Wonkbook: Harry's Reid's busy summer; BP bankruptcy?; Bernanke's outlook
Harry Reid has put together a packed Senate schedule for the summer, including financial reform, war funding, energy legislation and Elena Kagan's confirmation. Meanwhile, Wall Street is starting to think about a BP bankruptcy. And Ben Bernanke is predicting an unpleasant recovery.
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Harry Reid has scheduled a busy summer for the Senate, reports Meredith Shiner: "Majority Leader Harry Reid (D-Nev.) laid out a daunting summer agenda for the Senate on Monday afternoon, including a tax extenders bill, an emergency extension of unemployment benefits, a small-business jobs bill, the financial reform conference report and a war funding bill. To top that off, the Senate also has to begin the confirmation hearings of Supreme Court nominee Elena Kagan and deal with the ongoing oil spill crisis in the Gulf. 'The work period between now and July 4 is short, but our to-do list is very long,' Reid said. As if that's not enough to deal with, Reid wants key Senate committees to draw up an energy bill in wake of the oil spill crisis."
Wall Street is starting to take a potential BP bankruptcy seriously, writes Andrew Ross Sorkin: "The idea that BP might one day file for bankruptcy, particularly as part of a merger that would enable it to cordon off its liabilities from the spill, is starting to percolate on Wall Street. Bankers and lawyers are already sizing up potential deals (and counting their potential fees). Given the plunge in BP's share price - the company has lost more than a third of its value since Deepwater Horizon blew - some bankers and analysts say BP is starting to look like takeover bait. The question is, who would buy BP, given its enormous potential liabilities?"
Ben Bernanke predicts 'we'll have continued recovery, but it won't feel terrific,' report Jon Hilsenrath and Luca di Leo: "Federal Reserve Chairman Ben Bernanke offered cautious reassurance that the U.S. recovery is on track, despite recent turmoil in financial markets and worries about the health of Europe's economy. 'There seems to be a good bit of momentum in consumer spending and investment,' Mr. Bernanke said at a dinner hosted by the Woodrow Wilson International Center for Scholars. 'My best guess is we'll have continued recovery, but it won't feel terrific.' In addition to longstanding worries about anemic U.S. job growth and a fragile banking system, Fed officials have been watching warily in recent weeks as U.S. stock prices decline amidst Europe's worsening economic outlook."
Pop interlude: The Brunettes' "Her Hairagami Set".
Table of Contents: Move evidence that BP ignored internal warning signs (and other energy news); consumer borrowing is up (and other economic news); administration kicking off $125 million campaign in defense of health-care reform (and other domestic policy news); and the Financial Crisis Inquiry Commission has subpoenaed Goldman Sachs (and other FinReg news).
BP ignored internal investigations showing safety and environmental violations, report Abrahm Lustgarten and Ryan Knutson: "A series of internal investigations over the past decade warned senior BP managers that the oil company repeatedly disregarded safety and environmental rules and risked a serious accident if it did not change its ways. The confidential inquiries, which have not previously been made public, focused on a rash of problems at BP's Alaska oil-drilling operations. They described instances in which management flouted safety by neglecting aging equipment, pressured employees not to report problems and cut short or delayed inspections to reduce production costs."
Under pressure, Obama will reopen offshore drilling, report Laura Meckler and Jonathan Weisman: "The Obama administration, facing rising anger on the Gulf Coast over the loss of jobs and income from a drilling moratorium, said Monday that it would move quickly to release new safety requirements that would allow the reopening of offshore oil and gas exploration in shallow waters. Gulf Coast residents, political leaders and industry officials said delays in releasing the new rules, along with the administration's six-month halt on deepwater drilling-both issued amid public pressure-threatened thousands of jobs."
