I do have one quibble with Rasmussen’s title, which was prompted by one of our erudite commenters on an earlier post who pointed out that this would be the third stimulus plan if you included The Economic Stimulus Act of 2008, which passed early last year.  That one was quite modest by current standards as it ‘only’ spent of about $150 billion.   The American Recovery and Reinvestment Act of 2009 was the second plan, so if there is another one, it would be the third.

The polling done by Rasmussen is again very interesting [emphasis added]:

Just 27% Favor Second Stimulus Plan This Year, 60% Oppose (Rasmussen Reports, July 6, 2009)

Sixty percent (60%) of U.S. voters now oppose the passage of a second economic stimulus plan this year, a five-point increase in opposition since the issue was first raised in March.

A new Rasmussen Reports national telephone survey shows that just 27% of voters favor a new stimulus plan, unchanged from the earlier findings. Thirteen percent (13%) are not sure.

Eighty-one percent (81%) of Republicans and two-thirds of voters not affiliated with either major political party (66%) are against passage of a second stimulus plan. Democrats are much more evenly divided, but a plurality of those in Barack Obama’s party (45%) like the idea.

Similarly, a sizable majority of conservatives (82%) oppose a second plan, but a plurality of liberals (45%) favor it.

While voters nationwide strongly oppose another stimulus plan this year, 57% of the Political Class think it’s a good idea.

That helps to explain why 68% of voters believe it is at least somewhat likely that President Obama and Congress will try to pass another economic stimulus plan this year. One-out-of-three voters (34%) say it is very likely to happen.

Vice President Joseph Biden in a television interview on Sunday said the Obama administration misjudged the poor state of the economy and undersized the first economic stimulus plan, which emerged from Congress with a $787-billion price tag. But Biden said the administration is not in favor of going ahead with a second stimulus plan right now, despite a 9.5 percent unemployment rate.

Public opposition to a second stimulus plan is explained in part by the mixed feelings voters have about the first plan: 31% say it has helped the economy and 30% say it has hurt.

Forty-five percent (45%) of Americans say the rest of the new government spending authorized in the first stimulus plan should now be canceled.

Seventy-six percent (76%) of Americans say it is at least somewhat likely that a large amount of money in the first stimulus plan will be wasted due to inadequate government oversight…

See also:

Why Isn’t the Economic Stimulus Working?

Krugman vs. Bartlett: A tale of two charts

Cerberus Restructuring Offers Investors Few Quick Exits (MarketWatch, July 9, 2009, Alistair Barr)

Cerberus Capital Management LP unveiled a restructuring of its main hedge fund that offers few ways for redeeming investors to get their money back quickly, according to two people familiar with the situation.

The plan, described in a Friday letter from the firm, means investors in Cerberus Partners LP will probably get about 5% of their money back by the end of 2009 at most, the people said on condition of anonymity.

Cerberus is offering investors in the hedge fund two main choices. One option involves shifting their stakes into a special-purpose vehicle which will be liquidated over two to four years, the people explained.

Or investors can stay in the current fund. As Cerberus sells assets and returns cash, these investors can either put the money into a new hedge fund that will be run by the firm, or they can reinvest it in the current fund, the people added. Investors have to vote on the plan, they noted.

…Cerberus, founded in 1992 by former Drexel Burnham Lambert banker Stephen Feinberg, is one of the largest private-equity firms in the world. It has also run a successful hedge fund business.

Cerberus International Ltd., the offshore version of the Cerberus Partners hedge fund, has generated annual returns of more than 11% since it started in 1993, according to industry performance data compiled by HSBC’s private bank.

Last year, the Cerberus hedge funds were hit hard by the financial crisis, partly because of a foray into mortgage securities in the first half of 2008, according to a former investor in the funds. Indeed, Feinberg said in a January 2008 letter to investors that the meltdown in mortgage markets was “overdone.”

…Cerberus Partners lost more than 20% from May 2008 through February 2009, its largest drawdown ever, according to HSBC data. The fund was up 1.12% during the first five months of 2009.

Cerberus limited withdrawals from the hedge fund in December after getting redemption requests totaling 16.5% of its net asset value. The firm planned to let investors withdraw 20% of what they requested, CNBC reported at the time.

