Wonkbook: Primary results complicate FinReg; read Elena Kagan's every written word; oil reaching Louisiana
In last night's Arkansas Democratic primary, Lt. governor Bill Halter forced Blanche Lincoln into a runoff. Question of the day: How does that effect efforts to write her proposal to split derivatives swap desks off from banks, which is one of the things she's running on, out of the bill? Will her fellow Senate Democrats really do anything to weaken her back home? Chris Dodd's idea is to offer an amendment preserving Lincoln's language but asking the new council of systemic risk regulators to study it and make recommendations in two years, but will anyone buy that?
Meanwhile, Reid wants a 2pm cloture vote on financial regulation. Elena Kagan's entire written record is available for public viewing, from her thesis at Princeton to her briefs as Solicitor General. The oil from the BP spill is starting to reach Louisiana, and a threatening ocean current puts Florida and the East Coast on alert. The Labor Department releases data on consumer inflation, The House has more hearings than you can shake a stick at (and it turns out that Michael Lewis is addressing House Democrats today -- not, as I'd previously written, yesterday).
Welcome to Wonkbook.
Chris Dodd has introduced an amendment to water down derivatives reform, reports Brady Dennis: "Dodd offered a clever Washington solution aimed to appease both friends and foes of the provision. His amendment preserves the tough language -- but it postpones any action for two years so it can be studied. And it assigns that study to a new council of regulators, headed by Treasury Secretary Timothy F. Geithner, whose members have serious reservations about such a dramatic measure and may very well kill it in the end."
The Senate Judiciary Committee has posted Elena Kagan's entire written record, including her writings for the Princeton student newspaper, her Princeton and Oxford theses, her entire academic output, and memos from the Clinton and Obama administration: http:/
Sludgy oil is starting to reach Louisiana, report David Fahrenthold and Joel Achenbach: "Hundreds of miles from the Louisiana coast, there was a worrisome discovery: Tar balls, which are sticky clumps of decayed oil, were found Monday in Key West, Fla. Officials said they were being tested to determine whether they came from the leaking BP well. But the most ominous news came from south Louisiana, where the Mississippi Delta peters out into the Gulf of Mexico. There, instead of the tar balls that had previously washed ashore from the spill, thick, brown oil was infiltrating the edges of the marshes."
Meanwhile, a current could send oil to Florida and up the East Coast, report Jeffrey Ball and Corey Dade: "A thread of oil from the spill already may have entered a movement of water in the Gulf known as the Loop Current, said Jane Lubchenco, administrator of the National Oceanic and Atmospheric Administration. Oil in the Loop Current could reach Florida within 10 days and then start heading up the East Coast, she said."
Markets are entering the age of political risk, writes James Surowiecki. "The fact is, this kind of [market] volatility isn't going away, because we now live in an environment dominated by what economists call 'political risk'--the uncertainty that businesses face as a result of government actions. Of course, government actions always affect the economy, but usually in an undramatic way: an interest-rate cut here, a new regulation there. The economic downturn and the debt crisis have given us instead a world where governments are among the most important players in markets--injecting money into economies on a colossal scale and routinely propping up, or even nationalizing, troubled companies."
"Political risk is hard to manage because so much comes down to the personal choices of policymakers, whether prime ministers or heads of central banks. And those choices aren't always going to be economically rational--witness Merkel's recent tergiversations. Similarly, the U.S. government's failure to bail out Lehman Brothers in 2008 seems to have been in part the result of Treasury Secretary Henry Paulson's desire not to be seen as Mr. Bailout. Investors, then, are being forced to read the minds of policymakers--not something they're good at. Markets work best when there's lots of information available and a historical track record to go on; they excel at predicting things like horse races, election outcomes, and box-office results. But they're bad at predicting things like who will be the next Supreme Court nominee, as that depends on the whim of the President.
Daft Punk interlude: Play "Harder Better Faster Stronger" yourself.
Table of Contents: The SEC is introducing new rules for trading (and other FinReg news); Ken Salazar promises "major changes" in drilling oversight (and other energy news); the US trade representative is talking tough on China (and other economic news); and health care reform is hitting insurance-salesman commissions (and other health care news).
The SEC is proposing new rules to prevent fast stock market dives, reports Zachary Goldfarb: "The Securities and Exchange Commission announced that in coming weeks it would require that exchanges pause trading in a stock if it declines more than 10 percent in any five-minute interval."