The EPA is developing a new measure of electric car efficiency, reports Peter Whoriskey: "To fill the gap, researchers and Environmental Protection Agency officials have been conducting vehicle tests, researching driver habits and even running focus groups toward informing consumers about which cars are energy hogs. Whatever metric they come up with is considered key to shaping consumer choices that in aggregate could profoundly affect smog and carbon emissions. The EPA is responsible for developing the fuel-economy labels posted on window stickers of all new cars and light trucks. A proposed rule is scheduled to be issued by August."
There is growing support in the Senate for an energy bill separate from cap and trade, reports Meredith Shiner: "Sen. Chuck Schumer (D-N.Y.) said early Monday morning he believed the Kerry-Lieberman bill would be offered as an amendment to an energy bill once it reaches the Senate floor, but Senate sources insist that no decisions have been made. --'My position has been we should definitely move ahead with the legislation we reported from our committee and if we're able to do more than that, we should certainly do that as well,' Bingaman said. 'I tend to think the two issues are somewhat separate, and I think people are going to vote on climate change-or cap-and-trade legislation-pretty much on the basis of what their position is on that.'"
Lindsey Graham is staying out of the new energy bill push, reports John Harwood: "Mr. Graham expects Democrats to focus on oil companies in a revamped Kerry-Lieberman proposal, then dare Republicans to oppose it as tar balls wash onto gulf beaches. 'I could easily accept that dare,' Mr. Graham said. Noting that energy-state Democrats also have reservations, he dismissed Mr. Obama's renewed push as 'all politics' - a 'head fake' in response to pressure from environmentalists over the oil spill. The real action on energy, Mr. Graham predicted, will come in 2011."
Reactor problems are raising questions about nuclear energy, reports Matthew Wald: "The American nuclear industry, primed to begin new construction projects for the first time in 30 years, is about as eager for an operating problem at an old reactor as the oil industry was for a well blowout on the eve of opening the Atlantic coast to oil drilling. Nonetheless, a nuclear reactor where a hidden leak caused near-catastrophic corrosion in 2002 has experienced a second bout of the same problem. In 2002, the plant, Davis-Besse, in Oak Harbor, Ohio, developed leaks in parts on the vessel head, allowing cooling water from inside the vessel, at 2,200 pounds per square inch of pressure, to leak out."
Boycotting BP makes no sense, writes Sharon Begley: "Drive right on by the BP station and pull up to the pumps from Exxon, the company responsible for the Exxon Valdez oil spill of 1989 and, more recently, one of the biggest corporate funders of the movement to tar the science of climate change. Exxon also managed to reduce the $5 billion in punitive damages awarded by an Anchorage jury for the Valdez disaster to $507.5 million; the Valdez fishermen and other victims have still not been made whole. (Fun fact: to protect itself in case the original judgment was affirmed, Exxon got a line of credit from JP Morgan, which the bank then parlayed into the first credit default swap, as recounted in the 2009 book 'Fool's Gold' by Gillian Tett.)"
Punk interlude: Sleater-Kinney play "What's Mine Is Yours".
Consumer borrowing is increasing, report Jeff Bater and Meena Thiruvengadam: "Consumer borrowing unexpectedly rose in April but fell in March, suggesting Americans aren't too comfortable with their finances despite the economic recovery. The Federal Reserve on Monday said consumer credit outstanding increased at a seasonally adjusted annual rate of 0.5%, up $954.8 million to $2.440 trillion. Economists surveyed by Dow Jones Newswires had forecast a $1.0 billion decline in consumer credit during April. But the surprise gain came with a revision to March, when borrowing fell $5.4 billion, or 2.7%. Originally, it was estimated rising by $2.0 billion."
William Gale makes the case for more stimulus: "At this stage the danger of doing nothing is we have a slower recovery, or we fall back into a second recession, or we bump along in a lost decade like Japan. The cost of that in terms of unemployment and lost output, the human costs, are immense. People are out of work, and that hurts their spending, their kids, their skills. The lost output we're talking about is a huge amount and if the government can help that, I don't see why it shouldn't."
