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Wonkbook: The ever-growing eurozone bailout

at 08:04 AM ET, 09/29/2011

Dylan is writing Wonkbook while Ezra is traveling.

Top Stories

1) Germany's parliament approves expanded bailout fund reports Michael Birnbaum "German chancellor Angela Merkel’s political standing was reinforced on Thursday, as she succeeded in convincing a majority of her own partners to approve expanded powers for the European bailout fund that she has said is critical to ensuring economic stability on the continent. The expanded powers were approved in Germany based on the support of opposition parties, and it will go forward if six other euro area countries approve it over the coming weeks. But the vote in Germany suggests that Merkel has little ground on which to stand in pushing for further measures that would increase Germany’s commitments to helping its troubled fellow euro-users."


A euro sign sculpture stands in front of the European Central Bank's (ECB) headquarters in Frankfurt, Germany, Aug. 09. (Hannelore Foerster - BLOOMBERG)
2) The administration is appealing directly to the Supreme Court to rule on health care reform, reports Robert Barnes: "The Obama administration moved aggressively Wednesday for Supreme Court review of the 2010 health-care act, making it likely a constitutional ruling on the president’s signature and most controversial domestic achievement will come in the thick of the presidential campaign. The administration said it was confident the act would be upheld as a valid exercise of federal power, just as Social Security and the Civil Rights Act were. If the court agrees to hear the case in the term that begins Monday, it would almost certainly render its decision by the end of deliberations in June. The administration called upon the justices to review the decision of a three-judge panel of the U.S. Court of Appeals for the 11th Circuit in Atlanta, which is the only appeals court to say Congress exceeded its power in passing the law."

3) The IMF is going easier on Europe than it has other regions, reports Howard Schneider: "As a financial crisis spread through Asia in the late 1990s, the International Monetary Fund prescribed some harsh medicine for countries such as Indonesia and South Korea. Private banks took losses, and there were dozens of bank closures, nationalizations and mergers. But now that Europe faces a crisis, the approach has been different. The IMF and others have tried to ensure that banks and insurance companies get repaid for their numerous loans to indebted countries such as Greece, Portugal and Ireland. The slow pace of confronting problems involving hundreds of billions of dollars in government loans that may or may not be worth their face value has been blamed for dragging out the crisis, and has drawn complaints of a double-standard from Asian officials."

Top Op-eds

1) A tax on financial transactions could ease Europe's crisis, writes Philippe Douste-Blazy: "Governments, both rich and poor, urgently need a way to calm speculation in the financial markets and to raise revenue. On Wednesday, the European Commission president, José Manuel Barroso, proposed a tax on financial transactions. Such a measure, already supported by the German chancellor, Angela Merkel, and the French president, Nicolas Sarkozy, is long overdue. Indeed, a tax of just 0.05 percent levied on each stock, bond, derivative or currency transaction would be aimed at financial institutions’ casino-style trading, which helped precipitate the economic crisis. Because these markets are so vast, the tax could raise hundreds of billions of dollars a year globally for cash-strapped governments and could increase development aid."

2) Barney Frank's Fed proposal is designed to stifle dissent, writes George Will: "When three regional presidents voted their skepticism about cheap money, Frank decided to act against the problem, as he sees it, which is that allowing five regional bank presidents to vote 'has the effect of skewing policy to one side of the Fed’s dual mandate.' That is the side of preserving the currency as a store of value -- controlling inflation. This comes, Frank thinks, at the expense of the other side, which he calls 'promoting employment.' The actual language of the mandate speaks of promoting 'maximum employment,' which is problematic: 'Maximum' means 'the highest attainable,' and this might depend on ignoring the other half of the mandate...Frank’s prescription for institutionalizing a policy of cheap money comes as Europe’s economy seems about to follow America’s into convulsions caused by monetary gorging."

3) We've learned some about responding to economic crises since the 1920s, but not enough, writes David Wessel: "The big issue now is whether a Greek default will be disorderly (bad) or orderly (better), and if European politicians can move quickly enough to build a wall around the much larger economies of Spain and Italy. If they don't (bad), markets will demand such high interest rates from Spain and Italy that their economies will be crushed (worse)--and so will big banks of Germany and France that hold so much European sovereign debt (even worse). The resulting financial tsunami will quickly wash up on the shores of the U.S. economy. Mr. Ahamed sees another, largely unappreciated lesson from the '20s. The few moves in the right direction then were too small for the scale of the economic disaster...In our time, says Mr. Ahamed, 'I don't think Keynesians or even monetarists ever realized that the numbers to make their policies work are so gigantic. Everyone had sticker shock.'"

