Yesterday, Tyler, myself and a handful of other economics bloggers had a chance to discuss the economy with Treasury Secretary Geithner and other treasury officials. Here are a few random notes.
There was deep skepticism about the financial industry and about reform from some of the bloggers. More let’s say “radical” approaches such as Treasury taking an equity stake in underwater homes or giving everyone a guaranteed income were brought up. I was surprised to find myself on the side of the more conservative Treasury officials who cogently argued that such reforms were neither politically viable nor likely to work. Treasury gave a good argument that reform had been deep and meaningful.
A few good lines from a senior treasury official as I recall the gist:
- “Markets believe we can borrow. The public doesn’t. We need both to move forward on the fiscal front.”
- “Businesses are investing in a way that shows more confidence than they are talking.” (graph here, see the last year or so AT)
There was a recognition that the Fed could do “dramatic” things but a sense that the theory here was uncertain and untested.
The best question of the day came from Tyler. The discussion was on the financial reform bill and how it changed the incentives of players in the financial industry by creating more risk for them. Tyler interrupted with “What I really want to know is how your incentives have been changed! What is to say that next time the decision will not be made to again bailout the bondholders?”
On Wednesday, there was another meeting, this time with professional, salaried bloggers, with a decidedly center-left bias. (Tim Fernholz, Mike Allen, Derek Thompson, Shahien Nasiripour, Nick Baumann, Ezra Klein, me. Matt Yglesias was literally left out in the rain, unable to get past Treasury security.)
I half understand why Treasury makes the distinction between the two types of bloggers, but Ezra and I both felt a little jealous that we had to compete with Mike Allen asking about politics when we could have listened to a detailed and wonky discussion between Steve Waldman and Tim Geithner on the subject of bailout incentives.
The discussion was all held on deep background, so I can’t quote anybody. I can tell you that Geithner looked healthier than the past couple of times I’ve seen him: I daresay he’s actually getting some sleep these days, which has got to be a good thing. I also learned a fair amount about how Treasury views the world.
The big picture, at least as I grokked it, is that although the recovery started off stronger than Treasury had hoped, the broad economy is still in a pretty weak position. The Fed is doing its part to try to keep a certain amount of momentum going, but fiscal policy is harder, because it needs the cooperation of Congress. And it’s far from clear what kind of fiscal legislation can be passed at this point.
On housing, the main message from the big conference on Fannie and Freddie is that there’s a broad-based consensus, Rick Santelli rants notwithstanding, that large-scale government participation in the housing market is necessary to prevent further house-price declines. And yes, Treasury would very much like to make sure that house prices don’t fall any more than they have already. There’s no Bush-style policy of trying to maximize homeownership, or anything like that, and indeed Treasury now seems pretty resigned to the fact that its much-vaunted loan-modification program is going to have only a pretty marginal effect, doing more to delay foreclosures than to prevent them. But the very powerful government guarantee on Frannie’s bonds is here to stay, you won’t be surprised to hear. And even delaying foreclosures can be a good thing if it helps to give the broader economy a bit of time to recover.
Readers may wonder why I haven’t written about my visit on Monday to the Treasury, but truth be told, I headed out afterward with Mike Konczal and Steve Waldman to get a drink, and we all looked at each other quizzically. I said something along the lines of “I’m not certain there is anything to write about,” and they nodded in agreement. I had less than a half page of notes.
That isn’t to say we didn’t spend nearly 2 1/2 hours in a high-ceilinged conference room, and that we didn’t engage with Treasury officials, including Timothy Geithner, in what looked like conversation. But the assumptions of both sides re process as well as substance were so far apart that it often felt like we were talking past each other.
One part of the dynamic was the home court advantage the Treasury enjoys. This is their drill, their offices, they no doubt used their spiel on others and have it pretty well debugged, and more important, they play well off each other (they give the impression of having good rapport with each other; there was some banter on their side). So they have message discipline and stay unified and still manage to look relaxed and informal. By contrast, we seven bloggers (the others were Tyler Cowen, Alex Tabarrok, Phil Davis, and John Lounsbury) were on hold in the very large corridor till the conference room cleared up, which meant we didn’t even have the chance to ask each other, “And what do you want to ask about?” Our interests were likely to be (and were) somewhat divergent, but it would have been nice to know to what degree.
Despite our heterogeniety, we all took a skeptical posture towards the Treasury team. One has to think they anticipate that, which then begs the question of what they expect to accomplish with these meetings. We aren’t journalists, so the access card does not work; the infrequency and format of these sessions means they don’t build personal rapport (and there are good reasons why not; from our end, it costs time and money to go to DC; from their end, we aren’t important enough to warrant more frequent contact).
So they may have other motivations, but a safe assumption is that they regard this as marketing, and a famous cliche is “50% of what I spend on advertising is wasted, I just don’t know which 50%.” We probably look like part of the wasted 50%, but they can’t be certain, and the costs to them of having this sort of meeting are low, so they might as well keep the experiment going.
Mike Allen at Politico:
—ADMINISTRATION MINDMELD: The virtue of action on Social Security is that it demonstrates the ability to begin to affect the long-run deficits. Social Security isn’t the biggest contributor to the problem – that’s still health-care costs. But ti could help a little bit, buy time, and strengthens the odds of a political consensus behind other spending cuts or tax increases. Most importantly, it would establish more CREDIBILITY with the MARKETS. The mood of the world at the moment (slightly excessive, from the administration’s point of view) is that if you don’t do anything with spending cuts, it doesn’t get you credibility.