Dan Mitchell makes the case against more stimulus:"I'm not a big believer that government can do much to offer short-term economic conditions. In the long run, reducing government spending, lowering marginal tax rates, deregulating, lower tax barriers -- those are all good things. In some sense, recessions are the economy adjusting to previous bad policies. There's not much you can do."
Wal-Mart is focusing more on foreign stores, reports Ylan Mui: "The company that began as a five-and-dime in rural northwest Arkansas opened its annual shareholder meeting last week with Bollywood-style dancers, Asian balancing acts and Brazilian martial artists representing some of the 14 foreign countries in which Wal-Mart operates. Last year, its international division topped $100 billion in sales for the first time and this year it is expected to surpass the United States in number of stores. This is the next phase of Wal-Mart domination. It built its business in small towns and suburbs across the United States, but now international sales are growing at almost nine times the rate of domestic sales."
The stock market is in a state of confusion, report Susanna Kim and David Jolly: "With little in the way of economic data on Monday, traders found little to ease their concerns about Friday's jobs report and the debt problems in Europe. As a result, stock indexes spent much of the day wandering before falling sharply in the last hour. Scott Brown, chief economist of Raymond James & Associates, pointed to continued uncertainty as a reason for the decline. 'I think the market participants are trying to get a handle on everything. We have an economy that appears to be on a moderate recovery, but not as strong as you would like to see,' Mr. Brown said. 'There are a lot of concerns regarding Europe that aren't going to go away anytime soon. You have uncertainty, which I think justifies this kind of market.'"
The United States has its problems, writes Bob Doll, but at least we're not Europe: http:/
California is lagging behind the rest of the country in job growth, reports Cari Tuna: "In April, the last month for which state data are available, California nonfarm employment fell 2.5% from a year earlier, compared with a 1.1% national drop, as the state lost a higher percentage of jobs in the recession and has added a smaller percentage this year. The state's 12.6% jobless rate far exceeded the 9.9% U.S. rate in April, as reported by the Labor Department. 'We're underperforming the national economy,' said Esmael Adibi, director of Chapman University's economic research center in Orange, Calif. 'We should have more jobs than are showing up.'"
Bob Herbert argues the administration needs to take stronger action against unemployment: "Even if we somehow experienced a sudden, extraordinary surge in job growth (which no one is expecting), it would take a very long time just to get back to the level of employment that we had when the recession started in late-2007. Heidi Shierholz, an economist with the Economic Policy Institute, addressed this. She 'the fastest year of employment growth was 2.6 percent, in 1998. If, in the event we have that extremely strong level of growth from here on out, we would still not get down to pre-recession unemployment rates until January 2015.'"
This economic downturn will have lasting negative effects, writes Nancy Folbre: "Isabel Sawhill of the Brookings Institution describes the "permanent scarring" of workers' economic prospects. The economists Timothy Smeeding and Jeffrey Thompson, summarizing recent trends in inequality and poverty, also emphasize the plight of those who lack both financial and human capital. Data on the percentage of individuals living in poverty have not yet been released for 2009. Ms. Sawhill summarizes efforts to project future trends this way: "bad news on poverty, worse to come." Her projections, developed in conjunction with Emily Monea, suggest that poverty rates for children could reach 25 percent by 2011."
90s nostalgia interlude: "Newsies" perform Lady Gaga.
Democrats are launching a $125 million campaign to defend health care reform, reports Mike Allen: "Former Senate Majority Leader Tom Daschle (D-S.D.) and Victoria Kennedy - widow of Sen. Ted Kennedy (D-Mass.) - are expected to be named co-chairmen of a $125 million campaign that White House allies are rolling out to defend health care reform amid growing signs Democrats are failing to get political traction on the issue.¿The Health Information Center is being started by Andrew Grossman, a veteran Democratic operative who founded Wal-Mart Watch, a labor-backed group to challenge the world's largest retailer on employee relations and other fronts."
