Most in the White House will admit it: Over the past few months, their strategy has swung from seeking compromise to welcoming confrontation. After the debt-ceiling debacle, they stopped believing that they could reach a deal with House Republicans. And so they stopped emphasizing policies they thought Republicans would like and began emphasizing policies -- like the Buffett rule -- that they thought the public would like. But then a funny thing began to happen. The president's numbers began to rise. And with it, the possibility that seeking confrontation might force the Republicans to welcome compromise.

President Obama speaks about a payroll tax cut and unemployment insurance Feb. 14 at the South Court Auditorium of the Eisenhower Executive Office Building of the White House in Washington, DC. (Chip Somodevilla/GETTY IMAGES)

As the president's numbers have improved, some in the White House have begun talking quietly, cautiously, about the possibility -- which they admit is slim -- of a "1996 moment."

From 2009 to 2011, Ronald Klain was chief of staff to Vice President Joe Biden. Before that, he was chief of staff to Vice President Al Gore. And in a January Bloomberg View column, he explained the way the White House understands what happened in 1996:

"Back in 1995, as in 2011, powerful Republican leaders (including Gingrich, then speaker of the House) faced a Democratic president who had been weakened by a stinging midterm defeat. They blocked the president’s initiatives, and tried to use their power in Congress to bring him down. By the end of 1995, gridlock had reached a new high with the government shutdown and the failure of budget talks between the White House and Congress. Sound familiar?"

"Most experts expected things to get even worse in 1996. Then, a few things happened to change that outcome. Bill Clinton, the Democratic president, regained his footing, sharpened his message for re-election and was buoyed by improving economic news. Congress grew less popular as voters became dissatisfied with the lack of progress and obstructionism. There were mounting signs of another tidal wave election, this one to sweep out the new Republican members who had been seated in the previous election. As 1996 unfolded, the party lost enthusiasm for its lackluster emerging nominee, Bob Dole."

"The result: Gingrich and fellow Republican leaders in Congress decided to work with Clinton to pass a raft of important legislation. These included a balanced budget deal, an extension of health-care coverage (the Kennedy-Kassebaum Act) and sweeping welfare reform."

But there hasn't been much evidence of a 1996 moment in the offing. At least, not until this week. Over the last few days, however, something remarkable happened: The negotiations over the payroll tax cut, the unemployment-insurance benefits, and the Medicare doc fix moved from deadlock to deal. And it didn't happen at the last minute, or because the markets were about to tumble into the abyss. It happened because Republicans coolly assessed the politics and decided they were better off compromising with the Democrats than taking this one to the edge.

Would this deal have happened if the president's numbers were weaker, if the economy was in worse shape, and if the Republican primary was producing a more able set of champions? Perhaps. But perhaps not. Rather, it looks as if the president's strengthened position and his clear appetite for further conflict led Republicans to conclude that compromise might serve them better in this case.

The payroll tax cut deal is, to be sure, not a 1996 moment all on its own. It's very likely a one-off. It may even still fall apart. But it is, at the least, a template for how further deals might go. If Obama's numbers continue to rise, if the economy continues to recover, and if the GOP's presidential nominee falls behind in the polls, it's easy to see how Boehner and McConnell and Cantor and Kyl begin worrying more about their own majorities than about what happens at the top of the ticket. And if that happens, they may decide their members need a few accomplishments of their own. A big infrastructure bill, perhaps. Or, if gas prices rise, a serious compromise on energy.

But if that happens, it won't be because the White House offered Republicans a deal they couldn't refuse. It will be because they offered them a confrontation they couldn't win.

