Welcome to Wonkbook, Ezra Klein and Evan Soltas’s morning policy news primer. To subscribe by e-mail, click here. Send comments, criticism, or ideas to Wonkbook at Gmail dot com. To read more by Ezra and his team, go to Wonkblog.

Wonkbook dashboard

RCP Obama vs. Romney: Obama +1.0%; 7-day change: Obama -2.7%.

RCP Obama approval: 48.0%; 7-day change: -0.4%.

Intrade percent chance of Obama win: 57.5%; 7-day change: -0.3%.

Top story: A new era, or the old one, for the financial system and its regulation?

An end of an era: The New York Federal Reserve has sold off the entire stake in AIG it took during the financial crisis. "The Federal Reserve Bank of New York on Thursday sold the last toxic assets it acquired from the bailout of American International Group Inc., closing the book on its most controversial intervention during the financial crisis with a large gain to taxpayers. The regional Fed bank said it reaped $6.6 billion in profits from selling complex mortgage securities that it took on in late 2008 to stem AIG's cash bleed. The sales end one of the most contentious elements of the government's efforts to stabilize the financial system as markets were seizing up and banks and other financial institutions were collapsing." Eric Holm, Serena Ng and Al Yoon in The Wall Street Journal.

Or perhaps not the end of an era, as regulators struggle to re-regulate money market funds. "Fresh from a victory over the US securities regulator, the $2.6tn money market fund industry now faces a co-ordinated response from other US and European financial regulators determined to address what they see as the sector’s systemic risk...[S]everal US regulators held discussions on Thursday to plan possible responses to the SEC’s unexpected retreat, people familiar with the matter said. Financial supervisors are examining all of their options, including unconventional measures, these people said...The authorities remain concerned that money market funds which have a fixed $1 share price and offer higher yields than bank deposits are vulnerable to runs which can have destabilising effects throughout the financial system." David McCrum and Shahien Nasiripour in The Financial Times.

@anatadmati: Failure to deal with money market funds is outrageous. FSOC must act or declared totally useless, all talk no action.

SOLOMON: This risk to financial system stability needs a fix. "To act or not to act? That is the question facing the Financial Stability Oversight Council, which must decide whether to step in and fill the void created by the Securities and Exchange Commission's inability to tighten regulation of money-market mutual funds...That creates a huge opportunity and risk for the FSOC...But so far, the FSOC has proved a reluctant overseer, moving slowly and cautiously to address well-known trouble spots...But money funds should jump to the front of the FSOC's agenda. They are a well-known threat to the financial system -- the FSOC itself has identified them as a market vulnerability -- and played a starring role in the 2008 financial crisis." Deborah Solomon in Bloomberg.

The Baby Boom generation paid a huge price amid the instability of the financial system. "Americans nearing retirement age have suffered disproportionately after the financial crisis: along with the declining value of their homes, which were intended to cushion their final years, their incomes have fallen sharply. The typical household income for people age 55 to 64 years old is almost 10 percent less in today’s dollars than it was when the recovery officially began three years ago" Catherine Rampell in The New York Times.

The European financial system continues to look vulnerable, as fears of a run on European investments rise. "[C]orporations, central banks and individuals [are moving] money out of crisis-stricken euro-zone countries as the debt crisis envelops an ever-larger part of the continent. Such currency moves are bets on the future of national economies. The recent capital flight, analyst say, is a vote of no confidence in the euro that some worry could snowball into a series of silent bank runs. If institutions and consumers lose faith in the euro, a massive flight could lead to economic collapse...In the beginning, the issue was mostly a reshuffling of money within the euro zone...Starting around July 2011 — when it became clear that some of the larger economies such as Spain and Italy were also in danger — the pace accelerated as investors shed a broader range of euro-zone investments. Now money is starting to leave the euro zone altogether" Ariana Eunjung Cha in The Washington Post.

