Karl Singer is writing Wonkbook this week while Ezra is on vacation.

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RCP Obama vs. Romney: Obama +2.3%; 7-day change: Obama +0.4%.

RCP Obama approval: 48.0%; 7-day change: -0.2%.

Carlene Gepner of WorkSource hands out job applications at the 11th annual Skid Row Career Fair the Los Angeles Mission in California, May 31. (DAVID MCNEW/REUTERS)

2) First quarter GDP growth was revised down. "The U.S. grew slower during the first quarter than previously thought and continued weakness in the job market and elsewhere suggests the economy is struggling to gain traction. On Thursday, the government said gross domestic product--the broadest measure of all goods and services produced in the economy--grew in the January-to-March period at an annualized 1.9% pace, short of the 2.2% growth previously estimated. This means the economy had less momentum going into the second quarter and comes as fears are growing that a larger global slowdown is under way that could eventually weigh on domestic growth. Other reports Thursday supported the view of a steady but plodding recovery...The GDP report did contain glimmers of hope. First-quarter growth was trimmed, in part, by less inventory building by companies than initially thought. That could mean gains for the economy in the second quarter as companies replenish stockpiles." Neil Shah and Kate Linebaugh in The Wall Street Journal.

3) Congressional Republicans offered alternatives to pay for the student loan freeze. "Congressional Republicans on Thursday outlined new ways to break the political impasse that threatens to drive up student loan rates July 1. The proposal came in the form of a letter to President Obama, who has urged Congress to find an agreement that would prevent federally subsidized loan rates from jumping to 6.8 percent from 3.4 percent...Two alternatives were offered for paying for the student loan freeze. In one, the costs would be offset by increasing the amount paid by federal employees for their retirement. In the other, a freeze on loan rates would be paid for through a combination of items: shortening the period during which part-time students would be eligible for federally subsidized loans; limiting the ability of states to recoup Medicaid costs through taxes on providers, which would lead to a slight reduction in Medicaid use and, therefore, lower costs to the federal government; improving coordination with states and local governments to reduce Social Security overpayments." Rosalind Helderman in The Washington Post.

4) Regulators are ramping up their investigation into JPMorgan's loss. "Federal regulators are using powers they gained in the Dodd-Frank financial overhaul law to ramp up an inquiry into the recent trading blunders at J.P. Morgan Chase & Co., people close to the investigation said. Investigators in the enforcement division of the Commodity Futures Trading Commission are issuing subpoenas requesting emails and other internal J.P. Morgan documents, the people said. The probe focuses on what J.P. Morgan traders told their supervisors and internal risk-management staff as their wrong-way bets started to sour, the people said. If investigators find that employees made deceptive statements to superiors, that could constitute fraud under their authority to police the so-called swaps market. The CFTC inquiry is at a relatively early stage and isn't confined to what the traders said, according to the people. It won't necessarily lead to any civil enforcement action against the bank or individuals." Jean Eaglesham and Dan Fitzpatrick in The Wall Street Journal.

5) Europe's top banker warned that the eurozone is at risk. "Mario Draghi, the European Central Bank president who pulled the Continent back from the financial brink late last year, is facing an even more daunting challenge as the debt crisis in Spain deepens. But this time, he may have a harder time fashioning a rescue plan that will work...Mr. Draghi told members of the European Parliament on Thursday that the central bank is reaching the limits of its powers and now it is up to politicians to move quickly and decisively because the survival of the euro, the Continent’s common currency, is at stake. The structure of the currency union, he said, had become 'unsustainable unless further steps are undertaken.' The note of frustration and urgency in Mr. Draghi’s voice was a sharp contrast to six months ago, when he took over as central bank president and eased the crisis with what was considered a bold easy-money plan that extended some $1.3 trillion in low-interest loans to large banks throughout Europe to restore confidence." Jack Ewing in The New York Times.

@mattyglesias: Mario Draghi says eurozone is "unsustainable." That should calm things down and halt bank runs.

Top op-eds

1) KRUGMAN: Austerity is really about cutting social programs. "The austerity drive in Britain isn’t really about debt and deficits at all; it’s about using deficit panic as an excuse to dismantle social programs. And this is, of course, exactly the same thing that has been happening in America. In fairness to Britain’s conservatives, they aren’t quite as crude as their American counterparts. They don’t rail against the evils of deficits in one breath, then demand huge tax cuts for the wealthy in the next...And, in general, they seem less determined than America’s right to aid the rich and punish the poor. Still, the direction of policy is the same -- and so is the fundamental insincerity of the calls for austerity. The big question here is whether the evident failure of austerity to produce an economic recovery will lead to a 'Plan B.' Maybe. But my guess is that even if such a plan is announced, it won’t amount to much. For economic recovery was never the point; the drive for austerity was about using the crisis, not solving it. And it still is." Paul Krugman in The New York Times.

