Wednesday, June 2, 2010;
Dylan Matthews is writing Wonkbook while Ezra is in China.
The Justice Department is launching a criminal investigation into the BP oil spill. Meanwhile, long-term unemployment has reached an unprecedented high. And an Obama nominee promises to reignite the health care debate.
Welcome to Wonkbook.
Attorney General Eric Holder is starting an investigation of the oil spill, report Theresa Vargas and Jerry Merkon: "Among the statutes his office is examining: the Clean Water Act, the Oil Pollution Act of 1990, the Migratory Bird Treaty Act and the Endangered Species Act. Criminal prosecutors are also examining possible false statements, obstruction of justice and conspiracy, federal law enforcement sources said. They would not say if evidence of such crimes has emerged. Legal experts said this means that investigators are exploring whether BP ignored warning signs before the explosion, falsified records or statements to regulators, or tampered with testing equipment."
Long-term unemployment is at its highest point on record, reports Sara Murray: "Nearly half of the unemployed¿45.9%--have been out of work longer than six months, more than at any time since the Labor Department began keeping track in 1948. Even in the worst months of the early 1980s, when the jobless rate topped 10% for months on end, only about one in four of the unemployed was out of work for more than six months. Overall, seven million Americans have been looking for work for 27 weeks or more, and most of them--4.7 million--have been out of work for a year or more."
Republicans are planning on opposing Donald Berwick, Obama's nominee to run Medicare and Medicaid, reports Carrie Budoff Brown: "Berwick has called Britain's National Health Service 'one of the greatest health care institutions in human history' and 'a global treasure.' He once said it sets an 'example' for the United States to follow. And his decade-long efforts to improve the NHS were so well-regarded that Queen Elizabeth granted him an honorary knighthood in 2005.--'He is, as far as I am concerned, bad news,' said Texas Sen. John Cornyn, chairman of the National Republican Senatorial Committee. 'If he wants to turn America into the National Health Service in England -- he thinks that is the model -- he is going to find a lot of pushback.'"
Music criticism interlude: Seth Colter Walls on Janelle Monae.
Table of Contents: Home loan banks want to be exempted from FinReg (and other FinReg news); the markets are rebelling against BP (and other energy news); states are being forced to keep tax refunds (and other economic news); and many insurers won't be covering young adults just yet (and other domestic policy news).
Federal Home Loan Banks want an exemption from FinReg, reports James Hagerty: "The legislation bars financial institutions deemed 'systemically important"'from lending to any one customer an amount exceeding 25% of the lender's capital. The House version of the legislation exempts the 12 regional home-loan banks from that restriction, but the Senate version does not. The 25% threshold would apply to any FHLB bank making a loan. The home-loan banks, chartered by Congress in 1932 to help support housing finance, are cooperatives owned by more than 8,000 commercial banks, thrifts, credit unions and insurers, known as members. The home-loan banks' core business is making advances, loans backed by collateral, to those members, many of which rely heavily on such funds."
Foreign banks are winning during the crisis, reports Chris Frates: "While Congress and President Barack Obama have been bashing big American banks as the cause of the nation's economic troubles, foreign banks have been quietly increasing their presence in Washington with unprecedented lobbying and campaign spending. The foreign companies have found a lucrative niche, essentially acting as brokers for the federal government's bailout money. Domestic banks with the size and expertise for that role are largely banned from competing for the contracts because they have been recipients of the emergency funds."
Traditional banks will get hurt by FinReg more than Wall Street ones, writes Ben White "Wall Street banks such as Morgan Stanley and Goldman Sachs -- already in the spotlight over a government fraud case -- should avoid a body blow. That's because the provision most potentially damaging to these firms ¿ the forced spinoff of lucrative derivatives trading desks -- is almost universally expected to be dropped or dramatically watered down. And limits on trading may not go into effect for years. But there's plenty of pain to go around. Traditional banking giants -- such as Citigroup, JPMorgan Chase, Bank of America and Wells Fargo -- may take the biggest hit, said analysts, lobbyists and industry executives."
