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Wonkbook: Assessing FinReg; Goldman suit settled; oil gusher stopped

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Friday, July 16, 2010; 7:07 AM

Good day for the Obama administration yesterday: FinReg found final approval in the Senate (hope you're ready to start talking Basel III, now), Goldman Sachs settled the SEC's civil suit against it for a lot of money and a statement of "regret," and BP has successfully stopped the oil well from leaking three months after it started.

Happy Friday. Welcome to Wonkbook.

Top Stories

FinReg passed the Senate and is headed for Obama's signature. WaPo's package: Brady Dennis explains what's next for regulators: http://bit.ly/c8gngo; David Cho looks back at the last financial overhaul: http://bit.ly/asb7oI; a graphical guide to the bill's provisions:http://bit.ly/94GyjA

Goldman Sachs will pay $500 million to settle the SEC's suit against it, reports Zachary Goldfarb: "The fine is the largest the SEC has ever assessed against a financial company. But the settlement also is striking because Goldman agreed to a host of changes to how it does business and because the bank, while not admitting wrongdoing, agreed to express 'regret' for including 'incomplete information' in marketing materials touting the investment to clients. By doing so, Goldman acknowledged 'the fundamental basis of our complaint,' SEC enforcement director Robert Khuzami said at a news conference, standing with 10 colleagues who worked on the case."

Oil is no longer spewing into the Gulf of Mexico, reports Joel Achenbach: "As part of what BP calls an 'integrity test,' a robotic submersible slowly closed a valve on the well's new sealing cap. That choked the flow until the plume, a fixture of cable TV and many a nightmare, disappeared...Whether the well remains 'shut in,' to use the industry term, depends on the analysis of pressures in the well. Engineers and scientists hope to see high pressure hold steady during the 48-hour period allotted for the test. That would suggest that the well bore is physically intact. Lower pressure would hint of breaches in the casing and leakage into the surrounding rock."

Classic cover interlude: The Kills play "Pale Blue Eyes".

Still to come:

Ben Nelson says he will vote against beginning debate on a climate bill with a carbon price; Chris Dodd wants the Fed to get aggressive on growth; the court challenge to Arizona's immigration law has begun; and the dawn of Sharktopus.

FinReg

Daniel Indiviglio highlights the positives and negatives of each provisions, and what the bill leaves out: "Leverage: The House bill would have limited bank leverage to 15 to one. The final bill does not. So unless the systemic risk council decides to impose such a requirement, the culture of high bank leverage will continue. No Break Ups: Many believe that part of the systemic risk problem was created by allowing financial institutions to grow too large. This bill wouldn't explicitly require any to be broken up, though the council may be able to do so under certain circumstances."

A survey of economists shows an even split on the bill: http://bit.ly/apWJyd Tim Geithner and the bank lobby offered praise: http://bit.ly/bI0aFd The GOP is already calling for repeal: http://politi.co/b8Ij7X

Simon Johnson looks at the international future of finance: "Bankers and hedge fund managers are fond of saying, "if you place restrictions on our activities in New York, we'll just move elsewhere ¿ like London." This makes attitudes towards the financial sector in other countries ¿ particularly the UK ¿ highly relevant for American public policy debate on this issue." You can actually download a free book on international fnancial regulation, including an essay from Johnson: http://bit.ly/bZMZxB

Time to start thinking about Basel III, writes Kevin Drum: "And now for a post on the world's most boring topic: Basel III. This, you might recall, refers to the ongoing talks to update the Basel II Accord, which in turn was an update of the Basel I Accord ¿ all three of which govern the amount and quality of capital that banks are required to hold. Roughly speaking, the more capital they're required to have, the lower their leverage and the higher their safety. To a considerable extent, this is the real ground zero for bank safety, not the financial reform bill that passed the Senate today."

When Basel III happens, FinReg pushes it into law, writes Felix Salmon: "[FinReg] includes Congressional authority for regulators to adopt all the Basel III standards. In other words, there's no risk of Basel III getting caught up in Congressional opposition, as Basel II did. Once it's agreed in Switzerland, US regulators are free to implement it immediately. "We got all the authority that we needed in this legislation that just passed," [Michael] Barr said. "The regulatory community will be ready to implement it in the US."