4) Cutting the trade deficit is a cheap way to create jobs, writes C. Fred Bergsten: "Mr. Obama has set a goal of doubling the nation’s exports over five years. But his administration has done little to achieve that goal, which is inadequate to begin with. For one thing, the focus should not be the level of exports but the overall deficit...The United States must, in effect, weaken the dollar by 10 to 20 percent. This step alone would produce one million to three million jobs. It’s been done before: In 1971, President Richard M. Nixon ended the dollar’s convertibility in gold, and in 1985, Treasury Secretary James A. Baker III reached an agreement with foreign countries to devalue the dollar relative to the yen and the Deutsche mark...The United States should take China to the World Trade Organization in Geneva for engaging in illegal competitive currency devaluation, and retaliate if China does not cease this protectionist policy."

'80s retro interlude: Holy Ghost!'s "Some Chidlren," featuring Michael McDonald of the Doobie Brothers.

Got tips, additions, or comments? E-mail me.

Still to come: The SEC is investigating banks' mortgage lending; Medicare is rewarding doctors for coordinating care well; Rick Perry's walking back statements on immigration; a new watchdog report throws EPA climate rules into question; and a stop-motion remake of Toy Story.

Economy

The SEC is looking into banks' mortgage lending, reports Kara Scannell: "The Securities and Exchange Commission is investigating Royal Bank of Scotland, Credit Suisse and other financial institutions for their handling of problem mortgage loans, according to public disclosures and people familiar with the matter The SEC is examining whether banks misled shareholders about the number of loans they might be forced to buy back because of early defaults - known as loan repurchase requests - and set aside sufficient reserves to fund those purchases or handle related litigation, people familiar with the matter said. RBS disclosed the probe in a regulatory filing last month...Credit Suisse was subpoenaed by the SEC in relation to allegations made in a private lawsuit, according to court filings."

A mortgage aid program is winding down, reports Cara Buckley: "In summer 2010, Congress set aside $1 billion for a program intended to bail out people in danger of losing their homes to foreclosure. It was estimated that the program, administered by the federal Department of Housing and Urban Development, would help as many as 30,000 households...Fewer than 15,000 households are expected to receive help despite enormous demand, and perhaps half of the money will go unspent...The program, called the Emergency Homeowners’ Loan Program, or EHLP, was signed into law in July 2010 as part of the Wall Street Reform and Consumer Protection Act. It offered people who were unemployed or underemployed up to $50,000 in zero-interest loans to pay their mortgage debts. HUD has until Friday to mete out the funds or lose the balance."

Fed officials are defending their latest actions, reports Michael Derby: "Federal Reserve officials are hitting the public-speaking circuit this week to defend their latest attempt to boost the economy, describing the action as prudent and necessary...Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, speaking Tuesday in Jacksonville, Fla., said the Fed's latest moves were 'a measured, incremental attempt to add more support to the recovery. It's not a fix for everything that ails the economy, but it should help.'...Speaking Monday, Fed governor Sarah Bloom Raskin called Fed actions 'completely appropriate' given the central bank's legal mandate to pursue both stable prices and maximum sustainable employment...The flurry of commentary marks a show of support for Fed Chairman Ben Bernanke, who has been criticized internally and externally for the easy-money policies he has championed in response to the financial crisis."

Corporate tax reform isn't a silver bullet for revenue, writes Robert Pozen: "Both Democrats and Republicans want to reduce the corporate tax rate from 35 percent to 25 percent, in return for eliminating the tax credits and deductions available primarily to U.S. corporations...In theory, this proposal would also be revenue-neutral...But the chances of this proposal passing Congress on a revenue-neutral basis are slim. Most of the corporate tax benefits that would need to be repealed have both a significant positive effect on economic growth and deep political support among powerful constituencies. Moreover, repeal would hurt many non-corporate entities, such as local governments and partnerships running operating businesses, that would gain nothing from a lower corporate tax rate...Congress should focus its tax reform efforts on other dysfunctional aspects of the U.S. tax system."