Top stories

1) Congressional leaders reached a deal to extend the payroll tax holiday and unemployment benefits, reports Paul Kane: "Congressional negotiators put their final signatures late Wednesday on an economic plan worth more than $150 billion that would extend a payroll tax holiday and unemployment benefits. A key roadblock was overcome when the lawmakers agreed to require new federal workers to contribute more to their pension plans, clearing the way for a majority of the House-Senate conference committee to approve the deal just past 11 p.m., aides in both parties said. A vote could come as early as Friday, the last act in a five-month battle over President Obama’s proposed jobs plan. The emerging plan is about one-third the size of the one Obama proposed. It would combine the payroll tax holiday and extended unemployment benefits -- key pieces of Obama’s nearly $450 billion proposal in September. It includes a temporary fix for Medicare’s payment plan, which, left unchecked, would lead to a 27 percent drop in fees paid to doctors who treat elderly patients."

@BetseyStevenson: We need to extend unemployment insurance benefits, but why should public sector workers pay for it on their own? Shouldn't we all chip in?

2) New minutes show the Fed considering new stimulus, reports Zachary Goldfarb: "The Federal Reserve is actively considering major new action to boost the economy, but it still may not pull the trigger unless the fledging economic recovery stalls, according to minutes of the central bank’s January meeting released Wednesday. Fed officials do not believe that the recent, rapid decline in unemployment will continue at the same pace going forward, the minutes show. As a result, 'a few' officials favor expanding the Fed’s un­or­tho­dox measures to boost economic growth...The Fed is being pulled in two directions. On one hand, it has clearly been failing to achieve one of its missions -- keeping the unemployment rate down. On the other hand, recent economic data have suggested that the economy is starting to pick up steam and overly aggressive action by the Fed could spark inflation, as some Fed officials worry."

@BCAppelbaum: These minutes heighten my concern that the Fed has confused talking a lot with speaking clearly.

@justinwolfers: QE3? "current and prospective economic conditions..could warrant the initiation of additional securities purchases before long."

3) Presidential candidates are talking up manufacturing, report Michael Fletcher and David Nakamura: "For years, politicians have delivered the same grim message to the nation’s long-suffering manufacturing heartland: Many of the jobs are gone, shipped overseas, never to be seen again...But this year, in a White House contest defined by the economy and job creation, that harsh truth-telling has given way to a more hopeful pitch from Obama and the Republicans trying to replace him amid the strongest uptick in manufacturing employment in 15 years...The renewed emphasis on the sector sets up a debate between the two parties that will play out across the Midwest this year in several of the nation’s most hotly contested states. Obama has worked closely with labor unions on bailing out the auto industry, and he describes organized labor as an important force that helps workers earn higher wages. That stance puts him at odds with GOP candidates who favor laws that ban union-only plants."

4) World Bank president Robert Zoellick is stepping down, reports Annie Lowrey: "Robert B. Zoellick will step down as president of the World Bank when his five-year term expires on June 30, the Washington-based institution announced on Wednesday...Mr. Zoellick’s departure seems likely to set off another clash between the advanced economies that traditionally appoint the leaders of the major international financial institutions and the emerging economies that tend to benefit from -- and bear the consequences of -- those institutions’ policies. For the last seven decades, since the World Bank’s establishment, the United States has in practice appointed its leader, while Europe picks the head of the International Monetary Fund, the bank’s sister institution. Recently, countries like Brazil, India and China -- with their rapid economic growth and growing political clout on the global stage -- have pushed for a more open, transparent and inclusive selection process."

5) Optimism is growing for a Greek debt deal, report Riva Froymovich, Matina Stevis and Stephen Fidler: "A top euro-zone official on Wednesday expressed optimism that a long-awaited accord with Greece could be wrapped up soon, potentially clearing the way for a new bailout and debt restructuring. Jean-Claude Juncker, the Luxembourg prime minister who heads up the euro-zone ministers' meetings, said there had been 'substantial further progress' since Tuesday in talks between Greece and its so-called troika of international official lenders--the European Union, the International Monetary Fund and the European Central Bank. After a teleconference among the ministers on Wednesday, Mr. Juncker said the lenders had received assurances of support for the austerity program that will accompany the deal from the two party leaders in Greece's ruling coalition--New Democracy leader Antonis Samaras and Socialist party chief George Papandreou--and said €325 million ($428 million) of additional budget cuts for this year had been identified, as the lenders required."

