Welcome to Wonkbook, Ezra Klein and Evan Soltas's morning policy news primer. (Well, usually Ezra and Evan’s. But Ezra is traveling today, so it’s just Evan.) To subscribe by e-mail, click here. Send comments, criticism, or ideas to Wonkbook at Gmail dot com. To read more by Ezra and his team, go to Wonkblog.
Wonkbook's Number of the Day: $4.7 million. That's how much Amazon spent on lobbying in 2011-2012.
Wonkbook's Graph of the Day: The U.S. trade deficit with the rest of the world has narrowed.
Wonkbook's Top 5 Stories: 1) exit, central bankers; 2) Obamacare techies in trouble; 3) the 30-year mortgage; 4) the "blend wall"; and 5) Bezos buying us.
1) Top story: Is the Fed going to taper in September?
The Fed could begin to reduce pace of bond purchases as early as September. "Charles L. Evans, the president of the Federal Reserve Bank of Chicago, said he would not rule out the possibility that the Fed could start tapering as early as next month...In a separate interview with Market News International, the president of the Federal Reserve Bank of Atlanta, Dennis P. Lockhart, also indicated a September move was an option. Mr. Lockhart is not a voting member of the committee, however, so his comments carry a bit less weight than those of Mr. Evans." Nelson D. Schwartz in The New York Times.
...And that led stocks to the biggest loss since June. "The Dow Jones Industrial Average dropped 93.39 points, or 0.6%, to 15518.74, its biggest point and percentage decline since June 28...The S&P 500 slipped 9.77 points, or 0.57%, to 1697.37, and the Nasdaq Composite Index fell 27.18 points, or 0.74%, to 3665.77. The materials sector led declines in all 10 industry sectors." Kaitlyn Kiernan in The Wall Street Journal.
@justinwolfers: Fed watchers: My reading of the recent data is that it suggests there'll be one heckuva debate at the next meeting. Dunno who'll win.
Trade deficit contracts. "A sharp decline in the trade deficit with other nations suggests the American economy grew this spring at a faster pace than previously estimated, helped by a record level of exports. The Commerce Department said on Tuesday that the United States trade gap fell more than 22 percent, to $34.2 billion, in June from May. That is lowest level since October 2009." The Associated Press.
SEC's hunt for financial wrongdoing loses steam. "Officials at the SEC, which has taken enforcement action stemming from the crisis against 157 firms and individuals, aim to complete the vast majority of such cases by the end of this year, according to people close to the agency. Despite filing a near-record number of enforcement actions in the year ended Sept. 30, the SEC has been dogged by criticism by some lawmakers and investor advocates for a perceived shortage of big-name victories. One reason the enforcement push is winding down: the fast-approaching five-year anniversary of the meltdown. A statute-of-limitations legal cutoff generally restricts the sanctions the SEC can get for conduct that is more than five years old, unless the agency has "tolling agreements"—which, in effect, override the deadline—with the firms or individuals concerned, according to lawyers." Jean Eaglesham in The Wall Street Journal.
@DanielAlpert: Terrific irony that the home of the bank-bashing fictional cable news station on #TheNewsroom is actually Bank of America's NY headquarters.
U.S. sues Bank of America over sale of $850 million in mortgage-backed securities. "Traders at Bank of America willfully misled investors about the quality of the residential mortgages tucked into the securities the bank sold at the start of the financial crisis, according to separate lawsuits filed Tuesday by the Justice Department and the Securities and Exchange Commission...Bank of America faces civil charges for allegedly hiding the risks associated with $850 million worth of securities backed by home loans. Justice claims the bank knew that more than 40 percent of the 1,191 mortgages it bundled into securities did not meet underwriting guidelines and sold them anyway. Prosecutors estimate that the total losses sustained by investors will exceed $100 million." Danielle Douglas in The Washington Post.
SUNSTEIN: Summers's critics distort his regulatory views. "Some of Summers’s critics think that he is anti-regulatory and reflexively pro-business, and that he would undermine the important regulatory mission of the Federal Reserve. Nothing could be further from the truth...Building on these analogies, Summers vigorously argued on behalf of a consumer financial protection agency, and he supported strong safeguards designed to reduce the risk of another economic meltdown. Intensely focused on the problem of “too big to fail,” he was one of the earliest and most forceful advocates of promoting financial stability by requiring banks to have enough capital to withstand an economic downturn." Cass R. Sunstein in Bloomberg.
EL-ERIAN: The biggest loser in the Fed debate. "[T]his particular Fed debate now risks hurting the nation’s economic posture...It is pivoting away from constructive issues — including the candidates’ respective academic backgrounds, economic thinking and policymaking experience — to a form of negative campaigning replete with sophisticated mudslinging." Mohamed A. El-Erian in The Washington Post.
DAVIDSON: Did we waste a financial crisis? "Remarkably, five years after the crisis, the health of the financial industry is just as hard to determine. A major bank or financial institution could meet every single regulatory requirement yet still be at risk of collapse, and few of us would even know it. Despite endless calls for change, many of the economists I’ve spoken with have lamented that the reports that banks issue about their finances remain all but useless. The sprawling Dodd-Frank Act, which rewrote banking regulation in 2010, didn’t resolve things so much as inaugurate a process of endless rules-writing by regulators." Adam Davidson in The New York Times.