Pennsylvania is trying out a pilot health care reform program, reports Shirley Wang: "Pennsylvania is carrying out the largest state pilot program in the U.S.-called the Chronic Care Initiative-which involves more than one-million patients, 800 doctors and 16 insurers across seven regions of the state. Insurers are providing $30 million over three years in extra payment to doctors who are involved, and the state is contributing $3.4 million to run the program.¿In 22 doctors' practices across southwestern Pennsylvania involving 7,500 diabetic patients, the percent of patients with high blood-sugar levels-a sign that their diabetes isn't in good control-fell to 24% from 29% after nine months in the program."
Liberal activists are increasingly upset with the Obama administration, reports Jackie Calmes: "'This is the greatest reform president since Lyndon Johnson, and every progressive in the movement is dismayed and disaffected,' said Robert L. Borosage, the co-director of the liberal Campaign for America's Future. 'Some of that is expectations that were shattered' - by Mr. Obama's lack of support for a public health insurance option and liberalized rules for union organizing, and his escalation in Afghanistan.¿That liberal lament is loudest right now on the issue of the government's role in creating jobs.¿Liberals say the president has prematurely encouraged the Democratic deficit hawks in Congress by his own anti-deficit rhetoric."
Obama is adding diversity to lower federal courts, reports Scott Wong: "Of Obama's 70 appellate and district court nominees, 44 percent are female and 43 percent are minorities, according to recent analysis by the Alliance for Justice, a liberal advocacy group. By contrast, only 22 percent of President George W. Bush's 322 confirmed judges were female and less than 18 percent were minorities. Of President Bill Clinton's 372 confirmed judges, 29 percent were women and 25 percent were minorities. 'As the numbers indicate, he [Obama] far exceeds any other president in diversifying the federal bench,' said Alliance for Justice President Nan Aron."
States are depending on as-yet-undelivered federal Medicaid money, reports Kevin Sack: "Having counted on Washington for money that may not be delivered, at least 30 states will have to close larger-than-anticipated shortfalls in the coming fiscal year unless Congress passes a six-month extension of increased federal spending on Medicaid.¿Gov. Edward G. Rendell of Pennsylvania, for instance, penciled $850 million in federal Medicaid assistance into the revenue side of his state's ledger, reducing its projected shortfall to $1.2 billion. The only way to compensate for the loss, he said in an interview, would be to lay off at least 20,000 government workers, including teachers and police officers, at a time when the state is starting to add jobs."
The Senate is preparing changes to the House jobs bill, reports David Rogers: "Pulled from the left and the right, Senate Democrats on Monday began shopping changes to a House-passed jobs bill that would increase aid to cash-strapped states while treading more lightly on new tax rules aimed at private equity interests with clout in the party. An estimated $24 billion in Medicaid funds - dropped by the House before Memorial Day - would be restored after an outcry from governors and liberals. At the same time, Senate tax writers hope to placate a handful of Democrats on the East and West coasts by softening House reforms that target wealthy investment-fund partners who now shelter their income at lower rates afforded capital gains."
Delays in the job bill have prevented a "doc fix" from taking effect, reports Carl Hulse: "The House approved the package just before heading out the door for Memorial Day but the Senate took no action, meaning that extended unemployment benefits for thousands of Americans began running out last week. In addition, a 21 percent cut in fees paid to doctors by Medicare has also gone into effect since the legislation stalled, a drop in payments that could lead some physicians to quit treating those on Medicare. Hoping to avoid a prolonged fight in the Senate, the leadership is planning to make some adjustments to the House legislation in an effort to round up 60 votes to hasten the bill along."
The White House is asking Congress for authority to stop wasteful federal agency spending, reports Laura Meckler: "The White House plans to ask Congress for new authority that could help to discourage unnecessary spending by federal agencies, a move that comes amid rising public concern about the federal deficit. The proposed change would let agencies that save money redirect half the savings to other initiatives, with the rest going toward deficit reduction, an administration official said on Sunday. Under current law, agencies are typically forced to return any unspent part of their budgets, giving them an incentive to use every last dollar even if the money isn't needed. The new policy would alter those incentives."