Goldman Sachs clients are concerned by the firm's double-dealing, report Gretchen Morgenson and Louise Story: "Goldman's many hats -- trader, adviser, underwriter, matchmaker of buyers and sellers, and salesperson -- has left some clients feeling bruised or so wary that they have sometimes avoided doing business with the bank. During the early stages of the mortgage crisis, Goldman seems to have unnerved WaMu's former chief executive, Kerry K. Killinger, according to an e-mail message that Congressional investigators released. In that message, Mr. Killinger noted that he had avoided retaining Goldman's investment bankers in the fall of 2007 because he was concerned about how the firm would use knowledge it gleaned from that relationship. He pointed out that Goldman was "shorting mortgages big time" even while it had been advising Countrywide, a major mortgage lender. "I don't trust Goldy on this," he wrote. "They are smart, but this is swimming with the sharks."
Senate Democrats have struck a deal on the role of states in regulating banks, report Victoria McGrane and Michael Crittenden: "The compromise softens an amendment offered earlier in the debate by Mr. Carper that would have removed completely the bill's new powers for state attorneys general to sue national banks for violating federal consumer-protection laws. At present, states can't enforce federal laws at all. Under the compromise language, state attorneys general could enforce new rules issued by the new Consumer Financial Protection Bureau. But they would be barred from bringing federal class action-like lawsuits against national banks or from suing banks across state lines. The amendment also would lower the bar set in the bill for national banks to block state consumer laws that are stricter than federal statute."
The EU is tightening rules on hedge funds, report Jenny Strasburg and Charles Forelle: "European finance ministers approved new regulations aimed at reining in hedge funds, the latest sign of toughened oversight of powerful players in global financial markets. Tuesday's vote over objections from U.K. financial leaders and U.S. hedge-fund lobbyists means that sweeping new restrictions will be drafted to constrain U.S. and other foreign hedge-fund managers trying to raise money from European investors. The European Union also plans to limit the amount of debt, or leverage, that foreign-based funds can use to amplify their trades and profits."
Byron Dorgan is playing hardball to get credit default swaps regulated, reports David Herszenhorn: "Mr. Dorgan noted that there are trillions of dollars in outstanding naked credit default swaps, which he described as essentially pure gambling that puts the broader financial system at risk. 'It's just a flat-out bet,' he said. 'It's not an investment. It's just a bet...A naked C.D.S. purchase means that you take out insurance on bonds without actually owning them. It's a purely speculative gamble. There's not one social or economic benefit. Now my amendment is trying to shut this down. But I'm being blocked by those who don't want us to get tough on Wall Street.'" Dorgan objected to motions consider new amendments until he got a vote on his regulating CDSes.
We need the Merkley-Levin amendment regulating proprietary trading, writes Mike Konczal: "Given that section 619 of the Dodd Bill makes provisions for Volcker Rule, why is the Merkley-Levin Amendment (SA 3931) necessary? Section 619 right involves the Council of regulators, which includes (and will likely be overly influenced by) the Federal Reserve, Treasury and the OCC, would come together and do a study, and then decide what if any restrictions they want to impose. The bank regulators would then go about implementing them. The problem is that the Council, the way the Dodd Bill is written, has very broad authority to determine what type of regulations they want to impose and what kinds of exemptions they want to give. It allows the Council can rewrite the rules as they see fit. The Section 619 language also doesn't have conflict-of-interest language at all."
Laws regulating what debit and credit card operators can charge will save $5 billion this year, writes Brad Tuttle: "These numbers indicate that consumers will be paying less money for debit card overdrafts, late charges on credit cards, and other fees that have been changed by new federal laws. But does this mean that you'll be paying less in fees overall? Not necessarily. Banks really like making money (duh), and when one means of making money disappears, counter-offensives are launched swiftly, early, and often. Well before the new restrictions on fees went into effect, the credit card and debit card issuers were trying to figure out ways to make up anticipated losses, in the same way that health insurance companies are actively trying to maximize profits during the periods before and after health reform becomes fully actualized."
Harold Meyerson thinks the Lincoln derivatives amendment returns Democrats to their roots: "In a sense, measures such as Lincoln's mark the return of the Democratic Party to its Jeffersonian and Jacksonian roots. The leaders of the 19th-century Democratic Party railed against the concentration of wealth and power that they identified with the big banks of their day. Theirs was partly a provincial opposition, reflecting the antipathy of America's farmers to the banks that exploited them and to the increasingly polyglot cities where the banks were based. But the Great Depression unified farm and city in a larger anti-bank coalition. With the coming of the New Deal, the cause of financial reform lost its provincialism."