Workers suffer too when unemployment is high, writes Ezra Klein: "In a remarkable article published in Allentown, Pennsylvania's Morning Call newspaper, reporter Spencer Soper interviewed more than 20 current and former employees of Amazon’s Lehigh warehouse to paint a picture of life in the Lesser Depression that looks more like 'The Grapes of Wrath' than anything we expect to see in 21st century America. The warehouse, Soper reported, is brutally hot in summer...A local emergency room doctor treated so many warehouse employees for heat exhaustion this summer that he called federal regulators to report an unsafe work environment...In a more robust economy, Amazon would have to treat its employees better or they would simply leave to pursue other opportunities. 'But with job openings scarce, Amazon and Integrity Staffing Solutions, the temporary employment firm that is hiring workers for Amazon, have found eager applicants in the swollen ranks of the unemployed,' Soper reported."

Republicans' campaign against Warren Buffett is revealing, writes E.J. Dionne: "Buffett has outraged conservatives by saying that he pays taxes at a lower rate than his secretary. He’s said this for years, but he’s a target now because President Obama is using his comment to make the case for higher taxes on millionaires. Thus did the Wall Street Journal editorial page call on Buffett to 'let everyone else in on his secrets of tax avoidance by releasing his tax returns.' Somehow, the Journal did not think to ask its friends who battle vigorously for low taxes on capital gains to release their tax returns, too. But aren’t they just as engaged in this argument as Buffett? Shouldn’t accountability go both ways? Nor did the Journal suggest that the Koch brothers could serve the public interest by releasing a full accounting of all their political spending."

Stop motion interlude: A live-action recreation of Toy Story, made with action figures.

Health Care

Medicare will start rewarding doctors for better care coordination, reports Sam Baker: "Medicare announced a new initiative Wednesday that will give primary-care doctors extra payments for better coordinating their patients' care. Participating doctors will receive bonus payments averaging $20 per patient per month. After two years, they'll be able to share in the savings the program generates for Medicare. Many studies suggest that more efficient primary care helps lower costs in the long run by emphasizing prevention and cutting down on redundant or unnecessary procedures. The new Medicare initiative will ask doctors to focus on patients with chronic diseases, work closely with patients' families and help coordinate among specialists. Medicare intends to test the voluntary program in five to seven parts of the country."

Catholic groups are resisting new health care rules on contraception, reports Kris Maher: "Catholic organizations have ramped up opposition to new federal health-care requirements to cover contraceptive services, saying the rules may prompt them to drop insurance or shut down. Beginning next August, employers have to provide coverage for contraception and other preventive services for women such as screening for gestational diabetes and domestic-violence counseling under the Patient Protection and Affordable Care Act, part of the federal health-care law passed in 2010. The U.S. Department of Health and Human Services exempted religious organizations that employ and serve people of the same faith from having to provide contraception services, but this exception has been criticized as too narrow by church leaders, as well as some members of Congress."

Domestic Policy

Rick Perry is walking back his pro-immigrant statements, reports Philip Rucker: "Texas Gov. Rick Perry, facing a conservative backlash over his labeling as heartless those who oppose his state law giving college tuition breaks to the children of illegal immigrants, said Wednesday that the tone of his remarks was 'inappropriate.' In an on-camera interview with Newsmax.com, a conservative media outlet, Perry said he had been 'over-passionate' in his answer to a question about the law during last week’s GOP presidential candidates debate. 'I probably chose a poor word to explain that,' Perry said in the interview. 'For people who don’t want their state to be giving tuition to illegal aliens, illegal immigrants in this country, that’s their call, and I respect that.' Although he walked back his remarks, Perry stood by the legislation and noted that it passed in 2001 with the support of all but four legislators in Texas."

The administration's proposed anti-lobbying rule bans most gifts to federal officials, reports T.W. Farnham: "Federal employees have, since 1992, been barred from accepting gifts from anyone seeking to influence the government, including lobbyists. The proposed changes eliminate most of the exemptions that were available in the past -- such as gifts worth less than $20 and invitations to 'widely attended' events -- when the givers are registered lobbyists or an organization that employs them. That could force government employees to check whether gift-givers are lobbyists by looking in disclosure filings. The proposed rules have generally been hailed by good-government groups and attacked by lobbyists...The administration seems focused on curbing even casual social contact between lobbyists and government employees. The Office of Government Ethics said as much in its notice of proposed rulemaking."