2) ZOELLICK: Europe's leaders need an emergency plan. "If Greece leaves the eurozone, the contagion is impossible to predict, just as Lehman had unexpected consequences. A Greek exit would trigger a hit to confidence in other sovereign euro assets. Eurozone leaders need to be ready. There will not be time for meetings of finance ministers to discuss the outlook and debate the politics of incrementalism. In panicked markets, investors flee to safe assets, sparking other flames. Some argue that if a crisis begins the ECB can overwhelm it. Yet the differences of views on the ECB board raise doubts about its ability to respond fast, fully, and forcefully. Moreover, the states that stand behind the ECB would have to decide to permit it to provide further funds to banks with poor collateral, or those that flirt with insolvency. Eurozone leaders need to be prepared - psychologically and through the European Stability Mechanism - to recapitalise banks." Robert Zoellick in The Financial Times.

3) BARRO: It's time to abolish some cities. "Sunland Park, New Mexico, a small and impoverished suburb of El Paso, has made 'news of the weird' headlines lately for its official corruption. Daniel Salinas was elected mayor in March, but has been legally barred from taking office. Why? Because he is under indictment for 33 felonies...The question is: Why does Sunland Park exist at all? More precisely, why does it exist as an incorporated city?...When a headline-grabbing event occurs...these cities get state-level attention and supervision. But that typically comes only after corrupt officials have had years to mismanage and exploit their cities. The best way to protect residents of these impoverished places is to end the jurisdictions in their current form, reconstituting them in such a way that officials are more likely to be held accountable. Three such options are dissolution, merger and state takeover." Josh Barro in Bloomberg.

4) TAYLOR: Uncertainty is holding back the recovery. "America's economic future is increasingly uncertain. In my view, unpredictable economic policy--massive fiscal 'stimulus' and ballooning debt, the Federal Reserve's quantitative easing with multiyear near-zero interest rates, and regulatory uncertainty due to ObamaCare and the Dodd-Frank financial reforms--is the main cause of persistent high unemployment and our feeble recovery from the recession. A reform strategy built on more predictable, rules-based fiscal, monetary and regulatory policies will help restore economic prosperity...But skeptics ask how a system of policy rules can work when politicians and government officials want to 'do something' to help the economy or feel public pressure to do so...Rules for monetary policy do not mean that the central bank does not change the instruments of policy (interest rates or the money supply) in response to events, or provide loans in the case of a bank run. Rather they mean that they take such actions in a predictable manner." John Taylor in The Wall Street Journal.

5) ZINGALES: Financial regulation can be made market friendly. "The structure of financial regulation in the U.S. resembles sedimentary rock: Each layer is the legacy of a crisis, but there is nothing binding the layers together...The way to fix these problems is to allocate financial regulation and supervision to three different agencies, each responsible for only one of the three principal goals of financial-system regulation. One agency would be in charge of price stability, more or less conducting the traditional monetary policy of the Fed. A second agency would focus on protecting the little guys, whether they are investing in stock, depositing funds at a bank, borrowing from a bank, or buying an annuity or other insurance product. A third would be tasked with systemic considerations, absorbing some of the extraordinary roles that the Fed has taken on during the current crisis, together with other solvency issues (often overseen by state insurance regulators)." Luigi Zingales in Bloomberg.

Top long reads

Catherine Hollander on Walla Walla, Washington's wine industry and its model for revitalizing the economy: "The region’s vintners needed workers - and those workers needed specific skills. Walla Walla Community College saw the opportunity to train those workers in a program tailored to the local wine industry’s needs. The college’s graduates populated the fields, wine laboratories, cellars, and tasting rooms that unfurled like tendrils across the county. As the industry grew, so did the city’s tourism business, its restaurants, and its hotels. The number of wine-related jobs in the region nearly doubled over the past four years. America’s economy today feels as sleepy as Walla Walla’s two decades ago. Middle-class workers were slammed by the financial crisis, their jobs disappearing, wages stagnating, and future uncertain. To put them back to work, the nation would do well to consider Walla Walla, which seems to have cracked the code on how to get mid-skill workers back into the labor force while revitalizing an economy. If the country needs a model, this could be it."

Minneapolis folk interlude: Roma di Luna plays "Hey Lover" live on Radio K.

Got tips, additions, or comments? E-mail me.

Still to come: IMF begins rescue loan plans for Spain; sex-selective abortion ban fails; student debt is growing; crop insurance faces attacks; and a dog and its diving board.


