Karl Singer is writing Wonkbook this week while Ezra is on vacation.
RCP Obama vs. Romney: Obama +1.8%; 7-day change: Obama -0.5%.
RCP Obama approval: 48.2%; 7-day change: -0.8%.
1) Unemployment benefits are coming to an end for many of the long-term unemployed. "The checks are stopping for the people who have the most difficulty finding work: the long-term unemployed. More than five million people have been out of work for longer than half a year. Federal benefit extensions, which supplemented state funds for payments up to 99 weeks, were intended to tide over the unemployed until the job market improved. In February, when the program was set to expire, Congress renewed it, but also phased in a reduction of the number of weeks of extended aid and made it more difficult for states to qualify for the maximum aid. Since then, the jobless in 23 states have lost up to five months’ worth of benefits. Next month, an additional 70,000 people will lose benefits earlier than they presumed, bringing the number of people cut off prematurely this year to close to half a million, according to the National Employment Law Project. That estimate does not include people who simply exhausted the weeks of benefits they were entitled to." Shaila Dewan in The New York Times.
2) The number of college dropouts with student loan debt is rising. "As the nation amasses more than $1 trillion in student loans, education experts say a vexing new problem has emerged: A growing number of young people have a mountain of debt but no degree to show for it. Nearly 30 percent of college students who took out loans dropped out of school, up from fewer than a quarter of students a decade ago, according to a recent analysis of government data by think tank Education Sector. College dropouts are also among the most likely to default on their loans, falling behind at a rate four times that of graduates. That is raising new questions about the wisdom of decades of public policy that focused on increasing access to higher learning but paid less attention to what happens once students arrive on campus. And some education experts have begun to argue that starting college -- and going into debt to pay for it -- without a clear plan for a diploma is a recipe for disaster." Ylan Mui and Suzy Khimm in The Washington Post.
3) Questions are being raised about bank regulators in the wake of JPMorgan's loss. "Scores of federal regulators are stationed inside JPMorgan Chase’s Manhattan headquarters, but none of them were assigned to the powerful unit that recently disclosed a multibillion trading loss. Roughly 40 examiners from the Federal Reserve Bank of New York and 70 staff members from the Office of the Comptroller of the Currency are embedded in the nation’s largest bank. They are typically assigned to the departments undertaking the greatest risks, like the structured products trading desk. Even as the chief investment office swelled in size and made increasingly large bets, regulators did not put any examiners in the unit’s offices in London or New York, according to current and former regulators who spoke only on condition of anonymity...The lapses have raised questions about who, if anyone, was policing the chief investment office and whether regulators were sufficiently independent." Jessica Silver-Greenberg and Ben Protess in The New York Times.
@BCAppelbaum: Federal regulators who work at JPM: 110. Federal regulators who work at the unit that lost all the money: 0.
@noamscheiber: “Question is why Dimon was able to convince regulators there was nothing to see at the chief investment office.” Good question!
4) Sluggish wage growth is boosting the manufacturing recovery. "The celebrated revival of U.S. manufacturing employment has been accompanied by a less-lauded fact: Wages for many manufacturing workers aren't keeping up with inflation. The wage lag is a key factor contributing to the rebounding competitiveness of U.S. industry. A recent uptick in factory employment and the return of some production to U.S. shores from abroad both added jobs that probably otherwise wouldn't exist. But sluggish wages also are squeezing workers' incomes and spending. That, in turn, hurts retailers who target middle-income earners and restrains the vigor of the economic recovery...Across the country, earnings for production and other nonsupervisory workers in manufacturing averaged $19.15 an hour in April, 3.2% below their recent March 2009 peak and back to where they were in 2000, adjusted for inflation, the Bureau of Labor Statistics says." David Wessel and James Hagerty in The Wall Street Journal.