Earlier this year, Cerberus suspended all withdrawals from the hedge fund. Since then, redemption requests have surged. A June 30 audit that was sent to investors showed withdrawal requests representing 50% to 60% of assets, according to one investor who didn’t want to be identified.

Many hedge funds suspended or limited redemptions in the wake of last year’s crushing financial crisis. By late November, at least 75 hedge fund firms, including GLG Partners , Deephaven Capital Management, RAB Capital and New Star Asset Management, had limited withdrawals in some way…

Via Shane Holt

Recovery Act (Government Accountability Office, July 2009)

…Across the United States, as of June 19, 2009, Treasury had outlayed about $29 billion of the estimated $49 billion in Recovery Act funds projected for use in states and localities in fiscal year 2009. More than 90 percent of the $29 billion in federal outlays has been provided through the increased Medicaid Federal Medical Assistance Percentage (FMAP) and the State Fiscal Stabilization Fund (SFSF) administered by the Department of Education…

It’s not all bad news that states are using stimulus dollars to fund shortfalls in state Medicaid payments or to repave roads and to do other important, but mundane, tasks.  Keeping state workers on the job is okay, but it certainly does not stimulate any new employment and it does little or nothing for the private sector which is really hurting.

The GAO report continues:

...All 16 states and the District have drawn down increased Medicaid FMAP grant awards of just over $15 billion for October 1, 2008, through June 29, 2009, which amounted to almost 86 percent of funds available. Medicaid enrollment increased for most of the selected states and the District, and several states noted that the increased FMAP funds were critical in their efforts to maintain coverage at current levels. States and the District reported they are planning to use the increased federal funds to cover their increased Medicaid caseload and to maintain current benefits and eligibility levels. Due to the increased federal share of Medicaid funding, most state officials also said they would use freed-up state funds to help cope with fiscal stresses…

This report covered 16 states and the District of Columbia and I suspect most other states have done the same.  So, the Feds are just picking up the tab for part of the deficit spending at the various states.   If that’s what people want, I’m OK with it, but picking up the tab for state deficit spending is not how I recall the stimulus being pitched.

Also, it’s interesting to note that a little more than half of the money for states has been disbursed and yet the states are, collectively, still in very bad shape.  What will happen when the Federal largesse runs out?

Fox News reported on this GAO study as well [emphasis added]:

States Using Stimulus Money For Short-Term Needs, Audit Shows (Fox News, July 8, 2009)

Cash-strapped states have used federal stimulus dollars to close short-term budget gaps and avert major tax increases but generally have not directed the money toward long-term expansion, according to a new report. 

The report released Wednesday by the Government Accountability Office, Congress’ investigative arm, found that the $787 billion stimulus package is being used to “cushion” state budgets, prevent teacher layoffs, make more Medicaid payments and head off other fiscal problems. 

The Congressional Budget Office estimates that only 10 percent of the Recovery Act funds have been released so far, with about half of the money expected to be spent by October 2010. That dispersed money is being used to prioritize short-term projects and needs over more ambitious goals, the GAO report states. 

For example, the GAO said about half the money set aside for road and bridge repairs is being used to repave highways, rather than build new infrastructure. And state officials aren’t steering the money toward counties that need jobs the most, auditors found…

And, I also thought it was par for the course that state officials weren’t steering Federal money to the most needy counties.  I wonder which counties are getting all the help?

Via: Reuters/James Pethokoukis

Treasury Works on ‘Plan C’ To Fend Off Lingering Threats (Washington Post, July 8, 2009, David Cho and Binyamin Appelbaum)

As the financial system tries to right itself after its near-collapse last fall, the Treasury Department has assembled a team to examine what could yet bring it down and has identified several trouble spots that could threaten the still-fragile lending industry.

Informally known as Plan C, the internal project is focused on vexing problems such as the distressed commercial real estate markets, the high rate of delinquencies among homeowners, and the struggles of community and regional banks, said government sources familiar with the effort.