Republicans want to go back to the gold standard. "The gold standard has returned to mainstream US politics for the first time in 30 years, with a 'gold commission' set to become part of official Republican party policy. Drafts of the party platform, which it will adopt at a convention in Tampa Bay, Florida, next week, call for an audit of Federal Reserve monetary policy and a commission to look at restoring the link between the dollar and gold...[T]he once-fringe idea of returning to gold-as-money [has become] a legitimate part of Republican debate." Robin Harding and Anna Fifield in The Financial Times.

@JimPethokoukis: Gold standard proponents "fundamentally very anti-libertarian b/c what they mean...is a governmentally fixed price for gold" - M.Friedman

WOODS: The U.S. is moving in the right direction on financial regulation, believe it or not. "[T]he US regulatory environment has become one where there is genuine fear of being caught. The financial penalties are substantial and the future imprisonment of some bankers and brokers is probably inevitable...The main difference between the two jurisdictions [the US and UK] is the regulatory approach. In the UK there is a single regulator whereas in the US there are many, sometimes working in concert with each other and at other times competing against each other. US regulators have also been held to account by politicians...Good regulation has been missing on both sides of the Atlantic. The US appears to have recognised this." Martin Woods in The Financial Times.

@MichaelMandel: A 'data crime' is intentional misrepresentation that pollutes the global information stream i.e. Libor scandal #datacrimes

Top op-eds

ROMNEY: What I learned at Bain Capital. "A broad message emerges from my Bain Capital days: A good idea is not enough for a business to succeed. It requires a talented team, a good business plan and capital to execute it...My business experience confirmed my belief in empowering people...The second lesson is that we must have a level playing field in international trade. As president, I will challenge unfair trade practices that are harming American workers...[E]xperience [has] taught me that when you see a problem, run toward it or it will only get worse." Mitt Romney in The Wall Street Journal.


ORSZAG: Five myths about the Ryan budget. "[Myth:] Paul Ryan’s budget would reduce the deficit. The Ryan budget is a Potemkin village: It looks good from afar but is just a facade...Take a closer look, and you’ll see that the Ryan budget rests on three pillars that rely on capping and punting — limiting spending to a certain level but providing no specifics on how to achieve that number...[Myth:] The Ryan budget would help the middle class...[His] attempt to broaden the tax base without raising taxes on capital income would almost inevitably place a higher burden on middle-class families." Peter Orszag in The Washington Post.

KRUGMAN: Paul Ryan's ideas for monetary policy would take us back further. "Mr. Ryan is a man of many ideas, which would ordinarily be a good thing. In his case, however, most of those ideas appear to come from works of fiction, specifically Ayn Rand’s novel 'Atlas Shrugged.'...[In a] 2005 speech to the Atlas Society...he declared that he always goes back to “Francisco d’Anconia’s speech on money” when thinking about monetary policy. Who? Never mind. That speech (which clocks in at a mere 23 paragraphs) is a case of hard-money obsession gone ballistic. Not only does the character in question, a Galt sidekick, call for a return to the gold standard, he denounces the notion of paper money and demands a return to gold coins." Paul Krugman in The New York Times.

ROBERTS: The Obama administration's State Dept. has dumbed down and politicized a source of public information. "[T]he State Department's long-running series of "Background Notes" on foreign countries...[has] in recent months...[transformed] these documents from straightforward reference items into PR puff sheets for the president. About a third of the old notes have been converted into new 'Fact Sheets' since the switchover began in May. How do they stack up? They're Fact Sheets short on facts and long on the visits, programs and pronouncements of a certain president. Call them brag sheets." James M. Roberts in The Wall Street Journal.