5) Oil and gas production in the Americas is booming. "From Canada to Colombia to Brazil, oil and gas production in the Western Hemisphere is booming, with the United States emerging less dependent on supplies from an unstable Middle East. Central to the new energy equation is the United States itself, which has ramped up production and is now churning out 1.7 million more barrels of oil and liquid fuel per day than in 2005...Since 2006, exports to the United States have fallen from all but one major member of the Organization of the Petroleum Exporting Countries, the net decline adding up to nearly 1.8 million barrels a day. Canada, Brazil and Colombia have increased exports to the United States by 700,000 barrels daily in that time and now provide nearly 3.4 million barrels a day. Six Persian Gulf suppliers provide just 22 percent of all U.S. imports, the nonpartisan U.S. Energy Information Administration said this month. The United States’ neighbors in the Western Hemisphere, meanwhile, provide more than half." Juan Forero in The Washington Post.
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1) STEVENSON AND WOLFERS: Another fight over the debt ceiling could derail the recovery. "John Boehner, the leader of the House Republicans, has promised yet another fight with the White House over the debt ceiling -- the limit Congress has placed on the amount the federal government can borrow. If this sounds familiar, it’s because we suffered through an identical performance last summer. Our analysis of that episode leads to a troubling conclusion: It almost derailed the recovery, and this time could be a lot worse...All told, the data tell us that a debt-ceiling standoff is an act of economic sabotage. The only way to avoid this conclusion is to argue that consumers and employers were reacting to some other economic factors. But the debt ceiling was the dominant economic story at the time. No other news fits the data as well...Another stalemate would almost certainly plunge the economy into a deep recession." Betsey Stevenson and Justin Wolfers in Bloomberg.
2) PEARLSTEIN: America needs to decide what kind of capitalism it wants. "Beneath all the folderol about job creation and destruction at Bain Capital or President Obama’s alleged war against success and free enterprise, there’s actually a legitimate debate to be had about what kind of capitalism we want in the United States. It turns out that capitalism, like ice cream, comes in many flavors. These different capitalisms can be combined, in the same way chocolate and coffee produce mocha. There are also all sorts of mix-ins and swirls that add to the variety...We would all surely welcome an intelligent presidential debate on what kind of capitalism we want to have. Only please spare us the self-serving nonsense about who created or destroyed how many jobs. In almost any form of capitalism, running the government is not the same as running the economy, and neither is like running Bain Capital." Steven Pearlstein in The Washington Post.
3) KRUGMAN: Fiscal phonies are not constrained to the national level. "Until now the attack of the fiscal phonies has been mainly a national rather than a state issue, with Paul Ryan, the chairman of the House Budget Committee, as the prime example. As regular readers of this column know, Mr. Ryan has somehow acquired a reputation as a stern fiscal hawk despite offering budget proposals that, far from being focused on deficit reduction, are mainly about cutting taxes for the rich while slashing aid to the poor and unlucky...Are Republican governors, who have to deal with real budget constraints, different? Well, there have been many claims to that effect; Mr. Christie, in particular, has been widely held up, not least by himself, as an example of a politician willing to make tough choices. But last week we got to see him facing an actual tough choice -- and aside from the yelling-at-people thing, he proved himself just another standard fiscal phony." Paul Krugman in The New York Times.
4) MORETTI: The unemployed should be encouraged to move. "In total, almost half of college graduates move out of their birth states by age 30. Only 27% of high-school graduates and 17% of dropouts do so. This is an important reason for the increasing inequality in income and unemployment rates between workers with college education and workers with less education. A college graduate today makes 75% more than a high-school graduate. This salary difference is more than double what it was in 1980, and an increasing part of this difference reflects differences in mobility...Unemployed individuals living in areas with above-average unemployment rates should receive part of their unemployment insurance check in the form of a relocation voucher. The voucher would cover some of the costs of moving to a different area. Instead of encouraging unemployed residents to remain in Detroit, in other words, the federal government could help them relocate to another city with financial support that covers part of their moving expenses." Enrico Moretti in The Wall Street Journal.