Tim Fernholz at Tapped on Allen:
Sure makes it seem like the administration wants to cut Social Security, doesn’t it? By chance, I was at the same deep-background briefing where Allen had his “mindmeld,” and I have to say, I don’t think he’s got it right. After reviewing my notes and a recording of the conversation, here’s my take. (The rules for this conversation were no direct quotes and no identifying the senior administration official in question.)
Allen references a part of the conversation that concerned the Deficit Commission and what the official might know about its agenda. The official believed that the largest consensus was forming around an undefined plan to support the long-term solvency of Social Security and was discussing why that hypothetical plan might help bolster political will for other deficit-reduction ideas. The official would note that Social Security is already solvent for decades.
The most important omission from Allen’s item is that the official concluded the conversation by noting that Social Security is not a generous benefit compared to other public pensions around the world and that cutting benefits, even years in advance, would be difficult to justify. More symbolically, Allen doesn’t mention that the official cited Paul Krugman when talking about Social Security’s contributions to the deficit. Finally, the reason the administration official was interested in credibility before the markets is so the government could borrow more money for temporary fiscal stimulus.
Matthew Yglesias on Allen:
Brad DeLong glosses this as part of why “Friends Don’t Let Friends Read Politico.” And certainly it is a case study in why you can’t go run and panic after reading a thinly sourced item in a traffic-hungry publication. But part of the issue here, it seems to me, is that DC officialdom ought to realize that its obsession with off the recordy-ness has some serious downsides. Treasury did two meetings this week, one that was with professional blogger types and one that was more with professional economists who also blog, and most of the attendees seem to have come away quite impressed. If that’s the case, wouldn’t people able to listen to a recording of the full session likely also be impressed? And wouldn’t it be easier to clear up misconceptions that Allen’s writeup may have created?
Structural shifts in the media industry away from the “three TV networks and a bunch of local newspaper monopolies” model have shifted the balance of power away from journalists and toward flacks. Consequently, if people want to hold off the record briefings with “senior officials” plenty of writers are going to show up. But merely because people can get away with that kind of thing doesn’t necessarily make it a good idea.
There’s been some meta-discussion over a recent meeting between reporters, bloggers, pundits and Treasury officials. The meeting existed under the worst of all media rules: Background.
On-the-record is, well, on the record. Somebody tells me something and I tell you. Off-the-record is just the opposite: Somebody tells me something and I can’t tell you that I was told this. I can be informed by it, but no one knows how I got the information. The disadvantages of this are obvious. But the advantage is a much more honest and free-flowing conversation.
Background has neither the transparency of being on-the-record or the freedom of being off-the-record. It means I can tell you that someone told me this (“a senior Treasury official”). I really don’t understand why people use it.
But use it they do, and all the time. My favorite background offer from this administration came in an e-mail the night before HealthCare.gov launched. It was a lot of standard information on the new site that I could attribute to an “administration official” if I so chose. Why they wanted anonymity to say things like “HealthCare.gov is a new, easy to use website that helps consumers take control of their health care and make the choices that are right for them by putting the power of information at their fingertips,” I’ll never know. Was Gibbs seriously going to chew someone out for going on-the-record with that?
Mike Konczal at Rortybomb:
Second, have you ever seen Miracle on 34th Street? Remember at the end when that guy legally is Santa Claus because he has all that mail delivered to him? I felt a little like that seeing “Mike Konczal, Rortybomb” on paper that had Treasury’s seal:
It was a pretty casual meet and greet. There weren’t any presentations, nothing to be sold on. We went to questions immediately. Geithner is very smart and personable, and it was very useful to chat with Treasury officials on background over the strengths and weaknesses of the financial reform bill.
– They are sticking by HAMP. The narrative seemed to change from helping homeowners to spacing out the foreclosures. I asked them to repeat it, because the idea that billions of taxpayer dollars are being spent to smooth out foreclosures for banks struck me as new narrative – it’s explicitly extend-and-pretend, and also fairly cynical.
– There was talk about how fiscal policy can’t move through Congress. I asked them about only 0.5% of HAMP being spent and how that could be used without Congress’ permission. Before I suggested that the remainder of the $50bn be divided into two funds, the Digging Holes Across States (DHAS) fund and the Filling Holes Across States (FHAS) fund, two far more socially productive means of spending the HAMP money than what is currently being done with it, I was told that the entire $50bn is expected to be spent by the time the program is over. I didn’t believe it; we will see.
– Overall, there seemed to be a sense of “we are done here” from the meeting. Maybe it was the fact that it is August, the informal manner of the meeting and a news cycle is driven by insane things, but there was a sense with the financial reform bill passed, deadlock in Congress and a Federal Reserve tip-toeing around its mandate things were going to slow down and options are more or less removed from the table. Which is a very scary thought with the economy the way it is.
Really fucking unbelievable. As I think I said to Mike at Netroots Nation, if HAMP is actually a program designed to boost the housing market and funnel money several billion more dollars to banks, it’s also a really fucking horrible and stupid and inefficient way to do that even without the “screwing people over” part.
EARLIER: Meet The Financial Bloggers, Timmy