The problem is not hard to see.  Real estate prices have fallen and continue to fall.  As we have seen, residential real estate prices have already tumbled in the range of 30-40% in many of the hardest-hit areas such as Florida, California and Nevada.  This chart of residential values in major markets tells the tale.  The Composite 10 line (blue) covers 10 major U.S. markets for residential real estate and the red line covers 20 markets:

Data: S&P/Case-Shiller    Chart: Calculated Risk

Until quite recently, commercial real estate prices had held up well.  That does not seem to be the case any longer.  I don’t have a similar chart for commercial real estate, but values in that arena are falling very quickly and very hard as these articles attest:

Here is a report from the the San Francisco Business Times about a very nice office building in San Francisco that just sold for 57% off its 2006 price:

A downtown San Francisco office building that sold for $400 a square foot in 2006 has traded for just $172 a square foot, a 57 percent decline that industry experts see as an important milestone in establishing new, recession-era values for financial district property.

A private equity fund controlled by an unidentified “domestic billionaire” has paid $19.9 million for 250 Montgomery St., a 116,000-square-foot building on the corner of Pine Street that Lincoln Property Co. bought for $46 million in 2006. Technically, the buyer bought the note on the building, rather than the property itself. Under the sales agreement the lender on the property, Finance Realty Corp., will deed 250 Montgomery St. to the buyer in lieu of foreclosure. Lincoln Property was in default on the property.

The sale, at a price that represents about 25 percent of replacement cost, represents the first San Francisco office building sale in a year. It is also the first “round trip” transaction where a property went from being sold at the peak of the market to deed in lieu of foreclosure to a new owner. Colliers International Executive Vice President Tony Crossley said the price “gives the market a data point it has been lacking.”…

A data point is all this represents, but it is a frightening data point for owners of commercial buildings and certainly also for lenders. Here is another data point on a commercial building in Manhattan.  Bloomberg reports on another more than 50% off sale:

Deutsche Bank AG, Germany’s largest bank, plans to sell Manhattan’s Worldwide Plaza to … RCG Longview and George Comfort & Sons … for about $605 million …

Deutsche Bank is selling the last of seven buildings it seized from developer Harry Macklowe. He paid $1.74 billion for the 1.75 million square-foot property in February 2007, according to Real Capital Analytics Inc. data. Manhattan office building prices have dropped 30 percent to 50 percent since the peak in 2007, according to Woody Heller, head of the capital transactions group at Studley, a New York-based brokerage. Heller wasn’t involved in the transaction…

In both of these cases, the purchaser’s equity was wiped out and the lenders took a huge hit.  Assuming these are not just isolated cases, then commercial real estate lenders are going to have a very rough time of it.

The Washington Post article on the Treasury Deparment’s Plan C continues:

…The officials in charge of Plan C — named to allude to a last line of defense — face a particular challenge in addressing the breakdown of commercial real estate lending.

Banks and other firms that provided such loans in the past have sharply curtailed lending.

…Kim Diamond, a managing director at Standard & Poor’s, said the trend is expected to accelerate over the next few years, further depressing prices on some of the nation’s most valuable properties.

“It’s not a degree to which people are willing to lend,” she said. “The question is whether a loan can be made at all.”

The problem affects not just the recipients of the loans but also the institutions that lend, many of them small community banks and regional firms.

Thousands of these institutions wrote billions of dollars in mortgages on strip malls, doctors offices and drive-through restaurants. These commercial loans required a lot of scrutiny and a leap of faith, and, for much of the decade, the smaller banks that leapt were rewarded with outsize profits.

In doing so, many took on bigger and bigger risks. By the beginning of the recession in December 2007, the median midsize bank held commercial real estate loans worth 3.55 times its capital cushion — its reserve against unexpected losses — according to the Federal Deposit Insurance Corp…

Uh no.  The problem is not that the banks have stopped lending.  They stopped lending because real estate prices are falling and the banks are in work out mode on many properties. You cannot paper over declines in value of 30%, much less 50% or more for commercial properties.  The banks and other lenders that made these loans are in trouble and they need to work this out before they will be able to move forward.

If the Treasury officials think the solution is just to pump in billions to get banks lending again, they are going to be sadly disappointed just as they were with the TARP program and other efforts.  A bank with a major hole in its balance sheet needs to fix that problem.  Also, lending standards and business models have to be updated to address the new, more austere operating environment.

Only when both of those steps have been taken, will lending resume on any kind of normalized basis.