Music recommendations interlude: George Harrison, "What Is Life," 1971.
GALSTON: Behind the middle-class funk. "Many economists define the middle class as those adults whose annual household income is between two-thirds and twice the national median—today, that means roughly $40,000 to $120,000. By this standard, according to the Pew Research Center, the middle class is significantly smaller than it once was. In 1971, it accounted for fully 61% of adults, compared with 14% for the upper class and 25% for the lower class. Four decades later, the middle class share had declined by 10 percentage points to just 51%, while the upper class share increased by six points and the lower class by four. The U.S. income distribution is still a bell curve, but the left and right tails are fatter and the hump in the middle is lower." William A. Galston in The Wall Street Journal.
BARTLETT: The sacrosanct mortgage-interest deduction. "[T]here is surprisingly little hard evidence that the mortgage interest deduction has encouraged home ownership. The Harvard economists Edward L. Glaeser and Jesse M. Shapiro have found that it has only a trivial impact. A major reason is that the deduction has long been capitalized into the prices of homes. That is, home prices are higher than they would be without the deduction. Thus to the extent that the deduction encourages home ownership, it is exactly offset by the extent to which high prices discourage home ownership." Bruce Bartlett in The New York Times.
BEBCHUK: Hedge funds are better than you think. "[W]e undertook a comprehensive empirical investigation of the long-term consequences of activist interventions. Our study uses a data set consisting of the full universe of approximately 2,000 interventions by activist hedge funds from 1994–2007...During the five-year period following the intervention month, operating performance relative to peers improves consistently. On average, the companies targeted by activists close two-thirds of their gap with peers in terms of return-on-assets." Lucian Bebchuk in The Wall Street Journal.
MEYERSON: A hard landing for the middle class. "The upgrading of business and the downgrading of coach present a fairly faithful mirror of what’s happening in the larger economy: the disappearance of the middle class...That’s the reality that today’s air travel illustrates, as the comfortable standard seat that once was the norm goes the way of the dwindling middle class." Harold Meyerson in The Washington Post.
Lists interlude: The 25 best websites for literature lovers.
2) Obamacare tech is tied in knots
Obamacare supporters are doing lots of door-knocking. It might not work. "[W]ill a knock on the door – or eight – be enough? Maybe not, according to Stan Dorn, a senior fellow at the Urban Institute, whom I quoted in the piece and who is skeptical of such efforts. He thinks the only way to get large numbers of people signed up quickly is to actually do the signing up for them." Sandhya Somashekhar in The Washington Post.
Explainer: Childhood obesity is falling, and the CDC has a map to prove it. Sarah Kliff in The Washington Post.
White House unveils Health Care Wizard to teach business owners about Obamacare. "The new site allows employers to input their location, company size and current insurance plans and receive tailored information about changes under the law, important dates to remember, and the formulas for determining requirements and penalties. Dubbed the Health Care Wizard, the site is part of BusinessUSA, the administration’s interagency information outlet for employers. The new site churns out information gathered from Department of Health and Human Services, the Treasury Department and the Small Business Administration." J.D. Harrison in The Washington Post.
Federal health IT chief to step down. "Dr. Farzad Mostashari, a former New York City public health official, told colleagues Tuesday that he will resign from the Department of Health and Human Services after four years...His resignation this fall comes as healthcare providers race to meet deadlines related to the adoption of electronic health records, a goal considered essential to improving patient care and lowering costs." Elise Viebeck in The Hill.
Uh-oh: Obamacare security testing is months behind, report says. "Last Friday, the Inspector General’s Office at Health and Human Services released a report titled “Observations noted during the OIG review of CMS’ implementation of the health insurance exchange-data services hub.” The most important observation: The federal government is months behind where it hoped to be in testing security features of a crucial health law component. Much of this report focuses on the federal data hub, a single point where new marketplaces can access lots of information on who qualifies for what programs." Sarah Kliff in The Washington Post.
Who would play this with Wonkbook interlude: Progressive chess.
3) Whither the 30-year mortgage?
Obama touts housing recovery, lays out strategy to build on gains. "The president outlined a series of policies he said would continue to boost the housing market, including a long-ignored legislative proposal that would allow more Americans to refinance at current low mortgage rates. He also said he is taking executive action to widen the pool of borrowers eligible to receive loans from federally backed programs; many borrowers without the highest-quality credit have been locked out. But Obama also for the first time laid out specific principles for the future of the nation’s housing system, ideas that align him with bipartisan efforts in the Senate but sharply contrast with the views of many House Republicans." Zachary A. Goldfarb in The Washington Post.
Washington steps warily on housing. "The president praised a bipartisan Senate effort to replace Fannie and Freddie with a system that would charge lenders for explicit government guarantees of some mortgage loans. And while there is a risk that the cost of borrowing would increase, Mr. Obama also said that he wanted to preserve the wide availability of the 30-year, fixed-rate loans that are preferred by most Americans." Binyamin Appelbaum in The New York Times.