The IMF is discussing contingency plans for a rescue loan to Spain. "The International Monetary Fund has started discussing contingency plans for a rescue loan to Spain in the event that the country fails to find the funds needed to bail out its third-largest bank by assets, Bankia SA, people involved in the handling of the Spanish crisis said Thursday. Both the European Union and the IMF want to avoid having to bailout Spain at all costs, the people said, but initial planning through the IMF's European department is under way given that the country is struggling to raise a €10 billion ($12.36 billion) shortfall in funds to bail out Bankia. A three-year rescue loan for Spain could be as much as €300 billion, one person said, although any bailout could involve smaller, shorter-term loans...IMF spokesman Gerry Rice said Thursday that the fund wasn't drafting any plans for a Spanish bailout nor has Spain requested any financial support from the IMF. Mr. Rice confirmed that the IMF's review of Spain would start Monday." Costas Paris in The Wall Street Journal.

@BCAppelbaum: The IMF are the folks that rescued Greece, right?

A bill that would benefit one bank passed committee. "The bill, approved by a House committee on Thursday, changes the Dodd-Frank financial regulatory law for the benefit of Emigrant Savings Bank of New York, which asked for a concession. The bill would change the date on which a bank’s assets are measured to determine whether it is required to meet strict capital requirements. Under the law, Emigrant, a small and financially sound institution, would be subject to the capital requirements, which are generally intended to protect the financial stability of banks. Emigrant contended that the law would restrict its ability to grow and make new loans. With the change, the bank would fall outside the scope of the law...A considerable number of Republicans on the House Committee on Financial Services also oppose the bill, which was approved 35 to 15. The bill was sponsored by Representative Michael G. Grimm, a New York Republican, but 13 of the 15 no votes came from his Republican colleagues." Edward Wyatt in The New York Times.

Retail sales grew in May. "American shoppers increased their spending in May, despite uncertainty over US economic growth and the jobs market, according to monthly sales figures from some of the country’s largest retail chains. Total sales at stores open for at least a year rose 4 per cent last month, according to Retail Metrics, the research group. Sales were stronger than the 1.8 per cent forecast, though below the 5.5 per cent gain made in May 2011. The gains followed a dismal showing in April, when retailers posted what some analysts said was their weakest performance since November 2009. Sales were affected by an earlier Easter and unusually warm weather which brought shoppers to stores earlier in the season, as well as a weaker economic environment. Industry watchers had warned that May sales might again suffer because of some of these factors. But in spite of declining consumer confidence, sales were strong." Anjli Raval in The Financial Times.

Some want stricter rules on risky trading. "Critics of large banks argued Thursday for stricter rules to limit risky trading in the first public debate on the so-called Volcker rule since J.P. Morgan Chase & Co. announced a more than $2 billion trading loss. An executive at Credit Suisse Group Inc. acknowledged that derivatives have been misused and that banks need supervision. Others at the roundtable, sponsored by the Commodity Futures Trading Commission, argued banks need a full set of tools, including complicated derivatives contracts, to serve corporate clients. The Volcker rule, named for former Federal Reserve Board Chairman Paul Volcker, is a key part of the Dodd-Frank financial overhaul, and the incomplete rule is designed to limit trading for profit by federally backed banks...Banking and financial regulators are trying to finalize the Volcker rule, which was originally set to take effect in July but hasn't yet been finished. The rule could be finished as early as August, according to a person familiar with the matter." Jamila Trindle in The Wall Street Journal.

The House won't vote right away on taxes. "House Speaker John Boehner (R-Ohio) on Thursday rejected a proposal by Minority Leader Nancy Pelosi (D-Calif.) to vote now on extending current tax rates for Americans earning less than $1 million a year. In a letter to the Speaker last week, Pelosi offered Democratic support for an immediate vote to prevent a tax hike on middle-income Americans at the end of the year. Republicans want to extend the complete set of George W. Bush-era tax rates, and they are planning a House vote on that plan in July...He reiterated an oft-cited GOP argument that raising taxes on wealthy individuals would also hit small businesses...At a closed-door conference meeting before his presser, Boehner told rank-and-file Republicans in explicit terms to avoid being distracted by Democratic attempts to shift focus away from the economy." Russell Berman in The Hill.

Reinstating Glass-Steagall would be an uphill climb in the Senate. "Senate Democratic leaders have shown little appetite for taking on Wall Street before Election Day, despite urging by one of their star recruits, Massachusetts Senate candidate Elizabeth Warren. Warren has called on Congress to resurrect the 1933 Glass-Steagall Act, which established a firewall between investment banks that traditionally specialized in speculative trades and commercial banks that historically earned money primarily from lending...Critics of Wall Street’s trading practices believe the law’s repeal ultimately led to the 2008 financial crisis and still poses a serious risk to the economy. They cite the recent revelation that JP Morgan lost at least $2 billion and possibly much more over the course of a few weeks because of a massive bet...It is one of the few proposed reforms of Wall Street to draw bipartisan support. Sens. Maria Cantwell (D-Wash.) and John McCain (R-Ariz.) introduced legislation in 2010 to restore the safeguards of Glass-Steagall." Alexander Bolton in The Hill.