In Fitch’s rating system (see below), BBB is the last of the ‘investment grade’ ratings.  I suppose they could go to BBB- and still be clinging to investment grade, but that would be a stretch.  After BBB there are various speculative ratings.  When bonds go below investment grade, they join the ranks of high yield or junk bonds.

As the ratings go lower, the corollary is that the state must pay higher and higher interest rates to attract borrowers.  Also, if the rating falls below BBB, then many investors, particularly high quality municipal bond funds, may have to dump California bonds because they would no longer be investment grade.

Fitch Downgrades State of California GOs to ‘BBB’ (Business Wire, July 6, 2009)

Fitch Ratings has downgraded the state of California’s (the state) long-term general obligation (GO) bond rating to ‘BBB’ from ‘A-’. The bonds remain on Rating Watch Negative. The rating action affects the state’s GOs and lease appropriation and related bonds as detailed at the end of this release.

…The ‘BBB’ rating indicates that expectations of default risk remain low, although the rating is well below that of most other tax supported issuers. GO debt in California has a constitutional prior claim on revenues, although after education; appropriation debt has a lesser legal claim, but the controller prioritizes payment directly after GO debt service, ahead of other mandatory payments.

…The inability of the state to reach agreement has prompted the controller to begin issuing IOUs for non-priority payments, primarily disbursements to vendors, for certain social services, and for tax refunds, in order to ensure payment of priority payments, including GO and lease debt service. The controller’s office estimates that $3 billion in IOUs will be issued during July 2009; priority payments of $10.8 billion will be made for education, debt service, Medicaid, payroll, pensions and other mandatory contractual obligations. Projections will be revised to reflect June revenue performance and other changes but as currently estimated, cumulative cash deficits of $3.7 billion are projected through August, offset by $4.5 billion in non-priority payments that could be covered with IOUS, excluding tax refunds. However, by the end of October, the projected cash deficit expands to $16.1 billion, well beyond non-priority spending of only $10.6 billion, excluding tax refunds.

Today’s further downgrade to ‘BBB’ on Rating Watch Negative affects GOs, GO veterans, economic recovery and Cal-Mortgage Loan Insurance Division bond ratings.

Moreover, the following appropriation bonds of the state are also downgraded to ‘BBB-’ on Rating Watch Negative:

–Public Works Board (except for those issued for the Regents of the University of California);

–East Bay State Building Authority;

–Los Angeles State Building Authority;

–Oakland State Building Authority;

–Riverside County Financing Authority;

–Sacramento City Financing Authority;

–San Bernardino Joint Powers Financing Authority;

–San Francisco State Building Authority;

–Golden State Tobacco Securitization Corporation (series 2005A);

–California Infrastructure and Economic Development Bank state school fund apportionment lease revenue bonds;

–California Judgment Trust;

–Shafter Joint Powers Financing Authority;

–Taft Public Finance Authority.

If you are wondering what Fitch’s scale is, here is an excerpt from a lengthy report on their website:

AAA: Highest credit quality.

‘AAA’ ratings denote the lowest expectation of default risk. They are assigned only in cases of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.

AA: Very high credit quality.

‘AA’ ratings denote expectations of very low default risk. They indicate very strong capacity for payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.

A: High credit quality.

‘A’ ratings denote expectations of low default risk. The capacity for payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to adverse business or economic conditions than is the case for higher ratings.

California G.O. bonds were downgraded to A- just 10 days ago.  The drop to BBB was very quick and does not bode well:

BBB: Good credit quality.

‘BBB’ ratings indicate that expectations of default risk are currently low. The capacity for payment of financial commitments is considered adequate but adverse business or economic conditions are more likely to impair this capacity.

The next ratings are the Fitch speculative ratings.  Let’s hope California bonds never get there.

BB: Speculative.

‘BB’ ratings indicate an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time; however, business or financial flexibility exists which supports the servicing of financial commitments.

B: Highly speculative.

‘B’ ratings indicate that material default risk is present, but a limited margin of safety remains. Financial commitments are currently being met; however, capacity for continued payment is vulnerable to deterioration in the business and economic environment…

Note:
The modifiers “+” or “-” may be appended to a rating to denote relative status within major rating categories. Such suffixes
are not added to the ‘AAA’ Long-Term IDR [KB: Issuer Default Rating] category, or to Long-Term IDR categories below ‘B’.