A judge has dismissed a lawsuit targeting rating agencies, reports Reuters: " federal judge said Tuesday that it was unfair to hold Moody's Investors Service and Standard & Poor's liable as underwriters on securities offerings that required their ratings. United States District Judge Jed Rakoff issued an opinion citing the reasons behind his March 31 dismissal of class-action claims against the credit rating agencies, and some claims against Bank of America, JPMorgan Chase and the ABN Amro unit of Royal Bank of Scotland.--Judge Rakoff rejected the plaintiffs' contention that the agencies should be treated effectively as underwriters because their ratings were 'necessary' to distribute the securities."
The housing crisis resulted from bad incentives, not misread risk, writes Dean Baker: "Yet, both Greenspan and Bernanke are still wealthy men and highly respected. In fact, Bernanke was reappointed to a second term as Fed chair in spite of his disastrous first term. In short, the problem was not that they underestimated risk. The problem is that they face an entirely assymmetric tradeoff structure. Clamping down on financial speculation was sure to have serious consequences for their careers, even if they were right. By contrast, failing to regulate properly did not seem to damage either man's wealth or stature in any major way even though it led to just about the most disastrous possible outcome."
Comic adaptation interlude: New "Scott Pilgrim vs. the World" trailer.
BP took a beating on the stock market, report Steven Mufson and Theresa Vargas: "As BP hacked away at a pipe gushing oil at the bottom of the Gulf of Mexico, investors sawed off 15 percent, or $21.1 billion, of the company's market value Tuesday.¿BP, the world's fourth-largest company before the April 20 blowout on the Deepwater Horizon drilling rig, has lost a staggering $74.4 billion, or 40 percent, of its market value in six weeks. Although investment analysts say the company has pockets deep enough to pay for mounting claims and cleanup costs, the political outcry for making BP pay has added to the uncertainty surrounding its future, especially while oil is still leaking into the Gulf of Mexico."
Civil and criminal cases against BP may result in fines, reports Josh Gerstein: "Tough talk out of the White House Tuesday about a criminal probe of the oil spill in the Gulf likely conjured up for many Americans the image of high-ranking corporate executives being led off in handcuffs. Not likely, say former prosecutors and other experts on environmental law. Instead, if Attorney General Eric Holder and his team of prosecutors find criminal wrongdoing in the BP oil spill, it likely will result in a much different outcome ¿ a fine. Every day oil gushes out of undersea pipe, well owner BP is racking up massive civil fines. The company also is facing billions of dollars in liability for cleanup and environmental damage. Any criminal penalties could simply be tacked on to that, experts say."
The spill is crippling Louisiana fishing, reports Jill Abramson: "Although lives were lost in Hurricane Katrina, Captain Dave, 41, believes that his livelihood may be gone forever. 'I'd rather have another hurricane than this,' he said as he motored past the oyster beds ¿ now all closed ¿ places he has known since childhood. The seafood industry is Louisiana's largest private employer and pumps $2.4 billion into the state's economy. BP recently gave the Louisiana Seafood Promotion and Marketing Board $2 million for public service announcements about the safety of the state's fish and shellfish. But if fishing remains closed, there will soon be none from this area to eat."
We're all regulatory liberals now, writes Tom Frank: "In fact, one of the people leading the criticism of the Minerals Management Service¿the regulator in question¿has been conservative paladin Darrell Issa (R. Calif.), who correctly accuses MMS of having 'too cozy of a relationship' with industry. Former GOP vice presidential candidate Sarah Palin, for her part, has actually used the spill to outflank Mr. Obama on the left, suggesting that someone should find out whether his administration's vacillating response can be attributed to the sizable campaign contributions he has received from BP employees over the years. These are refreshing arguments to hear from the right. After hurricane Katrina wrecked New Orleans, you will recall, conservative pundit Amity Shlaes famously described the Bush administration's vacillating response as the traditional observance of the 'Federalist Pause.'"