A judge gave a thumbs-up to Alabama's immigration law, reports Mackenzie Weinger "A federal judge gave a green light for Alabama to enforce some of the most controversial parts of its toughest-in-the-nation immigration law, ruling that certain measures do not violate federal law. U.S. District Judge Sharon Blackburn ruled that Alabama can enforce the law’s requirements for schools to verify students’ immigration status and for police to determine citizenship and status of those they stop, detain or arrest. Police are allowed to arrest anyone they suspect of being an illegal immigrant during a routine traffic stop, under the law...But Blackburn granted the Obama administration’s request to block certain portions of the law until she makes a final ruling. Those sections include provisions making it a crime to transport or harbor an illegal immigrant, or for an illegal immigrant to look for or perform work."

Obama should be more ambitious on infrastructure, writes Fareed Zakaria: "There is one area where government can create demand -- regardless of private-sector behavior -- and in a way that is productive for long-term growth: building infrastructure. The president’s plan contains some proposals for this, but we need something much more ambitious. The American Society of Civil Engineers estimates that America’s crumbling infrastructure -- ranked ninth in the world a decade ago and, according to the World Economic Forum’s Global Competitiveness Report, now 24th and falling -- needs $2 trillion worth of repairs, upgrades and expansions. With needs on that scale, why are proposals at one-20th that size being floated? We need a more ambitious effort -- which requires grand bargain between Republicans and Democrats."

Supercut interlude: '90s TV/movie characters tell me people to get with the times, since "it's the 90s!"

Energy

A new Inspector General report puts EPA climate change action into question, reports Juliet Eilperin: "The Environmental Protection Agency should have conducted a more detailed scientific review before determining two years ago that greenhouse-gas emissions pose a threat to public health and welfare, according to a report issued Wednesday by the agency’s Office of Inspector General. 'This review did not meet all [Office of Management and Budget] requirements for peer review of a highly influential scientific assessment primarily because the review results and EPA’s response were not publicly reported, and because 1 of the 12 reviewers was an EPA employee,' the study said. Although the IG probe -- requested by the top Republican on the Senate Environment and Public Works Committee, James M. Inhofe (Okla.) -- will do little to affect federal climate regulation, it provides fodder to those who question the government’s role in addressing global warming."

Solyndra violated the terms of its federal loan guarantee, reports Carol Leonnig: "The U.S. Department of Energy learned in December that Solyndra was violating its federal loan deal, but the agency changed the loan terms to allow the solar company to continue receiving taxpayer funds, federal officials confirmed Wednesday. Executives at Solyndra, which had been awarded a $535 million government-backed loan to spur its solar-panel production, confided to the Energy Department late last fall that the Fremont, Calif., company was running out of money and at risk of liquidating. The company was unable on Dec. 1 to make its first $5 million payment into a special reserve fund, which was required under the loan terms and designed to help protect taxpayers...Energy Department spokesman Damien LaVera confirmed Wednesday that the agency knew Solyndra had violated the loan terms but agreed to change the requirement to help Solyndra."

The DOE is doubling down on renewable energy loans, reports Matthew Wald: "As the federal fiscal year ends, and with it the part of the stimulus program that finances some energy loans, the Energy Department issued $1.07 billion in loan guarantees on Wednesday afternoon, for two solar energy production plants, and on Thursday it plans to announce $156 million in grants for high-risk but potentially high-reward research projects...On Wednesday, the department said it was giving final approval to a loan guarantee of $737 million for the Crescent Dunes Solar Energy Project, near Tonopah, Nev. That project, to be built by SolarReserve, does not involve the panels that turn sunlight directly into electricity. Instead, the builders will install 17,500 mirrors, each swiveling over the course of a day to focus the sun’s light on a black-painted tower 640 feet high. Inside the tank is salt."

Wind energy is too environmentally dangerous, writes Steve Wright: "The Vermont Public Interest Research Group...has suggested that wind power could provide as much as 25 percent of the state’s electricity needs, which would require turbines on 29 miles of ridgeline. Other wind advocates, notably David Blittersdorf, the chief executive of a wind and solar power company in Williston, Vt., has urged that wind turbines be placed along 200 miles of ridgeline in the state. But it is those same Green Mountain ridgelines that attracted nearly 14 million visitors to Vermont in 2009, generating $1.4 billion in tourism spending. The mountains are integral to our identity as the Green Mountain State, and provide us with clean air and water and healthy wildlife populations...This project will set an ominous precedent by ripping apart a healthy, intact ecosystem in the guise of doing something about climate change."

Closing credits: Dylan Matthews is a student at Harvard and a researcher at The Washington Post. Wonkbook is compiled and produced with help from Michelle Williams.

 
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