Spanish pop interlude: Delorean's "Stay Close".
Interior Secretary Ken Salazar promises "major changes" in offshore drilling oversight while defending offshore drilling, report Siobhan Hughes and Jeffrey Sparshott: "'We have not, and we will not, back down on our reform agenda,' Mr. Salazar told the Senate Energy and Natural Resources Committee. 'We have been making major changes at MMS, and we will continue to do so.' At the same time, Mr. Salazar defended the Obama administration's offshore drilling program...'We see oil and gas as being part of the energy portfolio of the United States,' Mr. Salazar said. 'Without it we essentially would have an economy that would shut down.'"
Salazar also promised that BP would foot the entire bill of the cleanup, reports Jake Sherman: 'Let me be clear,' Salazar will tell the committee, according to prepared testimony. 'BP is responsible, along with others, for ensuring that the flow of oil from the source is stopped; the spread of oil in the Gulf is contained; the ecological values and near shore areas of the Gulf are protected; any oil coming onshore is cleaned up; all damages to the environment are assessed and remedied; and people, businesses and governments are compensated for losses.'"
Read Matthew Wald for a full list of yesterday's Congressional hearings on the spill: http:/
Head climate negotiator Todd Stern is focused on getting binding CO2 reduction commitments from China and others, reports Andrew Revkin: "At a Brookings Institution conference on climate and energy policy, President Obama's lead climate diplomat, Todd D. Stern, gave the keynote talk, restating the administration's unbending demand that any legally binding provisions emerging in treaty talks must apply to all substantial contributors of greenhouse gases. The clear focus was on China, which has been locked in an Alphonse-Gaston standoff with the United States for years on the issue. The subtitle of the meeting was drawn from the movie 'Back to the Future' but another choice could easily have been 'Groundhog Day.' Almost in the same breath, Stern said that the need for parity under a final climate accord made such a deal unlikely any time soon but added that the treaty negotiations remained the best forum for finding ways to divert the world from business as usual on heat-trapping emissions."
The US' growing dependence on Canadian oil poses environmental risks, report Clifford Krauss and Elisabeth Rosenthal: "There is no chance of a rig blowout here, or a deepwater oil spill like the one from the BP well that is now fouling the Gulf of Mexico. But the oil extracted from Canada's oil sands poses other environmental challenges, like toxic sludge ponds, greenhouse gas emissions and the destruction of boreal forests. In addition, critics warn that American regulators have waived a longstanding safety standard for the pipelines that deliver the synthetic crude oil from Canada to refineries in the United States and have not required any specific emergency plans to deal with a spill, which even regulators acknowledge is a possibility."
There could be less off-shore oil than the administration assumes, writes Brad Plumer: "What if the Gulf's reserves aren't quite as reliable as Salazar and the EIA are expecting? Glenn Morton, a consultant for oil exploration projects, has a fascinating analysis of yet another famous BP deepwater platform, this one at the Thunder Horse field some 150 miles south of New Orleans, and finds a few surprises. Back in 1999, oil was first discovered in the area and the field was expected to hold at least one billion barrels¿a major, major find. So BP spent some $5 billion building one of the largest and most sophisticated offshore platforms in the world, and after a few Hurricane Katrina-related setbacks, finally started pumping out crude in 2008.
"Trouble was, as Morton shows, Thunder Horse hasn't reached anywhere near its expected potential. The platform was designed to produce 250,000 barrels of oil per day, but it never quite hit that level, and the field already appears to be in decline after just a few years. One billion barrels now looks quite unlikely. (The same goes for natural-gas production, which has never hit expected levels.) And, while this is just one field¿albeit a major one¿it does underscore the point that deepwater oil drilling is a tricky process, and not always as easy or predictable as thought."
Obama is finally catching wise to the fact that Washington isn't great at regulating, writes Howard Kurtz: "Is there a single Washington agency that was found to have done its job well in recent years? The SEC was asleep at the switch during the Bernie Madoff swindle and other financial scams (perhaps because some staffers were busy watching porn). The banking agencies let the big Wall Street firms flood the market with junk loans, shaky derivatives and other useless paper. NHTSA was horribly slow in cracking down on Toyota acceleration problems. The Mine Safety and Health Administration couldn't enforce its own citations before the explosion that killed more than two dozen at Massey Energy's West Virginia mine. And we all remember FEMA in New Orleans.