5) COWEN: The eurozone crisis is a case of institutional failure. "As problems mount in the euro zone, it’s increasingly evident that we’ve been witnessing an institutional failure of monumental proportions...We are realizing just how much international economic order depends on the role of a dominant country -- sometimes known as a hegemon -- that sets clear rules and accepts some responsibility for the consequences. For historical reasons, Germany isn’t up to playing the role formerly held by Britain and, to some extent, still held today by the United States...There appears to be a power vacuum, and the implications are alarming. We may be entering a new world where international cooperative arrangements, in environmental areas as well as finance, are commonly recognized as impossible. If the core European nations cannot coordinate effectively, what can we expect in dealings with China, Russia and other countries that have less of a common background and understanding?" Tyler Cowen in The New York Times.
Top long reads
Azam Ahmed on how Boaz Weinstein outsmarted JPMorgan: "Boaz Weinstein didn’t know it, but he had just hooked the London Whale. It was last November, and Mr. Weinstein, a wunderkind of the New York hedge fund world, had spied something strange across the Atlantic. In an obscure corner of the financial markets, prices seemed out of whack. It didn’t make sense. Mr. Weinstein pounced. As the financial world now knows, what was out of whack was JPMorgan Chase & Company. One its traders, Bruno Iksil, the man later nicknamed the London Whale for his outsize trades, was about to blow a multibillion-dollar hole in the mighty House of Morgan. But the resulting uproar, in Washington and on Wall Street, has largely obscured a simple truth of the marketplace. Yes, Morgan lost big -- but, as Mitt Romney has pointed out, someone else won. And that someone or, rather, those someones, turn out to be Boaz Weinstein and a wolf pack of like-minded hedge fund managers."
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Still to come: There is no agreement on what 'euro bonds' would be; the SCOTUS will shape exchanges' future; the farm bill would save money; China wants the WTO to stop solar tariffs; and a lazy polar bear is lazy.
The details of euro bonds are unclear. "To euro zone countries in need, euro bonds would be a noble expression of European solidarity and a crucial instrument for preserving the common currency. To Germans and quite a few others, though, euro bonds would be a lot like co-signing a loan for a deadbeat brother-in-law...But despite the intensity of the debate, even as political upheaval in Greece and bad bank loans in Spain mushroom into existential threats to the currency union, the euro bond remains only the vaguest of concepts...The various models share a basic idea: In addition to each country’s raising money by issuing its own bonds, as is now the practice, they would put at least some of the debt into a common pool. These pooled bonds would be issued by some kind of joint European debt agency, with all members assuming shared responsibility for repayment. There is no agreement yet on whether that pool would be used to replace existing debt or to finance new borrowing." Jack Ewing and Paul Geitner in The New York Times.
@AndyHarless: Never call grexit() from inside a subroutine.
Republicans may be shifting on taxes. "An increasing number of GOP candidates for Congress are declining to sign the promise to oppose any tax increase, a small sign that could signal a big shift in Republican politics on taxes. Of the 25 candidates this year promoted by the National Republican Congressional Committee as 'Young Guns' and 'Contenders' -- the top rungs of a program that highlights promising candidates who are challenging Democrats or running in open seats -- at least a third have indicated they do not plan to sign the pledge authored by anti-tax crusader Grover Norquist...Republican candidates declining to sign generally indicate that they nevertheless oppose tax hikes. But some chafe against the constraint on eliminating tax loopholes, believing those restrictions limit Republicans’ ability to negotiate seriously with Democrats on a deal to tackle the nation’s mounting debt." Rosalind Helderman in The Washington Post.