BROOKS: Ryan's biggest mistake was to walk away from Simpson-Bowles. "If Ryan and the other House Republicans had voted for the Simpson-Bowles proposal, it would have gone to Congress for up-or-down votes, regardless of how President Obama reacted. We would have had national action on debt reduction...Ryan voted no for intellectually coherent reasons. He argued that the single biggest contributing factor to public debt is the unsustainable growth of Medicare. Yet the Simpson-Bowles plan did nothing to restructure Medicare...This is the sort of argument that makes a lot of sense in a think-tank auditorium...[But] Ryan was giving up significant debt progress for a political fantasy...Ryan’s fantasy happens to be the No. 1 political fantasy in America today, which has inebriated both parties. It is the fantasy that the other party will not exist. It is the fantasy that you are about to win a 1932-style victory that will render your opponents powerless." David Brooks in The New York Times.

Top long reads

Ta-Nehisi Coates reflects on Barack Obama and race in America: "The irony of Barack Obama is this: he has become the most successful black politician in American history by avoiding the radioactive racial issues of yesteryear, by being 'clean' (as Joe Biden once labeled him)—and yet his indelible blackness irradiates everything he touches. This irony is rooted in the greater ironies of the country he leads. For most of American history, our political system was premised on two conflicting facts—one, an oft-stated love of democracy; the other, an undemocratic white supremacy inscribed at every level of government. In warring against that paradox, African Americans have historically been restricted to the realm of protest and agitation. But when President Barack Obama pledged to 'get to the bottom of exactly what happened,' he was not protesting or agitating. He was not appealing to federal power—he was employing it. The power was black—and, in certain quarters, was received as such."

D. T. Max previews his biography of author David Foster Wallace, due out next week: "In 1990, David Foster Wallace, only 28, had already lived a chaotic life: he’d been a literary star, a teacher, and a depressive, had attempted to take his own life and then found his way into drug and alcohol rehab. After a month in a facility, he had entered a halfway house in Brighton, Mass. His collapse had taught him that the things that had once mattered most to him—cleverness, facility, pyrotechnics—were no longer enough to sustain him. But if he wasn’t supposed to light up the page with his brilliance, how was he supposed to write? The only thing Wallace knew for sure was that he desperately wanted to be a novelist again but some piece of him still felt too fragile to attempt an effort so key to his well-being. The problem, he felt, was not really the words on the page; he had lost confidence not in his ability to write so much as the need to have written."

Big band for a big morning interlude: Benny Goodman, "Sing, Sing, Sing," 1935..

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

Still to come: A growing labor force is good news but creates problems; what the Danes and Swiss have to say about health insurance exchanges; the changing definition of 'rape'; Mitt Romney continues to wonk it out with his charts; and DNA as data storage.


The global economy isn't looking so healthy. "Grim data on the economies of China and Europe on Thursday gave a warning signal for global growth, and suggested governments and central banks around the world may be forced to pump in more stimulus to kick-start activity. An index of manufacturing in China, the world's second-largest economy, showed the biggest drop in activity in nine months. Factories were hit by a steepening fall in demand for exports, in part a reflection of the euro-zone debt crisis that has clamped down hard on demand for Chinese goods in the European economies. Data on Thursday suggested the euro zone is falling into recession." Alex Brittain and Aaron Back in The Wall Street Journal.

@mattyglesias: Shorter take on China—if you predict a "hard landing" every month for years, you'll be right sooner or later.

The labor force is growing again, so more job growth is needed for the unemployment rate to fall. "The American labor force is growing again. After three years of falling participation starting in 2009, this year has brought a return to the normal rate of growth seen before the recession, with roughly 150,000 joining the labor force every month...And yet, the restoration of labor force growth creates new headwinds for the recovery and new problems for policymakers. As more people look for jobs, it will become a growing problem that the economy is not creating enough. The current rate of growth in actual employment -- also 150,000 per month, on rough average -- will no longer be sufficient to bring down the total number of Americans without work...[W]ithout a significant acceleration in the rate of net job creation, the unemployment rate will stay near 8.3 percent indefinitely." Evan Soltas in Bloomberg.