Obama wants to help people refinance their mortgages. Is it too late? "New government efforts might help streamline the process for refinancing, but there’s one roadblock Obama can’t remove: rising interest rates. Mortgage rates have shot up nearly a percentage point since the start of the year, with the biggest jump occurring over the past two months. The average rate for a traditional 30-year fixed rate loan last week was 4.39 percent, compared to 3.34 percent in January. That has made refinancing look a lot less attractive for many households – and their prospects are unlikely to get any better." Ylan Q. Mui in The Washington Post.
Mother Nature interlude: A mosquito, up really, really close.
4) Ethanol's "blend wall"
EPA revisits ethanol mandate as fuel use slips. "Because Americans are continuing to drive more fuel-efficient cars, U.S. gasoline consumption is expected to fall this year. At the same time, a 2007 law calls for rising use of ethanol, which makes up about 10% of the U.S. gasoline supply, and other fuels defined as renewable. That means the U.S. is heading toward the "blend wall," the point at which fuel marketers can't absorb any more ethanol into the gasoline supply without using higher-percentage ethanol blends that aren't widely sold. As a result, on Tuesday the agency said that next year it would take the unprecedented step of seeking to reduce the amount of renewable fuel that the oil industry must use, saying it "does not currently foresee a scenario in which the market could consume enough ethanol."" Ryan Tracy in The Wall Street Journal.
Almost eight months late, EPA sets 2013 biofuel blend requirement. "The Obama administration is calling for 16.55 billion of gallons of renewable fuel to be blended in with conventional gasoline this year as part of a federal program designed to wean the country off foreign oil and explore new energy sources. The Environmental Protection Agency (EPA) on Tuesday announced its yearly requirement under the Renewable Fuel Standard (RFS), nearly eight months past the legal due date of last November." Julian Hattem in The Hill.
Today I learned interlude: Hugh Hefner collects two grand a month from Social Security.
5) Our continuing coverage of Bezos buying us
The sale of The Washington Post: How the unthinkable choice became the clear path. "Several factors allowed the deal to come together with relative speed. They included a long-standing friendship between Bezos and Graham, 68, an executive steeped in traditional newspaper publishing who had become a respected elder for a newer generation of tech magnates. Bezos was among the most successful of those, and the two men had on several occasions traded insights on their businesses." Craig Timberg and Jia Lynn Yang in The Washington Post.
Graham is likely to continue to diversify company. "The new company — which will be renamed after the $250 million sale of The Post to Amazon.com mogul Jeffrey P. Bezos is complete — will resemble a mini-Berkshire Hathaway, whose owner, billionaire Warren Buffett, has been a mentor to Washington Post Co. Chairman Donald E. Graham. Buffett sat on the Post board for 20 years as its largest outside shareholder...The largest part of the remaining company — and the once-great hope for its future — is Kaplan, an education and test-preparation service that accounts for 55 percent of its revenue." Thomas Heath in The Washington Post.
Interview: Don Graham explains why he’s selling The Washington Post to Jeff Bezos. Ezra Klein in The Washington Post.
Bezos could use Amazon model of customer targeting to reboot the newspaper industry. "Technology analysts said that the kind of predictive analytics perfected by Amazon could be used to provide Post subscribers with personalized news feeds based on where they live and what they have read before. People browsing The Post’s Web site or tablet app could be served ads tailored to their past purchases, and then could buy products with a single click, media industry experts said. Reader voices could be integrated into online storytelling, with the community voting on the most valuable comments." Matea Gold and Cecilia Kang in The Washington Post.
What does Jeff Bezos usually do with the companies he buys? "The logic behind the acquisitions isn’t always immediately clear, but they do tend to fall into a few categories. Here are the main things that end up happening to the businesses Amazon buys...There’s a whole constellation of retail sites that Amazon has bought and essentially allowed to continue operating as is, with little to no Amazon branding, and sometimes even with overlapping and competitive business models." Lydia DePillis in The Washington Post.
Here’s what Amazon lobbies for in D.C. "Amazon has grown steadily more comfortable with throwing its weight around Capitol Hill over the years. Back during the 2003-04 session, the company spent $1.8 million on lobbying. In 2011-2012, Amazon spent more than twice as much — $4.7 million, all told...When it comes to policy, Amazon is perhaps most famous for its long, bitter fights with the states over Internet sales taxes." Brad Plumer in The Washington Post.
Reading material interlude: The best sentences Wonkblog read today.
The tax system is keeping 2.2 million people out of poverty. Dylan Matthews.
Obamacare supporters are doing lots of door-knocking. It might not work. Sandhya Somashekhar.
What does Jeff Bezos usually do with the companies he buys? Lydia DePillis.
You won’t be eating a lab-grown hamburger anytime soon. Brad Plumer.
Here’s what Amazon lobbies for in D.C. Brad Plumer.
Pentagon reduces defense furloughs from 11 to 6 days. Steve Vogel and Josh Hicks in The Washington Post.
Romney warns against government shutdown, saying GOP would ‘suffer.’ Philip Rucker in The Washington Post.
Bipartisan postal bill offers hope for compromise but faces challenges. Josh Hicks in The Washington Post.
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