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Monday, March 26, 2012

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Economic Events of the Week

Monday – Supreme Court oral arguments on health law begin
Tuesday – Supreme Court arguments continue, Case-Shiller Index
Wednesday – Supreme Court arguments conclude, Durable Goods
Thursday – Q4 GDP Final
Friday – Personal Income

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e21 Reaction & Commentary
e21 Commentary: How to Replace Obamacare (Capretta and Moffit)
e21 Commentary: Obama Administration’s New Plan to ‘Re-Gift’ TARP Funds: Fan and Fred Take Center Stage (Again)

Washington Update
Health Law Heads to Court (Wall Street Journal)
5 Things to Watch in Health Oral Arguments (Politico)

Market Talk
Banks Set to Cut $1T from Balance Sheets (Financial Times)
Fresh Warning on Money Policies (Wall Street Journal)
Banks Preemptive Strike Against Dodd-Frank (Washington Post)

Editorials & Opinions
Can Obamacare Be Undone? (National Review Symposium)
Stimulus Today, Austerity Tomorrow (Lawrence Summers in Financial Times)

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e21 Reaction & Commentary

e21 Commentary: How to Replace Obamacare (Capretta and Moffit)

When the Patient Protection and Affordable Care Act (commonly known as "Obamacare") was signed into law in the spring of 2010, congressional opponents vowed that the fight was not over. The most disastrous features of the new law would not take effect until 2014, leaving time for a concerted campaign to avert catastrophe. The way to spend that time, these opponents argued, was working to "repeal and replace" the law that Congress had just enacted. The "repeal and replace" formulation quickly caught on, but it was not without its critics. That Obamacare should be "repealed" was obvious, given how strenuously conservatives and many independents objected to the new law. But "replace"? Hammering out the details of a new health-care law might easily stir controversy and sow discord, thereby undermining the push for "repeal." This concern is not unfounded. But repeal will not be enough, for a simple reason: Although Obamacare would worsen many of the problems with our system of health-care financing, that system clearly does call out for serious reform.

e21 Commentary: Obama Administration’s New Plan to ‘Re-Gift’ TARP Funds: Fan and Fred Take Center Stage (Again)

Thus far, the Federal Housing Finance Administration (FHFA), the conservator for Fannie Mae and Freddie Mac, has been reluctant to forgive the outstanding principal balances on mortgages owned by Fannie and Freddie. In the view of the FHFA, the reductions in principal would come at a net cost to taxpayers and would therefore be inconsistent with the agency’s mandate to limit taxpayer losses in conservatorship. To encourage the FHFA to rethink this position, the Obama Administration issued a Supplemental Directive that would use TARP funds to pay Fannie and Freddie to reduce outstanding loan balances. Specifically, Fannie and Freddie would receive as much as $0.63 for every $1 of mortgage debt they forgive. Once these payments are taken into account, the FHFA could now justify large scale principal forgiveness in cases where “principal forbearance” is currently the best loss-minimizing approach.


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Washington Update

Health Law Heads to Court (Wall Street Journal)

In taking up President Barack Obama's health overhaul Monday, the Supreme Court wades into an issue that not only could sway this fall's elections but also could help define for generations what Congress is and isn't entitled to do. The court this week hears three days of arguments on the law's constitutionality, with a ruling expected in late June. The administration and its allies say the court must uphold the law to ensure that Congress can tackle national problems by employing comprehensive solutions. In jeopardy, critics say, is the fundamental American conceit that the federal government should be restricted in what it can require of citizens. On the eve of the court arguments, the case was being cast in political tones. White House senior adviser David Plouffe said on NBC's "Meet the Press" Sunday he was confident the justices would uphold the law, saying that Americans were already benefiting from elements of the plan. But Sen. Lindsey Graham (R., S.C.) said the health law would be a top issue for the eventual Republican nominee.

