Karl Singer is writing Wonkbook while Ezra is on vacation.
RCP Obama vs. Romney: Obama +3.5%; 7-day change: Obama +1.5%.
RCP Obama approval: 47.8%; 7-day change: +0.4%.
Top story: Everything's coming up housing
Home prices jumped by the most in at at least seven years. "Home prices rose by their largest percentage in at least seven years during the second quarter, propelled by low inventories of properties for sale and high demand for bargain-priced foreclosures, according to two reports Tuesday. Prices rose by 2.5% in June from a year ago, and by 6% from the previous quarter, said CoreLogic Inc., a Santa Ana, Calif., data firm. The quarterly jump was the largest since 2005. Separately, Freddie Mac, which uses a different methodology, said home prices during the second quarter jumped by 4.8% from the previous quarter. That was the largest jump since 2004." Nick Timiraos in The Wall Street Journal.
Freddie Mac posted a big profit thanks to the the rise in home prices. "The improving housing market is producing another benefit for taxpayers -- the sky-high price tag for the bailouts of mortgage financing giants Fannie Mae and Freddie Mac is starting to come down. In reporting a $3-billion second-quarter profit, Freddie Mac said Tuesday that it added only $155 million to reserves to cover future loan losses -- the least it has added quarterly to reserves in nearly six years and one of the clearest signals yet of a recovering real estate market. Fannie Mae is expected to report similarly upbeat earnings Wednesday...Freddie said that it would not need any federal support for the second quarter, the fifth time since the takeover that it hasn't needed taxpayer money. Fannie didn't need federal funding in the first three months this year, the first time it has gone off the public dole...Rising home prices were the main reason Freddie was able to stay in the black last quarter." Jim Puzzanghera in Los Angeles Times.
@NickTimiraos: Did the fact that Freddie just reported its best quarter in 10 years influence DeMarco's decision to stay the course, i.e. no writedowns?
Underwater homeowners are finally refinancing their home loans. "Finally, a good number of severely underwater homeowners are refinancing their home loans. Months after the government rolled out changes to a federal refinancing program, there’s been a surge in activity among homeowners whose properties have sunk dramatically in value. The number of severely underwater homeowners refinancing their mortgages under the federal Home Affordable Refinance Program surged in June. The growth occurred after a way to package the loans into mortgage securities became available at the start of the month. Nearly 54,000 homeowners who owe more than 125% of their home’s value refinanced in June, the Federal Housing Finance Agency said in a report Tuesday. Until then, only about 11,000 of those homeowners had refinanced." Alan Zibel in The Wall Street Journal.
Why principal reduction is so controversial. "Vera Johnson, Mark Clerget and Lisa Agapis all bought or refinanced their homes as the housing market peaked. All of them have mortgages backed by Fannie Mae and Freddie Mac, the taxpayer-supported mortgage-finance giants. And their diverging responses to carrying a heavy debt load over the last three years illustrates why the idea of forgiving mortgage balances is such an explosive issue. While the government has leaned on banks for years now to modify mortgages, forgiving principal hasn’t been widely embraced because it’s expensive and it’s hard to decide out who should benefit and who shouldn’t." Nick Timiraos in The Wall Street Journal.
CROOK: Principal reduction would help housing and the economy. "Excessive debt is choking the recovery. Borrowers are struggling to deleverage, and will be for years. This absorbs some of the demand that fiscal stimulus would otherwise have delivered...The Federal Reserve has called for principal reduction for underwater borrowers. So has the IMF. The point is, principal reduction can be win-win-win. The losses that foreclosure and the threat of foreclosure create are so great that the gains from avoiding it -- judiciously spread around -- can make everybody better off. A partially forgiven loan obviously makes the borrower better off. It can make the lender better off, too, if the good new loan is worth more than the about-to-go-bad one it replaces. Crucially, it can be in the public interest as well, if it reduces the economic externality of foreclosure blight and stops house prices undershooting." Clive Crook in Bloomberg.