@ezraklein: Let's say you're a young person with skills and an EU citizenship. Why would you stay in Greece even one second more?

Top op-eds

1) It's time for a new tax on the ultra-rich, writes Matt Miller: "Now, I’ve long argued that we should add a higher tax bracket for the super-rich. Not as some 'punishment for success' -- that’s always been a bogus argument -- but by way of recognizing that’s today’s extreme inequality is corrosive for our society and asking the luckiest among us to kick in something more for the common good. But I’m not a bank CEO who’s made $20 million or $30 million a year. When Jamie Dimon says a higher bracket for the ultra-rich makes sense, Washington needs to take notice. It’s always been absurd to lump together the dentist or real estate agent who makes $300,000 with the CEO who earns $30 million or the hedge fund king who earns $300 million...If we applied a 50 percent marginal rate to earnings above $10 million (this is my idea - Dimon didn’t suggest a new top rate in that interview, and I couldn’t reach him by deadline), it would affect about 8,000 families and raise roughly $40 billion a year."

2) GSE reform must be part of a housing fix, write Alan Boyce, Glenn Hubbard and Chris Mayer: "President Barack Obama has highlighted the importance of helping millions of homeowners refinance their mortgages to support the recovery...We believe it’s important to focus on the GSEs, since their inaction is directly tied to the slow housing recovery...Immediate reforms are necessary to make sure the GSEs live up to their mandates and to achieve the crucial goals of phasing out the GSEs and returning private capital and competition to the housing finance system...Widespread refinancing alone won’t magically fix the housing market or lead to a full recovery. Combined with GSE reform, however, it will very likely begin the process of a more market-oriented future for housing finance and allow the Fed’s accommodative monetary policy to help the economy. Failure to act will most likely perpetuate the status quo -- at great cost to homeowners, taxpayers and the economy."

3) The rush into finance highlights the failure of elite liberal arts education, writes Ezra Klein: "No high school senior gets her acceptance letter from Harvard and begins thinking about the exciting life she will lead constructing credit derivatives. But that’s where many students end up. Even after the financial crisis. Even after the bailout of Wall Street. Even after the dominant cultural metaphor for Goldman Sachs became a money- sucking vampire squid...For many kids, college represents an end goal. Once you get into a good college, you’ve made it, and everyone stops worrying about you. You’re encouraged to take classes in subjects like English literature and history and political science, all of which are fine and interesting, but none of which leave you with marketable skills. After a few years of study, you suddenly find it’s late in your junior year, or early in your senior year, and you have no skills pointing to the obvious next step. What Wall Street figured out is that colleges are producing a large number of very smart, completely confused graduates."

4) A local education experiment offers a new model for school reform, writes Nicholas Kristof: "The breakthrough experiment in New Haven offers a glimpse of an education future that is less rancorous. It’s a tribute to the savvy of Randi Weingarten, the president of the American Federation of Teachers and as shrewd a union leader as any I’ve seen. She realized that the unions were alienating their allies, and she is trying to change the narrative. New Haven may be home to Yale University, but this is a gritty, low-income school district in which four out of five kids qualify for free or reduced-price lunches. Eighty-four percent of students are black or Hispanic, and graduation rates have been low. A couple of years ago, the school district reached a revolutionary contract with teachers. Pay and benefits would rise, but teachers would embrace reform -- including sacrificing job security. With a stronger evaluation system, tenure no longer mattered and weak teachers could be pushed out."