"As Casey Stengel famously said in 1962, can't anybody here play this game? Democrats in particular love to pass laws to regulate misconduct. Republicans tend to name industry-friendly types who came from the companies they are charged with regulating. But neither party has done a good job of managing the bureaucracy. And Obama, like the press corps that too often ignores this important turf, now recognizes he is late to the game."
Cap-and-trade makes the simple complicated, writes Ed Glaeser: "This bill is a behemoth for three reasons. First, it tries to do far more than just charge for carbon emissions. The bill starts by providing 'incentives for the growth of safe domestic nuclear and nuclear-related industries.' It supports carbon capture in coal plants, expands offshore drilling, establishes an Office of Consumer Advocacy and promotes 'clean energy career development.' Standard economics suggests that many of these interventions would be unnecessary if we had the right tax on carbon emissions; if companies pay the full social costs of their actions, they have the right incentives to invest in greener technologies without any further help from Uncle Sam."
Tom Friedman argues the spill amounts to an "environmental 9/11": "The gulf oil spill is not Obama's Katrina. It's his 9/11 -- and it is disappointing to see him making the same mistake George W. Bush made with his 9/11. Sept. 11, 2001, was one of those rare seismic events that create the possibility to energize the country to do something really important and lasting that is too hard to do in normal times.
President Bush's greatest failure was not Iraq, Afghanistan or Katrina. It was his failure of imagination after 9/11 to mobilize the country to get behind a really big initiative for nation-building in America. I suggested a $1-a-gallon "Patriot Tax" on gasoline that could have simultaneously reduced our deficit, funded basic science research, diminished our dependence on oil imported from the very countries whose citizens carried out 9/11, strengthened the dollar, stimulated energy efficiency and renewable power and slowed climate change. It was the Texas oilman's Nixon-to-China moment ¿ and Bush blew it."
Rube Goldberg-esque interlude: Brian Palmer explains why BP is trying to fix the leak with golf balls.
The US is going hard against Chinese procurement policies, reports Tom Barkley: "U.S. Trade Representative Ron Kirk on Tuesday stepped up pressure on China to reverse restrictions in government procurement policies he labeled as 'discrimination.' Mr. Kirk said U.S. officials will press China on its 'indigenous innovation' policies, which restrict foreign access to government procurement projects, at high-level bilateral talks in Beijing next week. 'We appreciate efforts China's government has made to address our concern, but we have urged them to refrain from further steps down this path,' he said in prepared remarks at the U.S. Chamber of Commerce." China has eased some restrictions, but critics say they still favor domestic products. The Treasury is launching a new program to provide credit to small businesses, reports Darrell Hughes:
"The Treasury Department is unveiling a new credit initiative that could spur $20 billion in lending to small businesses and could be beneficial to small minority-owned firms...In an interview, Mr. Sperling said the new policy is modeled after 20 state-level initiatives known as capital access programs."
Obama is insisting the "economy is growing again," reports Jackie Calmes: "'Despite all the naysayers in Washington, who are always looking for the cloud in every silver lining, the fact is our economy is growing again,' Mr. Obama told an audience of several hundred workers in a cavernous -- and expanding -- pipe-making plant, citing four months of job growth. The president mocked Republicans in Congress who voted in near unanimity against his economic stimulus plan but at home participate in ribbon-cuttings for the job-creating projects it has helped finance. 'If the 'just say no' crowd had won out,' he said, 'if we had done things the way they wanted to go, we'd be in a deeper world of hurt than we are right now.'"
Stay-at-home dads are having a hard time returning to the workforce, writes Sue Shellenbarger: "Compared with at-home moms, who outnumber them by more than 5 to 1, at-home dads face a bigger stigma among would-be employers, and they often have fewer opportunities to network from home. Also, they are returning to a labor market where men have suffered major setbacks; heavy job losses in male-dominated industries and middle management have led pundits to label the latest downturn the 'he-cession.'"
The housing market gained while construction slowed in April, reports Christine Hauser: "Home building rose in April, government figures showed on Tuesday, as activity was possibly spurred by an $8,000 government tax credit for new buyers. But the data suggested that builders might also be slowing down their future construction plans. The Commerce Department said work started on 672,000 homes in April, up 5.8 percent from March. It was the highest number of housing starts since October 2008 and slightly ahead of analysts' expectations. It also showed a marked improvement compared with April 2009, when housing starts were 477,000."