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1) PORTER: American workers need more than attacks on outsourcing. "The challenges call for a more sophisticated debate about trade. American policy makers might consider global taxation treaties, to reduce the scope for tax competition. They could engage foreign countries in a debate on global standards -- overcoming mistrust of American protectionism to develop rules protecting workers from abuse by footloose corporations seeking the cheapest labor. And they could think about the kind of safety net needed to protect workers from the dislocations that the relentless onslaught of globalization is sure to bring...The most useful critique of Mr. Romney’s stance is not that he favors outsourcing but that the rest of his economic platform -- which proposes cuts in government spending on education, unemployment insurance and other social programs to pay for tax cuts for high-income Americans -- would undercut the nation’s ability to cope in the globalized economy he appears to champion." Eduardo Porter in The New York Times.
@BCAppelbaum: "The middle class, I’m sure you’ve heard, is under threat by cheap foreign labor. We must be having an election."
2) ORSZAG: We should bring back Build America Bonds. "Wouldn’t it be great if we could design an efficient way to channel tax subsidies to state and local governments to invest in infrastructure? Turns out we already have: the Build America Bonds program, which was a huge success in 2009 and 2010, but then expired. If you want an example of how political polarization is impeding sound economic policy, BABs would be hard to beat...I can’t think of a reasonable objection to reinstating BABs with a deficit-neutral subsidy rate. That this is not even being tried is as close as you can get to definitive proof that, in a polarized Congress, inertia is a force much stronger than evidence or reason." Peter Orszag in Bloomberg.
3) MOSELEY: The drought should prompt a rethink of our over-reliance on corn. "We have become dangerously focused on corn in the Midwest (and soybeans, with which it is cultivated in rotation). This limited diversity of crops restricts our diets, degrades our soils and increases our vulnerability to droughts. Farmers in the central plains used to grow a greater diversity of food and forage crops, including oats, hay, alfalfa and sorghum. But they gradually opted to grow more and more corn thanks to federal agricultural subsidies and expanding markets for corn in animal feed, corn syrup and ethanol...Corn’s weakness is that it is highly susceptible to drought...As droughts are predicted to become more frequent with global climate change, we must rethink our increasingly vulnerable agri-food system." William Moseley in The New York Times.
4) GLAESER: Subsidizing parking makes us all poorer. "On First Avenue in Manhattan, right before the 96th Street entrance of FDR Drive, there is a large open parking lot, in front of the Stanley M. Isaacs Houses, a public-housing project. The residents of New York’s public housing pay no more than $45 a month for reserved parking, which is a pretty good deal because daily parking fees in midtown Manhattan average $40. I find it somewhat bizarre that New York provides a luxury good -- parking in Manhattan -- to public-housing residents at almost no cost. But many government policies favor parking...When public-housing parking spaces fall empty, they should be rented at market rates, and the earnings should be shared among the projects’ residents or spent on common amenities. If enough spaces are freed up, the city should continue allowing more building on parking lots. Land on the island of Manhattan is enormously valuable, and should never be given away. But we can eliminate subsidized parking in a fair and reasonable way." Edward Glaeser in Bloomberg.
5) YGLESIAS: The tax break for Olympians shows the challenge of tax reform. "In the scheme of things, of course, winning Olympic prizes is not an important sector of economic activity, and the medals’ tax status doesn’t really matter. But the overall shape of the tax code does matter a great deal, and the speed with which a bipartisan consensus emerged around making it worse bodes quite poorly for efforts to make it better...Even in this age of massive polarization, the desirability, in principle, of a tax code with fewer deductions is a rare point of bipartisan consensus...What Rubio and Obama have shown us with the Olympic tax gimmick is exactly how shallow that consensus is." Matthew Yglesias in Slate.
@jbarro: The idea that you shouldn't have to pay tax on income that you especially deserved is very damaging, and Obama should not sign on to it.
Got tips, additions, or comments? E-mail me.
Still to come:Individuals are getting off in fraud cases; states struggle to name exchanges; disabled students are more likely to get suspended; nuclear licensing gets frozen; and name your own hedge funds.