Short film interlude: Christopher Fulkerson is a modernist classical composer who also works as a cab driver.

Health Care

Obamacare could pose a challenge to Massachusetts' health reform efforts."Here’s a health policy paradox that’ll make you think: Is it possible that President Barack Obama’s health law means bad news for the centerpiece of the Massachusetts health reform? No state is a bigger cheerleader than Massachusetts for the Affordable Care Act; the state’s 2006 coverage expansion was a model for the federal law enacted two years ago. But if most of the ACA is implemented in 2014, there’s real concern in the Bay State about the viability of the Massachusetts Health Connector, the state’s health insurance exchange. If the national law’s Medicaid expansion goes into effect, and the state takes up a new option to move some poor residents into a Medicaid-like program, the Connector will lose 70 percent of the people it currently covers, according to Connector board member Nancy Turnbull." Jason Millman in Politico.

A proposed ban on sex-selective abortions failed in the House. "The House on Thursday rejected a measure that sought to impose fines and prison terms on doctors who perform abortions on women who are trying to select the gender of their offspring -- a practice known as sex-selective abortion. The legislation, which required two-thirds support to win passage under the fast-track procedure used to bring it to the floor, fell short on a vote of 246 to 168. Republicans did not anticipate that the legislation would pass, but saw it as an opportunity to force Democrats to vote on an issue with appeal among conservatives...Abortion-rights advocates, while pleased with the outcome, slammed Representative Trent Franks, Republican of Arizona, for pushing forward with his bill, known as the Prenatal Nondiscrimination Act...There does not appear to be an extensive network of women seeking abortions in order to manage the race or gender makeup of their families" Jennifer Steinhauer in The New York Times .

@sarahkliff: Started hiccuping. @BradPlumer tries to scare them out of me by saying "They just repealed health reform!" #wellplayed

Domestic Policy

Student loan debt rose by 8%. "Americans are borrowing more to pay for college while reducing other debt as a weak job market prompts more people to go to school and tuition keeps climbing, new Federal Reserve Bank of New York data show. Americans owed $904 billion in student loans at the end of March, nearly 8% more than a year ago, the New York Fed said Thursday in a quarterly report on consumer credit. That compares with the $679 billion they owed on credit cards at the end of the first quarter. Between the fourth quarter of 2008, when credit-card debt peaked, and the first quarter of 2012, this borrowing fell by $187 billion, or 21.6%, the Fed said. Over the same period, student-loan debt rose by 41.4%, or $264 billion. Student debt is quickly rising, in part due to higher tuitions, but also because alternative ways of paying for college--such as home-equity loans--have dried up. The Obama administration has expanded federal loan programs, which offer student loans at below-market rates." Josh Mitchell in The Wall Street Journal.

@NickTimiraos: How much did rising home equity mask increased student loan debt during last decade? A lot of helocs funded college educations.

The U.S. and the EU are expected to agree on an air cargo security pact. "The United States and the European Union were expected Friday to announce an agreement to recognize each other’s air cargo security procedures, putting an end to a costly duplication of security controls on the more than $130 billion in airfreight that crosses the Atlantic from Europe each year. Under the terms of the accord, which was to take effect immediately, the Transportation Security Administration will accept a set of European rules on the screening of cargo and the maintenance of a secure supply chain for all airlines and freight shippers flying cargo and mail into or through the European Union. Previously, only five of the 27 members of the bloc -- Britain, Finland, France, the Netherlands and Ireland -- signed bilateral air cargo security agreements with the United States...Mutual recognition is expected to reduce costs and improve the speed and efficiency of trans-Atlantic shipments of goods ranging from electronic components to perishable foods." Nicola Clark in The New York Times.

Aquatic animals interlude: A dog loves jumping off the diving board.


Crop insurance is under attack from environmentalists. "Armed with new data and an old playbook, environmentalists are taking aim at the crop insurance industry, seeking to bolster the case for a cap on premium subsidies when the Senate farm bill hits the floor in June. At issue are government-backed premium discounts designed to make the insurance more affordable to farmers. While not truly cash subsidies, the costs have soared in recent years and fit neatly into the environmental narrative that Washington is too quick to help large-scale farm production at the expense of investments in conservation and the land itself. The Environmental Working Group, which successfully waged a similar campaign to end direct cash payments to farmers, is again taking the lead. On Thursday, the group released a wealth of new cost data gleaned from Freedom of Information requests filed with the Risk Management Agency, which oversees the multibillion-dollar program." David Rogers in Politico.

@drgrist: In 2008, Romney called for a "dramatic increase" in "federal spending on...projects that hold promise for diversifying our energy supply."

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