Prices are shooting up across Europe, report Joe Parkinson, Paul Hannon, and Nina Koeppen: "Consumer prices across the 16 countries that use the euro edged higher in April, as rising energy and transport costs pushed the rate to its highest level since December 2008, data showed Tuesday. However a sharp fall in core inflation--which strips out the most volatile components--to a fresh record low showed that inflation pressures were subdued. The European Union's official statistics agency Eurostat said the final estimate of the annual consumer price index in the euro zone rose 1.5% on the year in April, in line with the flash estimate. In March, the consumer price index rose 1.4%. Stripping out the volatile energy, food, alcohol and tobacco prices, annual price growth slowed to 0.8% in April from 1.0% in March."
Obama could cut federal wages, but would need Congressional approval, reports Ed O'Keefe: "The Federal Employees Pay Comparability Act of 1990 contains a formula for minimum pay raises based on the Employment Cost Index that essentially mandates annual pay raises. But the president can override those pay adjustments in the case of a 'national emergency or serious economic conditions affecting the general welfare.' In September, Obama asked Congress to cap federal civilian pay raises at 2 percent by invoking the the Sept. 11, 2001, terrorist attacks and the economic slump. Congress later approved a 2 percent civilian raise and a 3.4 percent military pay bump. Amid protests from federal worker unions, lawmakers promised 'pay parity' for civilians and the military in fiscal 2011."
David Leonhardt thinks Washington should warm to a soda tax: "The argument for a soda tax is the same as the argument for a tax on tobacco, pollution or, for that matter, banks that take big, expensive risks. When an activity imposes costs on society, economists have long said that the activity should be taxed. Doing so accomplishes two goals: it discourages the activity, and it raises money to help pay society's costs. In the case of soda, those costs come in the form of medical bills for diabetes, heart disease and other side effects of obesity. We're all paying these bills, via Medicare, Medicaid and private insurance premiums. Obesity has become a significant cause of our swelling long-term budget deficit.
The IRS is unfairly targeting small charities, write Suzanne Garment and Leslie Lenkowsky: "The IRS uses Form 990 to verify that charitable organizations meet the conditions for receiving tax-deductible contributions and qualifying for tax exemptions. Until now, the smallest charities did not have to file 990s. But thanks to a seemingly minor provision of the 2006 Pension Protection Act, more than 400,000 additional nonprofits--nearly half of public charities registered with the IRS--now have to do so. If not, the IRS will take steps to revoke their tax-exempt status. Supporters say the new filing requirement will prevent tax privileges from going to organizations that do not deserve them or may no longer even exist. But many smaller charities are unaccustomed to submitting these reports and unprepared to assemble the necessary information. They may not file and may find themselves newly liable for taxes. If they want their tax exemptions reinstated, they will incur the costs of new filings and legal fees."
Long-form interlude: Maureen Tkacik looks back at how she created her online persona.
Health care reform is hitting insurance salesman commissions, report Mark Schoofs and Avery Johnson: "The new law requires that insurers use at least 80% of the premiums to pay for medical care for patients rather than administrative costs and profit-taking. But many companies that sell health insurance to individuals and small businesses maintain a lower 'medical loss ratio] because they use more of the premium to cover administrative expenses, including sales commissions. The commissions typically run between 4% and 6% of a policy's premium, but can be as high as 30% for the first year. A recent Senate report found that companies targeting the market for individual policies paid only 74% of their premiums for medical expenses in 2009, while firms that target large employers generally met the law's required ratio."
The AMA is opposing a doc fix bill, reports Julian Pecquet: "The American Medical Association is opposing the Medicare 'doc fix' included in the tax extenders bill House Democrats are preparing. AMA argues the proposed fix to the Medicare payment system for physicians doesn't address the program's solvency issues and only pushes the problem five years down the road. A summary of the tax extenders bill circulating on K Street says the bill will include a fix to the Medicare payment that would avert a 21.3 percent payment cut set to hit physicians on June 1. It also says it would include reforms to 'the physician payment system.'"
The Obama administration is pulling out all the stops to get health reform implemented fast, report Jennifer Haberkorn and Sarah Kliff: "Top administration officials, who meet regularly with outside special interest groups to coordinate the public relations effort, have so far focused on expediting and amplifying four key areas of the new law: expanding coverage to young adults, covering sick people with pre-existing conditions or high medical costs, providing tax breaks to small businesses and helping a select group of seniors pay for prescription drugs. In one case, the administration moved so quickly to provide coverage to young adults under their parents' health plan that it cut short the conventional period for the public to weigh in on the new rule. In another, it used taxpayer money to alert small businesses that they will get a break on this year's taxes."
Closing credits: Wonkbook compiled by Dylan Matthews.