Public pension funds are trying to lower their assumed rates of return. "Few investors are more bullish these days than public pension funds. While Americans are typically earning less than 1 percent interest on their savings accounts and watching their 401(k) balances yo-yo along with the stock market, most public pension funds are still betting they will earn annual returns of 7 to 8 percent over the long haul, a practice that Mayor Michael R. Bloomberg recently called 'indefensible.' Now public pension funds across the country are facing a painful reckoning. Their projections look increasingly out of touch in today’s low-interest environment, and pressure is mounting to be more realistic. But lowering their investment assumptions, even slightly, means turning for more cash to local taxpayers -- who pay part of the cost of public pensions through property and other taxes...The typical public pension plan assumes its investments will earn average annual returns of 8 percent over the long term." Mary Williams Walsh and Danny Hakim in The New York Times.
European companies are turning to the U.S. for loans. "In the latest symptom of Europe's financial turmoil, the region's riskier companies are bypassing banks and investors at home and turning to the U.S. for loans. European companies borrowed some €14.4 billion (about $18 billion at current rates) in the U.S. leveraged-loan market this year through Friday, more than double the €6.7 billion for all of 2011, according to data from S&P Capital IQ LCD. That is the highest amount since at least 2007, the height of the last boom in leveraged lending, when full-year loan volume was €12.2 billion, according to S&P. The leveraged-loan market is used by companies with high-yield or noninvestment-grade credit ratings, making it particularly sensitive to Europe's debt crisis, now in its third year...One risk for European firms is that if the supply of leveraged loans from U.S. companies increases, the demand for European debt could diminish. That could reduce the European companies' funding options, pushing up their costs." Dana Cimilluca and Serena Ng in The Wall Street Journal.
Supercut interlude: The Dark Night, with just the Joker.
The Supreme Court's healthcare ruling will shape the future of health exchanges. "While partisan gridlock and logistical disputes have stalled preparations for the 2010 health-care law in about two dozen states, more than a dozen others have moved swiftly to set up the insurance marketplaces at the statute’s core. So what will come of those efforts if the Supreme Court decides to overturn all or part of the law? Interviews with key officials in some of the states that are furthest along suggest the results could vary widely...Because the law bars insurers from discriminating against people with preexisting conditions and limits how much insurers can vary rates, analysts worry that if the court were to eliminate the individual mandate, people would wait to buy coverage until they are sick. This, in turn, would force insurers to either increase rates to unaffordable levels or pull out of the exchanges. One solution would be for states to enact their own versions of the individual mandate." N.C. Aizenman in The Washington Post.
Terence Flynn resigned from the NLRB over a leaking scandal. "The National Labor Relations Board announced on Sunday that one of its five members, Terence F. Flynn, had resigned after the board’s inspector general found that Mr. Flynn, a Republican, leaked documents to G.O.P. allies...The N.L.R.B.’s inspector general, David P. Berry, issued a report in early May that found that Mr. Flynn had committed serious ethical violations by leaking drafts of board decisions and details of internal deliberations to Peter Schaumber, a former labor board chairman who had been co-chairman of Mitt Romney’s labor advisory committee...Mr. Flynn had leaked information to Mr. Schaumber and to Peter Kirsanow, a former Republican N.L.R.B. member who was serving as outside counsel for the National Association of Manufacturers...Mr. Flynn, who was a recess appointee with two Democratic board members, also asked that President Obama withdraw his formal nomination to the board, which was awaiting Senate confirmation." Steven Greenhouse in The New York Times.
@nielslesniewski: Burying the news? Announcing an NLRB resignation on the Sunday of Memorial Day weekend!
The CBO says the Senate farm bill would save money. "New cost estimates Friday from the Congressional Budget Office predict that the Senate farm bill will save an estimated $23.6 billion over the next 10-years, about three-quarters of which would come from a net reduction in subsidies for major commodities. Beneath the surface, the 20-page report confirms a huge shift of resources toward new government-backed crop insurance options that would help farmers cover the deductibles they now pay. But even allowing for this investment, the Senate bill would save about $17 billion from what are generally seen as traditional support programs. A second wave of cuts from nutrition and conservation programs would save an additional $10.1 billion, about half of which would go to deficit reduction and half to pay for smaller energy, agricultural research, and specialty crop initiatives...The $23.6 billion total is less than the White House and House Republicans have demanded in their own budgets." David Rogers in Politico.
