard and Richard Fisher — all known as inflation hawks, more concerned with low rates leading to inflation than with high rates leading to unemployment. It is not a sign of an imminent rate increase either. (The Federal Reserve banks don’t set their own rates. Additionally, to be clear without getting too deep in the weeds here, the primary credit rate is different from the federal funds rate, and it impacts how much banks pay to borrow from the government rather than how much consumers pay banks for loans.)

Indeed, last month, for the sixteenth month in a row, the Federal Reserve recommended keeping the federal funds rate low for an “extended period”: “With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time. The Committee will maintain the target range for the federal funds rate at 0 to 0.25 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”

Still, it demonstrates that more major figures within the Federal Reserve system are advocating a consideration of rate increases.

The National League of Cities, a nonprofit that represents 19,000 towns and cities with a combined population of 220 million, released a report indicating devastating local-government job and service cuts. In the 2010 State of America’s Cities survey, 63 percent of city officials say poverty has worsened in the past year — the highest proportion since 1992. Additionally, 75 percent of officials think overall conditions have gotten worse, 84 percent say unemployment has gotten worse and 90 percent cite joblessness as a problem.

Seven in ten respondents are cutting staff and delaying projects, and more than half say that service levels will decrease in 2011 if tax revenue does not go up. But tax revenue is not going up, the report notes:

Despite a broad range of sentiments about the future of the country, local officials agree that the state of America’s cities continues to worsen, threatening long term national economic recovery. City budget shortfalls will become more severe over the next two years as tax collections catch up with economic conditions. These will inevitably result in new rounds of layoffs, service cuts, and cancelled projects and contracts. With local and state sectors comprising about one-eighth of GDP, and cities making up a significant portion of this sector, the services and employment offered by local governments are critical to the health of local and regional economies that drive national economic performance.

Local governments directly employ more than 14 million people and indirectly many more than that — slight, but across-the-board, budget and staff cutting could mean hundreds of thousands of jobs lost.

Rep. George Miller’s (D-Calif.) Local Jobs for America Act, currently in committee, would provide $75 billion to local governments to keep employees on the payroll and is the measure the National League of Cities is pushing for. But any deficit-spending programs — even to keep people employed — will have a lot of trouble passing a very debt-conscious Congress.

Take, for instance, Sen. Tom Harkin’s (D-Iowa) proposal to grant $23 billion to keep public-school teachers in their classrooms, the Keep Our Educators Working Act, which is supported by Education Secretary Arne Duncan and the White House. Rep. John Boehner (R-Ohio), the House minority leader, responded:

“The American people recognize that Washington’s out-of-control spending is hurting our economy and stifling job creation, and they’re asking their elected leaders to make tough choices on fiscal responsibility. Unfortunately, the administration’s call for another $23 billion to pad the education bureaucracy will only make state governments more dependent on the federal government and more vulnerable when the federal funding explosion disappears. This latest state bailout proposal promotes the same flawed logic as the failed ‘stimulus’ bill that has contributed to a record $1.5 trillion deficit and left one in every 10 Americans from our workforce out of work.”

From the Banking Committee, they are Sens. Chris Dodd (D-Conn.), Tim Johnson (D-S.D.), Jack Reid (D-R.I.), Charles Schumer (D-N.Y.), Richard Shelby (R-Ala.), Mike Crapo (R-Idaho), Bob Corker (R-Tenn.) and Judd Gregg (R-N.H.).

From the Agriculture Committee, they are Sens. Blanche Lincoln (D-Ark.), Tom Harkin (D-Iowa), Patrick Leahy (D-Vt.), Tom Carper (D-Del.) and Saxby Chambliss (R-Ga.).

Rep. Barney Frank (D-Mass.) is heading the conference committee to reconcile the House and Senate financial reform bills. The House plans to announce its conferees after the Memorial Day holiday.

Well, it won’t be all doom and gloom here today. Consumer confidence — an important bellwether of increasing household spending — shot up last month.

The Conference Board says that consumers’ expectations about today’s and tomorrow’s economic conditions continue to improve from low lows. Consumers’ six-month outlook climbed to the highest it has been since August 2007, before the recession started and the financial crisis hit. The main confidence index rose for the third straight month. From the release:

Consumers’ assessment of current-day conditions continued to improve in May. Those saying conditions are “good” increased to 10.0 percent from 8.9 percent, while those saying business conditions are “bad” declined to 39.3 percent from 40.0 percent. Consumers’ appraisal of the labor market was also more positive. Those claiming jobs are “hard to get” decreased to 43.6 percent from 44.8 percent, while those saying jobs are “plentiful” was virtually unchanged at 4.6 percent.

Consumers’ optimism about the short-term future was significantly better in May. The percentage of consumers expecting business conditions will improve over the next six months increased to 23.5 percent from 19.7 percent, while those expecting conditions will worsen declined to 11.5 percent from 12.4 percent. Consumers were also more confident about future job prospects. Those anticipating more jobs in the months ahead increased to 20.4 percent from 17.7 percent, while those anticipating fewer jobs declined to 17.7 percent from 19.9 percent. The proportion of consumers anticipating an increase in their incomes improved to 11.3 percent from 10.5 percent.

The trend is good even if the empiric numbers aren’t. (For every one person who thinks jobs are easy to come by, 10 believe they are hard to get; for every one person who thinks times are good, four think they’re bad.) The real concern is that continued high unemployment, very unsteady markets, the European crisis and a housing decline might discourage consumers — whose spending accounts for about 70 percent of the economy — from opening their wallets, sending these statistics down again. The headwinds remain obviously strong.

Today, the S&P/Case Shiller Housing Index shows some worrying, if unsurprising, statistics about the housing market.

The good news is that the year-on-year index, the most-watched metric, gained, as from from March 2009 to March 2010 housing prices rose 2.35 percent. Economists had expected a gain of 2.5 percent. The bad news is housing prices declined 3.2 percent between the last quarter of 2009 and the first quarter of 2010. And the non-seasonally adjusted housing index declined from February to March, the sixth straight decline in home prices. Las Vegas and Detroit continue to be the worst, and still-worsening, housing markets. From the press release:

“The housing market may be in better shape than this time last year; but, when you look at recent trends there are signs of some renewed weakening in home prices,” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “In the past several months we have seen some relatively weak reports across many of the markets we cover. Thirteen MSAs and the two Composites saw their prices drop in March over February. Boston was flat. The National Composite fell by 3.2% compared to the previous quarter and the two Composites are down for the sixth consecutive month.

“While year-over-year results for the National Composite, 18 of the 20 MSAs and the two Composites improved, the most recent monthly data are not as encouraging. It is especially disappointing that the improvement we saw in sales and starts in March did not find its way to home prices. Now that the tax incentive ended on April 30th, we don’t expect to see a boost in relative demand.”

The question is now whether housing prices are stabilizing, or whether they will continue to fall — particularly given how enormous the shadow inventory of homes is. You can see the worrying sign of a housing double-dip or stabilization on the solid line on the right side of the chart here.