5) We’re entering an era of hyperspecialization, writes Adam Davidson: "For most of human history, though, people needed to do a bit of everything to survive. The result was a profoundly inefficient economy that required almost everyone to work very hard just to create enough of the essentials for survival; even then, famines were still disturbingly common. Efficiency, Smith explained, comes when individuals focus on specific tasks. The miracle of the Industrial Revolution was that through specialization, humankind became far more productive. In the United States, this works so well that, despite all the economic pain we’re enduring, the average American leads a shockingly good life by any historical or international standard. As other countries move into mass production, the United States, even in the depths of economic doldrums, has a level of wealth that translates to fewer people willing to do dreary, assembly-line work at extremely low wages. More significant, we’re entering an era of hyperspecialization."

Bluegrass interlude: Alison Krauss and Union Station play "When You Say Nothing at All" live at The Louisville Palace.

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Still to come: A new audit shows widespread flaws with foreclosures; the contraception compromise has a self-insurance problem; the political-intelligence industry faces a crackdown; a new U.S.-led effort to cut some pollutants; and a man faces a puppy stampede.


An audit found extensive flaws in foreclosures, reports Gretchen Morgenson: "An audit by San Francisco county officials of about 400 recent foreclosures there determined that almost all involved either legal violations or suspicious documentation, according to a report released Wednesday. Anecdotal evidence indicating foreclosure abuse has been plentiful since the mortgage boom turned to bust in 2008. But the detailed and comprehensive nature of the San Francisco findings suggest how pervasive foreclosure irregularities may be across the nation. The improprieties range from the basic -- a failure to warn borrowers that they were in default on their loans as required by law -- to the arcane. For example, transfers of many loans in the foreclosure files were made by entities that had no right to assign them and institutions took back properties in auctions even though they had not proved ownership."

Homeowners facing foreclosure will get more time, reports Brady Dennis: "Federal regulators have announced that they would give borrowers who have faced foreclosure since early 2009 an additional three months to have their cases reviewed for potential wrongdoing. Borrowers will now have until July 31 to apply for the free review, which stems from a deal last year in which 14 servicers agreed to hire independent consultants to evaluate whether homeowners suffered financial injury during the foreclosure process. If a review finds errors or abuses by the financial firms, the consultants will determine what recompense wronged homeowners deserve. Examples of financial injury might include unwarranted or miscalculated fees charged to borrowers, a foreclosure that happened while a borrower was already in bankruptcy protection, or a property that underwent a foreclosure sale even as the borrower was awaiting word on a loan modification from the servicer."

Rising oil prices are threatening the recovery, report Ben Casselman and Conor Dougherty: "Rising oil prices are emerging once again as a threat to the U.S. economic recovery just as it appears to be gaining momentum. Oil prices have climbed sharply in recent weeks as mounting tension with Iran has raised the threat of a disruption in global supplies. On Wednesday, oil futures on the New York Mercantile Exchange rose $1.06 to $101.80 a barrel on reports that Iran had cut off sales to six European countries in response to the European Union's newly stepped-up sanctions. Iran's oil ministry later denied the report. Pricier oil comes at a delicate time. The job market has begun showing signs of life, and other economic indicators are pointing toward stronger growth. But the recovery remains too halting to easily absorb the shock of sharply costlier oil."

Subprime mortgage bonds are seeing a resurgence, reports Serena Ng: "Investors' belief that the worst is over for the U.S. housing market is fueling renewed interest in once-toxic mortgage bonds that were at the heart of the financial crisis. Prices of some distressed bonds backed by subprime home loans--those issued before the crisis to borrowers with sketchy credit histories--have chalked up double-digit percentage gains this year, with one prominent market index rising 14%. The rally has drawn investors back to a corner of the credit markets that was pummeled from 2007 to 2009 and has been volatile since. The latest upswing has some money managers setting up investment funds dedicated to buying beaten-down mortgage bonds, hoping to reap fat yields while waiting for the housing market to turn."