The Post Office offered buyouts to many mail handlers. "The United States Postal Service said late Friday that it was offering buyouts to about 45,000 mail handlers, part of the financially troubled agency’s efforts to cut its staff and reduce its operating costs. The mail handlers, who work in processing centers, will be offered $15,000 each. The Postal Service has said it will close 48 of the centers starting this summer, reducing the need for staff. Full-time mail handlers wanting to sign up for the buyouts must do so by July 2 and agree to leave or retire by Aug. 31, according to the agreement reached between the Postal Service and the National Postal Mail Handlers Union. Part-time handlers have until July 16 to make a decision. The Postal Service said the buyouts were necessary because it needs fewer handlers with the volume of mail declining as Americans have moved to the Internet to communicate and pay bills. In 2000, about 5 percent of Americans paid their bills online. That number is now 60 percent." Ron Nixon in The New York Times.
Animals being unproductive interlude: A polar bear is perfectly happy just lying down.
Gas prices are expected to continue their decline. "Millions of travelers breathed a sigh of relief when gas prices fell in the weeks leading up to the heavily traveled Memorial Day weekend. Now, a touch of good news for those already daydreaming about summer road trips: Gas prices could fall even more in the weeks ahead, and even if they do rise in July and August, they are likely to remain well below the $4 or $5 per gallon that some observers had feared...The national average price for a gallon of unleaded gas peaked in early April at $3.91. On Monday, the average had fallen to $3.64, a drop of nearly 7 percent in a matter of weeks, according to AAA. In Washington, where the peak reached nearly $4.20 per gallon, the average on Monday stood at $3.75; metro area prices averaged $3.61. Toews and other analysts said they expect that average price to continue falling into June, possibly by as much as 10 cents per gallon, before rising again later in the summer." Brady Dennis in The Washington Post.
@WestWingReport: Gasoline prices on this Memorial Day weekend avg. $3.64 nationwide, AAA says. Down 7.3% from recent peak, -4.5% in a month, -4.0% in a year
China wants the WTO to block U.S. tariffs on Chinese solar panels. "China has turned to the World Trade Organization to help block U.S. tariffs on 22 types of Chinese products, including solar panels, pipes for oil wells, coated paper and steel wheel hubs. The Chinese appeal to the WTO takes aim at the U.S. Commerce Department, which has recently imposed stiff duties on Chinese products. The department has cited Chinese subsidies, especially those funneled through state-owned enterprises, that it says give Chinese firms an edge over American competitors. But U.S. experts said Beijing did not appear intent on triggering an all-out trade war...Rather than resorting to retaliatory measures, China’s Ministry of Commerce on Friday asked for WTO consultations, the first stage of a formal dispute process. The products covered are worth a total of $7.29 billion, a substantial figure for the companies involved but only a small fraction of the trade between the two nations." Steven Mufson in The Washington Post.
BP is under investigation over its leak estimates. "Federal investigators are exploring whether BP PLC representatives lied to Congress about how much oil was leaking after the Deepwater Horizon accident two years ago, a development that could lead to additional criminal charges against current and former company employees. Prosecutors are examining statements made by BP officials to members of Congress, including those from a May 4, 2010, briefing where they discussed the best guesses for the rate at which oil was spilling from the damaged well following the April 20 accident...The 'flow rate' issue is significant because one of the penalties yet to be finalized--a civil fine under the U.S. Clean Water Act--is based on the number of barrels spilled. The final government estimate put the rate at between 53,000 and 62,000 barrels of oil a day, for a total of about 4.9 million barrels spilled. That could translate to $5.4 billion to $21 billion in fines, depending on whether investigators believe the company was grossly negligent." Tom Fowler in The Wall Street Journal.
Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.