Now, in this post, Krugman attacks Bruce Bartlett who believes it would be a mistake to pass another economic stimulus.  Krugman chooses to do this by reproducing an image originally published in January by Christina Romer and Jared Bernstein in a paper that advocated the first stimulus program (The American Recovery and Reinvestment Act of 2009):

Bruce Bartlett Misstates the Problem (New York Times / Conscience of a Liberal Blog, July 5, 2009, Paul Krugman)

He says:

The problem is that the Obama administration was much too optimistic about how quickly stimulus spending would affect the economy. Christina Romer, chair of the Council of Economic Advisers, and Jared Bernstein, chief economist to vice president Joe Biden, forecast in January that the stimulus would reduce unemployment almost immediately.

Um, that’s totally false. Did Bartlett even look at the Bernstein-Romer paper? Here’s the key graph:

Source: New York Times

Essentially, Krugman is quibbling with Bartlett’s interpretation of the paper written by two economists — Christina Romer and Jared Bernstein — who are currently active in the administration.  As such, this is pretty dry stuff about when the administration economists thought the stimulus dollars would start actually stimulating the economy.

However, Krugman left out some crucial information.  Namely, it is now July and the graph above was produced in January as a prediction of the before and after effect of the economic stimulus program. Wouldn’t it have made sense for Krugman to update the chart to see how much of a positive effect the stimulus program has had?  After all, if the humble Fundmasteryblog can find the updated information, couldn’t the New York Times?

Here’s the graph above as updated with current information on unemployment.  This covers the same information as the one above, but I increased the size of the chart below a bit so you can read the added information (in red) more easily:

Source: Calculated Risk

As you can see, current unemployment is already higher than the Romer/Bernstein paper estimated unemployment would be without the economic stimulus program.

This New York Times piece attempts to figure it out what went wrong with the government’s analysis [emphasis added]:

A Forecast With Hope Built In (New York Times, June 30, 2009, David Leonhardt)

In the weeks just before President Obama took office, his economic advisers made a mistake. They got a little carried away with hope.

To make the case for a big stimulus package, they released their economic forecast for the next few years. Without the stimulus, they saw the unemployment rate — then 7.2 percent — rising above 8 percent in 2009 and peaking at 9 percent next year. With the stimulus, the advisers said, unemployment would probably peak at 8 percent late this year.

We now know that this forecast was terribly optimistic. The jobless rate has already reached 9.4 percent. On Thursday, the Labor Department will announce the latest number, for June, and forecasters are expecting it to rise further [KB: it is now 9.5%]. In concrete terms, the difference between the situation that the Obama advisers predicted and the one that has come to pass is about 2.5 million jobs. It’s as if every worker in the city of Los Angeles received an unexpected layoff notice.

There are two possible explanations that the administration was so wrong. And sorting through them matters a great deal, because they point in opposite policy directions.

The first explanation is that the economy has deteriorated because the stimulus package failed. Some critics say that stimulus just doesn’t work, while others argue that this particular package was too small or too badly constructed to make a difference.

The second answer is that the economy has deteriorated in spite of the stimulus. In other words, the patient is not as sick as he would have been without the medicine he received. But he is a lot sicker than doctors realized when they prescribed it.

At this point, it is clear that the economic stimulus program has not delivered as promised.  It may be that the administration oversold the benefits in order to get it passed.  Or, it may be that they underestimated the severity of the downturn. Or, perhaps they just were too optimistic as to the speed with which the program could be implemented.

Regardless of what went wrong, I believe it makes sense to figure that out before doubling down with another plan, don’t you?

Let’s give Bruce Bartlett the last word as it was his column that inspired Paul Krugman in the first place.  Here’s Bartlett in the Financial Times [emphasis added]:

We do not need a second stimulus plan (Financial Times, July 5, 2009, Bruce Bartlett)

As the US unemployment rate has risen to 9.5 per cent from 8.1 per cent since the $787bn fiscal stimulus package was enacted in February, many Democrats have become very nervous. They say that another large stimulus may be needed to keep unemployment from rising well beyond the 10 per cent rate that President Barack Obama has predicted will be reached this year.

Another stimulus would be a grave mistake. The first one was justified by extraordinary circumstances. But it must be given time to work. People should not allow their impatience to lead to the adoption of policies that will not only fail to reduce unemployment this year, but could stoke inflation in the not-too-distant future.