China's wind farms won't help much unless it improves its energy grid, writes Brad Plumer: "The real trouble is that when you have a vast solar field, you also need a smarter grid to handle all that intermittent power. And, while the Chinese government doesn't have much trouble stringing up new high-voltage lines wherever it feels like (unlike in the United States, where this is shaping up to be a pretty contentious issue), the country is still lagging in efforts to build a smart grid. It's not for lack of money¿the government spent some $7.3 billion on advanced grid gadgets in its last round of stimulus spending¿but hashing out the technical issues is still, as best I can tell, a serious struggle. So a lot of that wind and solar capacity may end up getting wasted, and some of it already does."
The Obama administration is interfering with business by encouraging Tesla Motors, an electric car company, to buy a new plant, writes Holman Jenkins: "Hardly was the deal announced before White House aide Jared Bernstein was on a conference call urging Tesla to rehire laid-off UAW workers. And already scheduled was Mr. Obama's campaign, er, presidential visit to Northern California, in which he was pleased to take credit for the deal. Within days too, a bipartisan cabal of legislators introduced identical bills in the House and Senate to ladle out fresh subsidies for electric cars, including $5 billion to reward 'deployment communities' or 'corridors' (in California, say) that sponsor local schemes to spur sales of electric cars."
Cartoon interlude: xkcd on the oil spill.
Six states are delaying tax refunds to make up budget shortfalls, reports Michael Cooper: "Hawaii initially planned to delay all tax refunds until July, when its fiscal year begins, but decided two weeks ago that its finances were healthy enough to begin sending checks to people whose tax returns were processed back in January. New York briefly postponed sending out half a billion dollars worth of refunds until its new fiscal year began in April. Rhode Island extended its tax filing deadline until May 11 to help taxpayers who were still reeling from severe floods; now the state is delaying refunds to make sure it has enough money left to pay debts coming due in June."
US factory activity expanded in May, reports Michael Derby: "U.S. factory operators saw activity rise at a slightly slower pace in May, amid hiring gains and persistent price pressures. Separately, spending on construction in the U.S. rose in April unexpectedly, as the commercial sector posted a promising increase and the housing industry stormed forward on a government subsidy. The Institute for Supply Management reported Tuesday that its May manufacturing index moved to a reading of 59.7, from 60.4 in April and 59.6 in March. The May reading was better than the 58.7 expected by economists. Readings over 50 indicate growth."
China is reaching the limits of cheap labor, reports Elaine Kurtenbach: "Global manufacturers struggling with life-or-death pressures to control costs are finding that the legions of low-wage Chinese workers they rely on have limits. A strike at Honda Motor Co. and the official response to a spate of suicides at Foxconn Technology, a maker of electronics for industry giants such as Apple, Dell and Hewlett-Packard, suggests China's leaders are at least tacitly allowing workers to talk back."
Europe's debt crisis is hurting its economy, reports Jack Ewing: "Signs emerged Tuesday that Europe's sovereign debt crisis is feeding through into the euro-area economy, as unemployment rose and a closely watched survey pointed to a slowdown in the recovery of manufacturing, with a sharp decline in Greece. While Greece accounts for less than 3 percent of the euro-area gross domestic product, a survey of purchasing managers by Markit Economics pointed to a plunge in manufacturing that will only make it that much more difficult for the country to solve the debt problems that are at the heart of Europe's crisis."
A new study suggests that having unemployed friends deters jobseeking, reports Catherine Rampell: "People are less unhappy about being unemployed if their friends are also out of work, according to a new study from the World Bank based on British data. Unemployment is typically associated with a significant decline in happiness. But unemployed people report a smaller drop in happiness if they are surrounded by fellow unemployed peers because the social norms about joblessness change.¿There is a downside to having peers who are also unemployed, though: the relatively smaller drop in happiness means that people are less motivated to search for new work."
