Daily Read - 3/8/10

Another broken campaign promise, or a promise that should have never been made?  A Congressional panel is considering whether "mass killings of Armenians during and after the first world war" was genocide.  "Barack Obama had promised during his election campaign to recognise the event as genocide. But before the vote his advisers said that while he acknowledges a genocide personally, he urged unsuccessfully that official interpretation be left to the parties involved."  As I've often noted, President Obama made an awful lot of promises on the campaign trail, many that were mutually exclusive.  However, in this case he made a promise to do something, then later says it should be "left to the parties involved."  So, why would the President promise something he knows he can't deliver, and that he isn't even responsible for?  (Economist)

"The 2008 Farm Bill lifted the ten-year statute of limitations on the government's ability to withhold Social Security benefits in collecting debts other than student loans—for which the statute of limitations was lifted in 1997—and income taxes, where the limit remains 10 years." This change allows the government to reduce Social Security benefits to offset unpaid debts. Unfortunately, the government does a terrible job of tracking these debts accurately. An attorney who has worked on Social Security overpayment cases says very few cases were accurate, and "Most people can't find or afford help, and give up very quickly and end up with painful offsets on a fixed budget." Another case in the article concerns a grandmother whose "granddaughter had forged her signature on a [student] loan application." The student loan company agrees the loan should have never been made, but due to strange legal hurdles and bureaucratic incompetence, the grandmother had to fight for several years before getting a disability waiver, and repayment of withheld benefits.  If a private company acted this way, people would be up in arms.  (WSJ)



More on why banks aren't lending and the financial crisis is far from over: 1) the WSJ has estimates today on what additional capital banks might have to hold when new international bank standards go into effect: "Morgan Stanley might need to hold $269 billion of regulatory capital against its credit derivatives book, BofA $108 billion and J.P. Morgan $21 billion," according to Goldman Sachs calculations.  With these requirements coming, Congress must be careful not to burden banks further.  "The real reform of Wall Street could originate not on Capitol Hill, but in a sleepy Swiss town."  2) While banks know they will need to hold extra capital at some point in the future, their existing loans continue to deteriorate.  The WSJ reports that banks continue to "face demands to buy back defectively underwritten mortgages."  Many, but not all, of these loans, are being pushed back by Fannie Mae and Freddie Mac, as I noted last week.  3) the Obama administration is pursuing a program that "will allow owners to sell for less than they owe and will give them a little cash to speed them on their way."  While such "short sales" may be better for the banks than foreclosure, banks would take the hit on what the borrower owes, versus what they can sell the house for under current market conditions.

Congress beware: although some claim the US is behind the UK in financial reform because the UK "announced a 50 per cent payroll tax on all bonuses greater than £25,000 in December," regulators there insist it is a one-time tax," due to "fears of damaging London’s reputation as a financial centre."  (Financial Times)