5 Things to Watch in Health Oral Arguments (Politico)

The Super Bowl for Supreme Court watchers kicks off this week as the justices hear three days of oral arguments in what could be the blockbuster case of a generation: whether President Barack Obama’s signature law overhauling the American health care system is constitutional. The stakes couldn’t be higher for Obama, for the balance of power between the states and federal government and for the reputation of the court itself. Overt politicking in front of the justices is unusual, but they can hardly ignore the political firestorm over the president’s health care law. One of the liberal justices may say or at least hint early on that if the law is as bad as critics contend, surely the public will correct that by voting Obama out this fall. Indeed, Democrats’ midterm losses in Congress were due in no small part to passage of the law. The Justice Department’s main legal brief defending the individual mandate, which requires most Americans to buy health insurance or pay a fine, calls it “a policy choice the Constitution entrusts the democratically accountable branches to make.”


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Market Talk

Banks Set to Cut $1T from Balance Sheets (Financial Times)

Investment banks are to shrink their balance sheets by another $1tn or up to 7 per cent globally within the next two years, says a report that foresees a shake-up of market share in the industry. Higher funding costs and increased regulatory pressure to bolster capital will force wholesale banks also to cut 15 per cent, or up to $0.9tn, of assets that are weighted by risk, a joint report by Morgan Stanley and consultants Oliver Wyman predicts. In addition, banks are expected take out $10bn to $12bn in costs by reducing pay, firing employees and paring back investments in areas that are no longer considered core. The report says investment banks have taken out about 7 per cent of capacity last year and will cut up to another 10th in the next two years.

Fresh Warning on Money Policies (Wall Street Journal)

Three global central-bank leaders warned that decision makers needed to be on alert for an array of risks associated with their easy-money policies. Most notably, the three—Bank of Japan governor Masaaki Shirakawa, former European Central Bank president Jean-Claude Trichet and Jaime Caruana, who runs the Bank for International Settlements—all cautioned in different ways against banks and governments taking advantage of low interest rates to avoid taking hard steps to repair their own finances after years of aggressive borrowing. The comments came at a conference organized in Washington by the Federal Reserve to examine the far-reaching challenges central banks confront in the wake of the 2008 financial crisis. The views were striking because they came after several major central banks have launched a wave of new easy-money efforts in recent months to stabilize financial markets and spur flagging economic growth.

Banks Preemptive Strike Against Dodd-Frank (Washington Post)

When Deutsche Bank reorganized its U.S. operations this week in response to new banking rules, it was the latest manifestation of what both supporters and opponents of the Dodd-Frank regulatory overhaul predicted would happen: The law has pushed big banks to reorganize — to comply with the new rules on Wall Street, as well as to avoid their impact. Many of the most dramatic changes under Dodd-Frank won’t take effect for months or years. But the biggest financial firms in the United States have already started overhauling and reshuffling their operations in anticipation of the new regulatory regime. Deutsche Bank and London-based Barclays have moved their commercial banks from their U.S. subsidiaries into their global firms to avoid new, more stringent capital requirements — even though they don’t go into effect until July 2015.


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Editorials & Opinions

Can Obamacare Be Undone? (National Review Symposium)

Two years ago, President Barack Obama signed his landmark health-care legislation into law. We’re still learning what’s in it, and approaching an election that will result in our digging deeper into a bureaucratic takeover of our most intimate, life-and-death decisions. Or we’ll repeal it. Is there life after Obamacare? Click through for pieces by Anderson, Cannon, Goodman, Hawkins, Lukas, Troy, and more.

Stimulus Today, Austerity Tomorrow (Lawrence Summers in Financial Times)

Economic forecasters divide into two groups: those who cannot know the future but think they can, and those who recognize their inability to know the future. Shifts in the economy are rarely forecast and often not fully recognized until they have been underway for some time. So judgments about the U.S. economy have to be tentative. What can be said is that for the first time in five years a resumption of growth significantly above the economy’s potential now appears to be a substantial possibility. Put differently, after years when the risks to the consensus modest growth forecast were to the downside, they are now very much two-sided. As winter turned to spring in 2010 and 2011, many observers thought they detected evidence that the economy had decisively turned, only to be disappointed a few months later. A variety of considerations suggest that this time may be different.


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