David Leonhardt argues a new stimulus package will work, and barely increase the federal deficit: "In this context, the jobs bill looks a lot smaller. Its cost is equal to only about 2 percent of the total cuts needed to get the deficit to an acceptable level over the next decade. Beyond the next decade, the bill could actually save money, because its spending is temporary ¿ mostly by 2012 ¿ while its closing of tax loopholes is permanent. Of course, even if the bill is not very expensive, it is worth passing only if it will make a difference. And economists say it will. Last year's big stimulus program certainly did. The Congressional Budget Office estimates that 1.4 million to 3.4 million people now working would be unemployed were it not for the stimulus. Private economists have made similar estimates."
Folk interlude: Bonnie "Prince" Billy's "I See a Darkness".
Insurers are delaying allowing adult children to stay on health plan, reports Michelle Andrews: "Instead of dropping young adults from their parents' health plans when they graduated this spring, insurers said they could stay on..¿Instead of modifying health plans now, they plan to wait to provide the extended coverage until they are legally required to do so. For many employers, that means January 2011. The provision of the law takes effect Sept. 23, but employers don't have to comply until the beginning of the new health plan year after the law becomes effective."
Most states are competing in the Race to the Top education contest, reports Stephanie Banchero: "Thirty-five states and the District of Columbia applied for the second phase of the Race to the Top federal education competition as the application deadline passed Tuesday night. The states are hoping to win a piece of the $3.4 billion available under President Barack Obama's signature education initiative. Race to the Top aims to spur innovation by rewarding states that promote charter schools, tie teacher pay to student achievement and intervene in low-performing schools. Forty states and D.C. applied in the first round, but only Delaware and Tennessee won. They received a total of $600 million."
Obama is staffing the health care oversight office with industry-skeptical watchdogs, reports Julie Appleby: "The new director of the office is Jay Angoff, a former Missouri insurance commissioner who once played keyboard in the Brooklyn Bridge rock band. He gained a reputation in Missouri as a demanding but fair regulator who saved the state millions of dollars by creating a 'competitive bidding' process for insurers that wanted to cover state employees. A top priority now, he said in an interview, is to 'make sure consumers have as much market power as possible.'"
Steve Pearlstein notes that Blue Dog Democrats want to block health spending for the poor while raising doctors' payments: "The caucus of fiscally conservative House Democrats insisted last week that their party leaders strip out nearly $30 billion in funding for health-care coverage for the poor and the unemployed from emergency legislation extending jobless benefits. It's not that we're heartless, they explained, it's just that the country can't afford it. All of which raises the question of why the Blue Dogs couldn't muster the same fiscal discipline when it came to spending $22 billion over the next three years to guarantee that American doctors, who are far and away the best-paid in the world, don't suffer any significant declines in their incomes just because of a little thing like a recession or a government budget crisis."
Public financing allows a way out of lobbyist influence, writes Ruth Marcus: "Brian L. Wolff, a former aide to House Speaker Nancy Pelosi and director of House Democrats' campaign arm, bundled more than $600,000 for Democrats in the past year in his new role as top lobbyist for the Edison Electric Institute. Wolff described the bundling as "my night job." In all, nearly 160 lobbyists raised at least $9 million in the past year for federal candidates and political parties. Care to speculate how long it takes for their phone calls to be returned? There is a simple way out of this swamp -- public financing of congressional campaigns."
A new study raises doubt about the utility of a bank tax, writes Howard Gleckman: "Financial Transactions Tax: A low tax rate on a very broad base¿zillions of trades¿ has the potential to raise lots of money. But there is little evidence that increasing the cost of transactions improves markets. Bonus Tax: A one-time tax on past bonuses would be a pretty blunt instrument, punishing both sinners and saints. A tax on future bonuses begs for avoidance. Taxes on financial institutions: The devil here is in the details. President Obama proposed one and other countries are exploring their own versions. Taxing uninsured liabilities of big institutions could discourage risky investments. But the authors are skeptical about an Obama-like plan to use the revenue to finance a bank bailout fund and then cap the tax once the pot is full."