Timothy Geithner opposes Elizabeth Warren's nomination to lead the consumer protection agency, writes Shahien Nasiripour: "Her increasing public profile could make it difficult for Geithner, who will oversee the unit until it's transferred to the Federal Reserve. His role would involve trying to balance her advocacy on behalf of borrowers with the demands of the nation's major financial institutions, his traditional constituency. Geithner's objections to Warren taking over that role also involve her views on Wall Street, sources say. The longtime professor believes the nation's megabanks are Too Big To Fail and have been among the biggest abusive lenders in the country. Her toughness on giant banks is said to be a longtime source of tension with Geithner."

More round-up: Matthew Yglesias thinks what is in the bill shouldn't be overshadowed by what is not: http://bit.ly/dd4X2y; Clive Crook thinks it's only a start, but better than nothing: http://bit.ly/cP5KcP; Ezra Klein warns not to confuse FinReg and Wall Street Reform: http://bit.ly/cZDqzB; Douglas Elliott argues that regulators need to work with their international counterparts to implement the bill: http://bit.ly/cZdzOD; Edmund Andrews rebuts charges that the bill will hurt farmers: http://bit.ly/cFiGGB

Energy

Ben Nelson will seek to block debate on any climate bill with a carbon price, reports Darren Samuelsohn: "Nelson has long been known as an opponent of proposals for tackling greenhouse gases with a cap-and-trade plan. But his opposition to the procedural vote stands out given party discipline that at least allows the majority leader to take a bill up on the floor. Environmentalists tracking the debate said earlier this week that they expect most Democrats will vote for the motion to proceed out of deference to Reid and President Barack Obama."

Some are doubting the administration's ability to promote electric cars, report Anne Kornblut and Peter Whoriskey: "To stimulate demand for electric cars, which are more expensive than their conventional or hybrid counterparts, the government is offering consumers a $7,500 tax incentive. Even advocates of federal support for the industry express grave doubts about expanding battery production capacity so far ahead of the demand, at the expense of other investments. Estimating that by 2015 the U.S. share of the world market will be no more than 10 percent, Anderman suggested that the United States delay efforts to broaden capacity and use the money for pilot projects and research instead."

The support for electric cars is spurring a larger debate on industrial policy: http://bit.ly/bzAFec

Climate talks between utility companies and environmentalists are moving forward, reports Darrel Samuelsohn: "Claussen and the other sources declined comment on the specifics of the negotiations taking place at Duke Energy Corp.'s downtown Washington offices. But they confirmed that industry and environmental officials are wrestling with an industry demand for regulatory relief from several existing Clean Air Act provisions as a point of entry for agreeing to go first in a climate change program. They also are debating exemptions from EPA climate regulations and allocation of valuable emission allowances needed for compliance with a mandatory greenhouse gas cap."

But some environmentalists are saying the negotiations are failing: http://bit.ly/8ZmbXw

Utility companies' preferred pollution deal is a no-go, writes Brad Plumer: "It doesn't make much sense to allow power plants to keep churning out a whole bunch of other toxins that cause a lot of health problems--like mercury or nitrogen oxide--so long as they're making headway on greenhouse gases. Now, one possible compromise would be to fold in proposed legislation by Tom Carper and Lamar Alexander that would set up a separate cap-and-trade system for sulfur-dioxide, nitrogen-dioxide, and mercury. Many clean-air groups like that approach. But that would actually have to get included in the energy legislation. Otherwise, utilities are just getting a free pass."

John Deutsch argues a natural gas revolution is upon us: "Even 10% penetration in the next decade or two would displace 1.2 million barrels of oil per day...Natural gas can also be transformed into liquid fuels, such as methanol, for transportation or industrial use at a production cost that I estimate to be approximately $45-$60 per barrel of product. This is expensive, but lower than the likely price of crude oil and the anticipated cost of synthetic liquids from coal or shale (plus it has less carbon emissions)."