New manufacturing and housing data offer encouraging signs for the recovery, reports Lucia Mutikani: "U.S. manufacturing output rose in January and a gauge of factory activity in New York state hit a 1-1/2-year high in February, showing a solid underpinning for the economic recovery. The firmer tone was also in evidence in another report on Wednesday that showed optimism among home builders approached a five-year high this month, a good omen for the struggling housing market. The reports added to a run of fairly upbeat data, even though overall industrial production was flat last month as unusually mild winter weather weighed on utility output. Data, including employment, manufacturing and retail sales, so far suggest the economy got off to a firmer start in 2012, prompting analysts to scale back expectations of a sharp pull-back in first-quarter growth and further monetary easing by the Fed."

Things that you didn't think you could eat interlude: Chefs prepare a fully edible balloon.

Health Care

Self-insurance poses a problem for the contraception compromise, reports Katie Thomas: "The Obama administration thought it had found a way to ease mounting objections to a requirement in the new health care act that all employers -- including religiously affiliated hospitals and universities -- offer coverage for birth control to women free of charge. It would make the insurers cover the costs, rather than the organizations themselves. But the administration announced the compromise plan before it had figured out how to address one conspicuous point: Like most large employers, many religiously affiliated organizations choose to insure themselves rather than hire an outside company to assume the risk."

INTERACTIVE: The impact of the Affordable Care Act in one map.

Domestic Policy

New ethics legislation could put the political-intelligence industry in jeopardy, report Brody Mullins and Andrew Ackerman: "The political-intelligence industry thought it scored a great success last week when Republicans yanked a provision from a bill that would have forced firms to register their activities. Now it is confronting the possibility that the legislation--more broadly aimed at banning insider-trading in Congress--could put the entire industry in jeopardy. As securities lawyers and industry executives examine the legislation more closely, they say it could prohibit lawmakers and their staffs from divulging market-moving information to individuals who could trade on it--neutering a major purpose of political intelligence."

Regulators are pushing to enhance protections for pregnant women, reports Melanie Trottman: "Federal regulators are trying to bolster workplace-discrimination protections for pregnant women and people caring for relatives, in response to complaints by workers who say they have been fired or mistreated because of their status. The number of pregnancy-discrimination lawsuits filed by the Equal Employment Opportunity Commission rose to 20 in fiscal 2011, which ended Sept. 30, from 16 in fiscal 2009...The EEOC is looking at giving employers fresh guidance to make clear that the 1978 Pregnancy Discrimination Act prevents employers from firing, refusing to hire or otherwise discriminating against a worker because she is pregnant. Officials say this is obvious to many larger employers, but smaller employers may be unaware of the law's full scope. In addition, the Americans With Disabilities Act contains provisions that could require employers to provide more accommodations for expectant mothers."

Adorable animals being adorable interlude: 11 puppies chase a man around a house.


The U.S. will lead a new effort to cut emissions from methane and soot, reports Brian Vastag: "With global efforts to reduce carbon dioxide emissions stalled, the United States and five other countries are starting a new program to cut other pollutants -- including methane, soot and hydrofluorocarbons -- that contribute to global warming. Secretary of State Hillary Rodham Clinton is set to announce the five-year initiative Thursday morning. Canada, Sweden, Mexico, Ghana and Bangladesh are also participating. The plan will be administered by the United Nations Environment Program, with a $12 million contribution from the United States for the first two years. Canada will add $3 million; contributions from the other countries are not known."

Voting on the House transportation bill is being delayed, reports Jonathan Allen: "The House will not wrap up the controversial highway and energy bill until after the President’s Day recess, Speaker John Boehner told Republicans at a closed-door conference Wednesday morning. Boehner’s office attributed the decision to two factors: One of the offsets in the payroll tax cut agreement is a reduction in pension benefits for federal workers that overlaps with a cost offset in the highway bill, plus a thick docket of amendments makes it more difficult to finish the bill by the end of this week. Left unsaid in Boehner’s rationale is the difficulty that Republican leaders have had in assembling the necessary votes for a bill that funds surface transportation programs, opens up oil drilling and cuts back on the federal contribution to government workers’ pensions."

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.