Money in the Morning


The Fed chairman testifies on Capitol Hill before the Financial Crisis Inquiry Commission on “too big to fail” starting at 9 a.m. He’s followed by FDIC chief Sheila Bair. AP:

Bernanke is expected to face questions about the collapse of Lehman Brothers. The commission’s chairman, Phil Angelides, said Wednesday it was a “conscious policy decision” to let the Wall Street firm fail, and that the decision might have worsened the crisis. WSJ:

Dick Fuld, the Lehman’s CEO when it collapsed, attacked the Fed for not bailing his firm out when it decided later to save others: “I submit, that had Lehman been granted that same access [to Fed credit] as its competitors ... Lehman would have had time for at least an orderly wind down or for an acquisition which would have alleviated the crisis that ensued.” FT:

The auto bailout is a different story ... Reuters headline: “GM roadshow to begin after elections: sources.”

“GM's roadshow is set to begin on November 3 and will last two weeks, the sources said. The IPO is expected to price on November 17 and debut on November 18, the sources said...

“The Obama administration is eager to cast the GM IPO as a success, but GM executives and government officials have repeatedly denied any political motivation in timing the IPO for the top U.S. automaker so close to the mid-term congressional elections.”

Gallup: Trust swings to GOP... On which party would do a better job handling on the economy, GOP led Dems 49-38; on jobs, GOP led 46-41.


BLOOMBERG LEDE: “The U.S. economy is so bad that the chance of avoiding a double dip back into recession may actually be pretty good.

“The sectors of the economy that traditionally drive it into recession are already so depressed it’s difficult to see them getting a lot worse, said Ethan Harris, head of developed markets economics research at BofA Merrill Lynch Global Research in New York. Inventories are near record lows in proportion to sales, residential construction is less than half the level of the housing boom and vehicle sales are more than 40 percent below five years ago.”

The latest ADP payroll report — 10,000 private-sector jobs lost last month but fewer layoffs — shows the labor market has hit “rock bottom,” which means it can only get better, writes Motley Fool’s Morgan Housel.

And maybe July wasn’t as bad as we thought... The Atlantic’s David Indiviglio: “July's indicators don't portray the road to double dip as much as they do a very slow, painful recovery. The economy is generally getting better, but barely. If this trend continues, and sentiment improves, then the recovery could gain speed.”

Yet, if it happens, don’t blame us... Double-dip threat isn’t the press’s fault, writes The Source.

“The balance of positive to negative news stories about the U.S. economy in the U.S. press in August was the highest it has been since the recession started in December 2007, according to the latest monthly survey of media sentiment, the Dow Jones Economic Sentiment Indicator... Indeed, the indicator has been rising steadily since April, which marked the end of a broadly flat six-month period.”

Stocks had their best day in 8 weeks, due to U.S. and China manufacturing data. Dow was up 254.75.


Outgoing WH Council of Economic Advisers Chairwoman Christy Romer used her farewell speech on Wednesday to call for more stimulus.

"The only surefire ways for policymakers to substantially increase aggregate demand in the short run are for the government to spend more and tax less," Romer said. "The key is that we need to take action and we need to do it quickly."

But... Michael Boskin, who served in Romer’s post for President George H.W. Bush, says President Obama would have to cut spending and repeal healthcare reform to start boosting the economy the way Bill Clinton did.

And... Jimmy P. likes the payroll tax cut, but wants it coupled with long-term deficit reduction.

The Fed can’t agree over stimulus, either:

Philly Fed President Charles Plosser dismisses deflation threat, putting himself at odds with Bernanke’s push for monetary easing.

“If fears of deflation were to become real — and I don't think that is the risk — then we would need every ounce of credibility we can muster to convince markets we are not going to let deflation happen," Plosser said.

Dallas Fed President Richard Fisher says any new stimulus must focus on job-creation incentives.

Also... Ken Rogoff: There’s no quick fixes for the economy, but Fed moves to allow some inflation would help.

DEBT THREAT: The IMF warns a slew of industrialized countries over risky debt but dismisses odds of Greek-style fiscal crisis. The U.S. isn’t in that group, but it’s not far behind.