Growth in consumer credit slowed in June. "U.S. consumer credit posted its weakest growth in eight months in June as Americans reduced credit card debt, a potentially negative sign for an economy that has struggled to create jobs. Consumer credit grew by $6.46 billion in June, the Federal Reserve said on Tuesday. That was well below the $11 billion advance Wall Street economists had forecast in a Reuters poll. The Fed also said credit climbed slightly less during May than originally thought." Reuters.
@TheStalwart: That consumer credit number is definitely worrisome, but then, it's June data consistent with other weak June data. July perhaps firmer.
Federal revenues are up this year. "The nonpartisan Congressional Budget Office (CBO) on Tuesday estimated that the federal budget deficit stands at $975 billion through July...CBO reported that despite the budget battles between President Obama and Congress, spending is virtually identical this year to spending in 2011. Through July, the government spent $2.98 trillion, just $11 billion less than in 2011. Revenues are up 6 percent this year compared to last year, accounting for most of the $125 billion difference. The $114 billion in higher revenue came in part from higher corporate tax receipts due to a change in rules for how firms treat investments in equipment for tax purposes. Wage growth accounted for $28 billion in revenue." Erik Wasson in The Hill.
Corporate fraud cases mostly spare individuals. "Pharmaceutical companies, military contractors, banks and other corporations are on track to pay as much as $8 billion this year to resolve charges of defrauding the government, analysts say -- a record sum and more than twice the amount assessed last year by the Justice Department. The surge in penalties is because of a number of factors, including the resolution of longstanding actions against drug makers and military contractors, as well as lawsuits brought against mortgage lenders after the financial crisis. But it also reflects a renewed emphasis on corporate fraud, as the Justice Department devotes more resources to the issue and demands higher penalties from companies...But while the collections are a boon to the government and taxpayers, they are resurrecting questions about the relative lack of charges against executives at the companies that are getting the stiffest penalties." Michael Schmidt and Edward Wyatt in The New York Times.
@BCAppelbaum: This looks like a pretty effective federal effort to encourage white-collar crime while penalizing consumers.
Obama will soon have to detail spending cuts. "Legislation Obama signed into law Tuesday will force him to detail early next month how he’d make the first phase of $1.2 trillion in spending cuts across the federal budget, from defense to education to the environment. Sure, Obama gets to spare the likes of Social Security, Medicaid, Medicare and Pell Grants. But everything else could get whacked by the $109 billion in cuts set to begin in January, absent a last-minute deal with a divided Congress. The automatic reductions are a consequence of the congressional supercommittee’s failure last year to reach a deficit-slashing deal." Darren Samuelsohn and Manu Raju in Politico.
Regulators are under fire for their anti-money laundering efforts. "Regulators are catching flak for not acting sooner to stop banks that helped Iran flout U.S. sanctions. This week, the state of New York said London-based Standard Chartered Bank concealed $250 billion in Iranian transactions, violations that persisted for nearly a decade. A number of international banks, including Lloyds, Barclays and Credit Suisse engaged in similar behaviors, but it took years before regulators put their foot down. State and federal agencies routinely audit banks to ensure compliance with anti-money- laundering rules, but institutions continue to skirt the law. Critics say enforcement actions have fallen short of serving as a deterrent, especially since the punishments resulted in fines but no jail time. Policing the world’s banking system, others say, is no small task. And regulators are doing as much as they can in the face of rampant deception." Danielle Douglas and Joby Warrick in The Washington Post.
The SEC will vote on a package of regulations for money-market funds on August 29. "After months of wrangling in Washington, U.S. regulators are planning to vote later this month on a proposal to tighten rules governing the $2.6 trillion money-market mutual-fund industry. Securities and Exchange Commission Chairman Mary Schapiro has waged a public campaign this year to rein in money funds...The 337-page proposal would require money funds to allow their net-asset values to float instead of remaining fixed at $1 per share, or set aside capital to protect against losses while holding back a portion of shareholders' cash for 30 days when they seek to withdraw all of their money. SEC officials have said the capital buffers would be less than 1% of a fund's assets, but could vary depending on the types of investments held by a fund." Andrew Ackerman and Kirsten Grind in The Wall Street Journal.