The problem is that the Obama administration was much too optimistic about how quickly stimulus spending would affect the economy. Christina Romer, chair of the Council of Economic Advisers, and Jared Bernstein, chief economist to vice president Joe Biden, forecast in January that the stimulus would reduce unemployment almost immediately.

The forecast also showed the unemployment rate peaking at 8 per cent with the stimulus and 9 per cent without. Obviously this was wrong. Yet it would be incorrect to conclude that the stimulus was doomed to failure, as many Republicans and conservative economists argued…

Bartlett points out that most of the job-producing activities from the economic stimulus package have not yet been implemented. In fact, only 11% of the spending on highways, transit and energy efficiency will be spent this fiscal year (that is by September 2009).

…just 11 per cent of the discretionary spending on highways, mass transit, energy efficiency and other programmes involving direct government purchases will have been spent by the end of this fiscal year. Even by the end of 2010 less than half the funds will have been disbursed and by the end of 2011 more than a quarter of the money will be unspent.

…While there may have been a few “shovel-ready” projects that could be started immediately, the vast bulk of public works projects take a long time to be effective, economically. Plans need to be drawn up, land purchased, environmental impact statements prepared, contracts written and put out for bid, and many other things before the first construction worker is hired.

As we have seen, the so-called ’shovel ready’ projects are few and far between.  But, never fear, some will be found as this photo from Business Insider illustrates:

Source: Business Insider

Bartlett continues:

…What all this means is that it is foolish to think that any sort of stimulus that is enacted now will have an impact on the economy any time soon. We just have to wait for the medicine we have already taken to work. Pushing ahead with another stimulus will only make it harder to tighten fiscal policy down the road to keep inflation in check.

Via: Instapundit

For more on this topic, see:

Why Isn’t the Economic Stimulus Working?

Feldstein: Weak & Wobbly Economy Ahead

Rogue trader sends oil to year-high on $10m gamble (Times Online, July 3, 2009, Susan Thompson and Miles Costello)

PVM Oil Futures, a London-based division of the world’s biggest broker of over-the-counter derivatives, has lost almost $10 million (£6 million) after falling foul of a rogue trader.

…The rogue trades are widely believed to have caused global crude oil prices to spike to their highest level in more than eight months - a leap that traders and analysts had struggled to explain.

…Oil breached $73 a barrel during Asian trade on Tuesday, up by more than $1.50 a barrel in under half an hour at around 2am.

More than 16 million barrels of Brent crude oil traded in just over half an hour, according to Reuters exchange data, an unprecedented amount for a market that typically trades less than one million barrels before Europe opens.

The volume of crude traded during Asian trading was almost double the current daily output of Saudi Arabia, the world’s largest oil exporter…

Oil did plunge considerably after this came out and it hit $66.73 a barrel just two days later, so that suggests there is something to this.

Although I do not know about this case, my experience with securities firms leads me to a more cynical take on so-called rogue trading:

A rogue trader is a formerly ‘aggressive’ trader who lost a lot of money.

People who get California IOUs	People California pays in cash
Grants to aged, blind or disabled persons	University of California
People needing temporary assistance for basic family needs	Public Employees’ Retirement System
People in drug prevention, treatment, and recovery services	Legislators, legislative employees, and appointees
Persons with developmental disablities	Judges
People in mental health treatment	Department of Corrections
Small Business Vendors	Health Care Services payments to Institutional Providers

Source: Reuters

The links above each column go to the State Controller’s office, which is the agency that compiled the information.  Two important categories left out of the IOU list by Reuters: personal tax refunds and corporate tax refunds.

So, if you overpaid your taxes, rather than getting a check for the refund, you’ll get an IOU.

See also:

California, New York & New Jersey: What went wrong?

Moody’s Stuns California

Via: Ed Morrissey

Washington Post Cancels Plans for Off-the-Record ‘Salons’ (Washington Post, July 2, 2009, Howard Kurtz)

Washington Post Publisher Katharine Weymouth today canceled plans for a series of policy dinners at her home after learning that marketing fliers offered lobbyists access to Obama administration officials, members of Congress and Post journalists in exchange for payments as high as $250,000.