Stand-up interlude: Demetri Martin tells "The Jokes With Guitar".
The Financial Crisis Inquiry Commission has subpoenaed Goldman Sachs, report John McKinnon and Susanne Craig: "The Financial Crisis Inquiry Commission issued a subpoena to Goldman, demanding that the firm provide a key for identifying customer names and a way of matching up specific documents to the commission's requests for information. The subpoena also demanded documents concerning Goldman's mortgage-backed derivative securities, which are central in current federal probes of the firm. The commission is particularly interested in Goldman's dealings with American International Group Inc., which had to be bailed out by the government during the financial crisis in 2008."
Tim Geithner, Chris Dodd, and Barney Frank will control the final shape of FinReg, reports Damian Paletta: "The three have said that the experience from the financial crisis should serve as the foundation for what new regulations should look like. As a result, people who know them say, they are likely to show willingness to negotiate on parts of the bill they don't view as core, while being intractable on pieces they view as elemental. That could mean easing provisions with strict limits on derivatives trading, proposed restrictions on fees banks charge retailers and even agreeing to allow auto dealers to be exempt from new lending rules."
Countrywide will repay consumers $108 million, reports Dina ElBoghdady: "Bank of America, owner of former mortgage giant Countrywide Financial, will pay $108 million in refunds to hundreds of thousands of homeowners under one of the largest judgments imposed by the Federal Trade Commission.--The FTC alleges that Countrywide's servicing arm, which was once responsible for collecting money on $1.4 trillion worth of loans, deceived borrowers into paying marked-up fees for property inspections, lawn mowing and other services after they defaulted on their loans in order to boost Countrywide's profits when the housing market tanked."
The Senate is poised to vote on ending the hedge fund manager tax break, reports Jia Lynn Yang: "Yet the Senate looms. Two powerful Democrats -- Majority Leader Harry M. Reid (Nev.) and Finance Committee Chairman Max Baucus (Mont.) -- were working Monday to soften the tax provision, to satisfy the concerns of a few senators worried about its effect on venture capitalists. Aides said Senate leaders are optimistic that they can muster the 60 votes needed to pass the change, but it could lead to problems in the House. The provision would haul in roughly $18 billion by raising taxes on the income of people who run private-equity firms, venture-capital shops and real estate investment partnerships."
A Lincoln loss could make weakening the derivatives provision of FinReg easier, reports Ben White: "Electoral politics will enter the complex equation on Tuesday as Sen. Blanche Lincoln (D-Ark.), author of controversial language that could force Wall Street banks to spin off lucrative derivatives trading operations, faces a primary run-off. If Lincoln loses the too-close-to-call race to Lt. Gov. Bill Halter, some on Wall Street think it will be easier to get the language out. But no matter how the primary turns out, the overwhelming confidence Wall Street once had that the provision would be gutted has largely evaporated."
FinReg lobbyists are keeping a low profile, reports Chris Frates: "Big banks and other financial interests will launch a final push to influence the Wall Street reform bill when Congress returns this week, but it won't be the kind of scorched-earth lobbying blitz that traditionally accompanies final negotiations. Instead the approach will be lower profile, less likely to draw attention to its politically damaged beneficiaries and ideally carried out by lawmakers who can influence members of the House-Senate conference committee crafting the final bill. The targets will be hot-button issues such as regulations on derivatives trading, debit card fees and consumer protection."
Fannie and Freddie weren't the main bad actors in the financial crisis, writes Edmund Andrews: "the big question isn't whether Fannie and Freddie made things worse. I agree; they did. But the really key question for future policy purposes is this: who was driving whom? For that, you should look at who was firstest with the mostest in the subprime/no-doc/option-arm arena. The answer on both counts, by a wide margin: private label securitizers. Yes, Fannie and Freddie contributed to the bubble and the bad lending. But it wasn't because they were trying to help the poor, and they certainly weren't the driving force. They were just trying to keep up with their private-sector rivals. That's a big distinction."