Fake financial firm interlude: A name generator for hedge funds.
States are trying to name their exchanges. "Health-insurance exchanges are a central part of the Obama administration's health overhaul, serving as marketplaces for people to shop for coverage. But states trying to set them up are finding many people don't know what an exchange is and don't necessarily like the sound of it...The word exchange 'raises some suspicions of loopholes and fine print' and 'implies current coverage may needed to be traded for something else,' wrote communications company GMMB in a presentation to the Washington State Health Benefit Exchange. Part of the problem, GMMB said, was that the word was 'perceived as a verb and unfamiliar as a noun' and reminded people of the New York Stock Exchange or military exchange stores. The states are weighing alternatives.Many states use their own names for federal-state programs, such as Medi-Cal, which is California's version of the Medicaid program." Louise Radnofsky in The Wall Street Journal.
Disabled students are almost twice as likely to be suspended from school. "Students with disabilities are almost twice as likely to be suspended from school as nondisabled students, with the highest rates among black children with disabilities. According to a new analysis of Department of Education data, 13 percent of disabled students in kindergarten through 12th grade were suspended during the 2009-10 school year, compared with 7 percent of students without disabilities. Among black children with disabilities, which included those with learning difficulties, the rate was much higher: one out of every four was suspended at least once that school year...Policy makers and civil rights leaders worry about out-of-school suspensions because they often presage dropouts and can raise a child’s risk of future incarceration. Districts with high suspension rates also tend to be correlated with lower student achievement as measured by test scores." Motoko Rich in The New York Times.
Romney and Obama are sparring over welfare changes. "Mitt Romney sought to inject welfare as an issue in the presidential campaign here Tuesday, accusing President Obama of dismantling federal welfare reform and creating a 'culture of dependency.' The presumptive Republican nominee charged the Obama administration with effectively reversing the popular bipartisan welfare reform signed into law in 1996 by President Bill Clinton by allowing waivers to states from welfare work requirements...Earlier Tuesday, the Romney campaign rolled out a new 30-second television advertisement, 'Right Choice,' that says, 'Obama guts welfare reform.'..The Obama campaign responded by noting that in 2005, then-Massachusetts governor Romney and most other Republican governors requested state waivers similar to those the Obama administration began allowing with the Department of Health and Human Services’ July 12 announcement." Philip Rucker in The Washington Post.
Helpful animal interlude: Useful Dog Tricks 3.
Regulators are freezing nuclear plant licensing. "The U.S. Nuclear Regulatory Commission said it would stop issuing licenses for nuclear plants until it addresses problems with its nuclear-waste policy that were raised by a recent federal appeals court decision. The move, while not expected to affect any nuclear plants right away, shows how the standstill in finding a permanent American nuclear waste dump could undermine the expansion of nuclear power, which is already facing a challenge from cheaper natural gas. In June, the U.S. Court of Appeals for the District of Columbia Circuit said the NRC's approach to managing nuclear waste was inconsistent with federal environmental standards." Rebecca Smith and Ryan Tracy in The Wall Street Journal.
Some lawmakers want speedy approvals of gas exports. "More than 40 House lawmakers are calling on the Energy Department to speed up approvals for U.S. natural-gas exports, raising the political stakes in a debate over how the nation should use its growing natural-gas supplies. In a letter to Energy Secretary Steven Chu on Tuesday, the lawmakers said a review of various export proposals didn't appear to have 'a sense of urgency' despite the lawmakers' belief that exports will spur more natural-gas production and create jobs...The Energy Department is reviewing about 10 proposals to export liquefied natural gas to countries lacking a free-trade agreement with the U.S. The department says it won't approve those projects until it analyzes the effect of exports on domestic prices, employment and economic growth, among other factors." Tennille Tracy in The Wall Street Journal.
Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.