Great moments in movie trailers interlude: Sharktopus - part shark, part octopus, all danger.

Economy/ FinReg

Chris Dodd nudged Obama's Fed nominees to support more stimulative action, reports Neil Irwin: "'While the economy is growing, it is not growing fast enough to help the millions of Americans who lost their jobs as the result of the crisis,' said Dodd, chairman of the Senate Banking Committee. He noted that the unemployment rate remains very high, business investment is subdued and that some price measures 'suggest that we are moving toward price deflation.' 'It is evident that the economy is going to need all the help the Fed can provide over the coming year,' he said."

Janet Yellen agreed that job creation is the "top priority" of current monetary policy: http://bit.ly/chTV1c

Budget experts outline what's first up for new OMB director-to-be Jack Lew. Maya MacGuineas: "The president can't expect Congress to lead on crafting the specifics. Instead, the White House will have to offer a detailed proposal (think defense cuts, Social Security reform, a strict health-care budget and the reduction of a slew of tax breaks), cooperate with both parties to hash out a workable plan and find ways to offer political cover for those willing to step up."

David Greenberg looks back at how Woodrow Wilson and Theodore Roosevelt constrained business: http://bit.ly/dm7iHo

Paul Krugman argues that the GOP's obsession with tax cuts is dangerous: "There has always been a sense in which voodoo economics was a cover story for the real doctrine, which was 'starve the beast': slash revenue with tax cuts, then demand spending cuts to close the resulting budget gap. The point is that starve the beast basically amounts to deliberately creating a fiscal crisis, in the belief that the crisis can be used to push through unpopular policies, like dismantling Social Security."

Floyd Norris explains why a fiscal crisis can't "sneak up" on the US: http://nyti.ms/br6c1B

Adorable animals being adorable interlude: Polar bears eating watermelons.

Domestic Policy

The first trial of the Arizona immigration law has commenced, reports Randal Archibald: "Judge Susan Bolton of Federal District Court, in a hearing on a challenge to the law brought by a Phoenix police officer, did not issue a ruling but reacted to the arguments of both sides with skepticism and pointed questions. She has said she could not promise to rule before July 29, when the law takes effect, and at one point Thursday archly noted that the Justice Department would be in her courtroom next week making some of the same arguments against the law."

The Senate appropriations committee has approved $14 billion in budget cuts, largely from foreign aid, reports David Rogers: "For the White House, these differences will seem bigger. Few of the individual appropriations bills may yet make it to the president this year, but the numbers will influence whatever omnibus package emerges in the months ahead. The Senate allocations would take a total of $10.7 billion from the increases sought by the president for defense and foreign aid, for example. And $985 million would come from the Departments of Labor, Education and Health and Human Services."

Democrats will seek to include a bill helping same-sex couples in immigration reform: http://politi.co/aq9X9c

Steve Pearlstein explains how regulation can spur innovation: "Subsequent research confirmed what some of us have long since discovered -- namely that corporate executives can be stuck in their ways, averse to risk and unwilling to sacrifice short-term profitability for long-term gain. And as a result of these market 'imperfections,' sometimes a new regulation comes along that spurs innovation by forcing companies to look at things in new ways. That doesn't mean that regulation is costless, but it does suggest that, on an economy-wide basis, those costs can be offset by subsequent investment and innovation."

Blair Levin and J. Erik Garr argue the broadband revolution should be transforming the education system: http://bit.ly/9HEh9u

Edward Schumacher-Matos says the administration is underselling its immigration successes: "The number of unauthorized immigrants in this country is dropping. The number crossing the border is lower than it has been in nearly 40 years. Federal, state and local police are cracking down on the very small number of immigrants who commit violent and other crimes. Yet: Where are the telegenic Border Patrol leaders looking heroic on the cable television shows?"

To get immigration reform, we need visas for skilled workers first, writes Darrell West: http://bit.ly/dt3aTr

Closing credits: Wonkbook compiled with the help of Dylan Matthews and Mike Shepard.



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