…Moments earlier, Executive Editor Marcus Brauchli said in a separate interview that he was “appalled” by the plan, and he insisted before the cancellation that the newsroom would not participate.

“It suggests that access to Washington Post journalists was available for purchase,” Brauchli said. The proposal “promises we would suspend our usual skeptical questioning because it appears to offer, in exchange for sponsorships, the good name of The Washington Post.”

The fliers, circulated by the paper’s parent company, offering an “intimate and exclusive Washington Post Salon, an off-the-record dinner and discussion at the home of CEO and Publisher Katharine Weymouth.” The fliers, which said participants would be charged $25,000 to sponsor a single salon and $250,000 to underwrite an annual series of 11 sessions, were reported this morning by Politico.

“We do not offer access to the newsroom for money,” Brauchli said. “We just are not in that business.” He told the staff in an e-mail that the newsroom would have no part of this plan, writing: “Our independence from advertisers or sponsors is inviolable.”

One such flier said: “Bring your organization’s CEO or executive director literally to the table. Interact with key Obama Administration and Congressional leaders . . . Spirited? Yes. Confrontational? No. The relaxed setting in the home of Katharine Weymouth assures it.” That flier said a July 21 session would involve “Health-care reporting and editorial staff members of The Washington Post . . . An exclusive opportunity to participate in the health-care reform debate among the select few who will actually get it done.”

…Weymouth knew of the plans to host small dinners at her home and to charge lobbying and trade organizations for participation. But, one of the executives said, she believed that there would be multiple sponsors, to minimize any appearance of charging for access, and that the newsroom would be in charge of the scope and content of any dinners in which Post reporters and editors participated.

…Brauchli said he was blindsided by the wording of these fliers and that they are an embarrassment to the newspaper.

…The aggressively worded pitch gives the impression that The Post is selling access to special interests, not just to administration officials and lawmakers — which raises a separate set of questions about cozy relationships — but to the people who produce the newspaper. The Post often raises questions about whether corporations, unions and trade associations receive access or favors in return for campaign contributions to political candidates…

I have generally felt that the Washington Post was one of the best media outlets for objective information.  This is not just embarrassing, it’s quite a black mark on the paper’s reputation.

 Try your hand at closing California’s budget shortfall, estimated at $24 billion. It’s not easy, but it can be done. Cut spending, raise taxes and/or borrow to get the state out of the red. For each choice — drawn from proposals from across the political spectrum — we’ve tried to give some sense of the effects. As you craft your proposal, the Deficit Meter will show your progress.

The tool looks like the one below.  But, to try your hand, you will have to go to this LA Times page:

Source: Los Angeles Times / David Lauter and Evan Halper / Sean Connolley

Data: California Department of Finance

One problem with this interactive tool is that it uses the starting deficit of $24 billion, which is not the actual deficit for this year and that makes balancing the budget much harder than it needs to be. The actual deficit is around $12 billion or so, considerably below $24 billion, as this piece from the Orange County Register indicates:

Chapman University economists, who were among the first to correctly identify the onset of the current national recession, say that the state of California has over-stated its actual deficit by about $12 billion. Chapman President and economist James Doti first raised the issue  on Wednesday during the university’s mid-year economic udpate, held at the Costa Mesa Hilton. Doti said the state’s actual deficit is roughly $12 billion, not the $24.3 billion figure cited by the Schwarzenegger Administration.

Doti followed up on that remark Thursday night in an email, saying:  “I would place it at $12 billion, as I said at the forecast conference.  The Gov’s office gets a higher deficit by adding the accumulated deficits in prior years of roughly $7 billion and a contingency reserve of $5 billion.  Can you imagine what the federal deficit would be if it added the sum of all prior deficits (essentially our national debt) to it?   And why in a year when we are in a deep recession are we adding a $6 billion contingency.? That should be done in good years - not recession years.”…

I actually went through the exercise and did balance the budget by putting in $12 billion in cuts, which is all we really need this year. Unfortunately, the LA Times graphic does not allow modest cuts in areas such as retiree benefits, pension contributions so it makes things more difficult because it is either all or none in those categories.

Also, there is a bit of editorializing in the pop up screens on the LA Times’ site, but with those quibbles, it’s pretty good.

Via: Paul Kedrosky