Still more good news from housing, as new home sales rise and inventories fall. "Sales of newly built homes rose briskly in July, and inventory fell to the lowest level on record, suggesting the housing market is showing continued signs of recovery and that builders may need to ramp up construction in the coming months. The Census Bureau said Thursday builders sold a seasonally adjusted annual rate of 372,000 homes in July, up 26% from the same month last year. Inventory of new homes available for sale fell to 142,000 units, the lowest level recorded since the government started tracking the figure in 1963." Robbie Whelan inThe Wall Street Journal.

More Americans are filing for unemployment benefits. "The number of U.S. workers filing applications for jobless benefits rose for the second straight week, a sign that the labor market, though improved since the spring, remains uneven...Initial jobless claims, an indication of layoffs, increased by 4,000 to a seasonally adjusted 372,000 in the week ended Aug. 18, the Labor Department said Thursday. That's the highest level in about a month. Economists surveyed by Dow Jones Newswires had forecast 365,000 new applications for jobless benefits last week...The four-week moving average of claims, which smooths out often choppy weekly data, climbed by 3,750 to 368,000." Jeffrey Sparshott and Eric Morath in The Wall Street Journal.

U.S. household income continues to fall, even after the recession. "Household income is down sharply since the recession ended three years ago, according to a report released Thursday, providing another sign of the stubborn weakness of the economic recovery. From June 2009 to June 2012, inflation-adjusted median household income fell 4.8 percent, to $50,964, according to a report by Sentier Research, a firm headed by two former Census Bureau officials...Incomes have dropped more since the beginning of the recovery than they did during the recession itself." Michael A. Fletcher in The Washington Post.

Romney says he would show the door to the Fed Chairman. "Mitt Romney appeared Thursday to dismiss the view of a top adviser who said this week that Federal Reserve Chairman Ben Bernanke should be considered for a third term. The presumptive Republican nominee told the Fox Business Network that, if he were elected president, he would want to install someone new in the top post at the Fed." Colleen McCain Nelson and Kristina Peterson in The Wall Street Journal.

@sabrush: Romney says he wouldn't reappoint Bernanke and he doesn't want another round of quantitative easing. QE2 didn't work, he says

Wonk alert: Romney economic advisor Glenn Hubbard is now blogging. "R. Glenn Hubbard, the dean of the Columbia Business School and a top economic adviser to Mitt Romney’s presidential campaign, has joined the economics blogosphere. Along with Tim Kane of the Hudson Institute...he will be blogging on stagnation, imbalance and decline. The two are planning on writing a book on the subject, due out next year." Annie Lowrey in The New York Times.

@MaxNisen: Glenn Hubbard has joined the econbloggers. I will be disappointed if there's no huge fight with Brad DeLong or Paul Krugman within minutes.

Science is amazing interlude: DNA may become the next way to store digital, not just biologial, data.

Health Care

Denmark and Switzerland have lessons for American health insurance exchanges. "The Netherlands and Switzerland both used government-regulated insurance marketplaces to achieve universal coverage. That got health policy experts Ewout van Ginneken and Katherine Swartz thinking: Maybe those countries have something to teach the United States about the marketplaces we’re about to start setting up, the health care exchanges. Indeed they do. In a new piece for the New England Journal of Medicine, they outline some of the key lessons to take away from the European experience...'The Dutch and Swiss experience indicates how critical a good risk-adjustment formula is...Both countries also struggled initially with increases in the proportions of uninsured people...Due to problems with enforcing the requirement that everyone must obtain coverage, and additional government measures were required.'" Sarah Kliff in The Washington Post.

Who protects Medicare more, Obama or Ryan? "Which protects Medicare better, the Ryan budget or the Affordable Care Act? That’s shaping up to be the big policy question of the presidential election. Medicare’s trustees say that the cuts to the program included in the ACA will maintain the solvency of the Medicare hospital insurance trust fund for another eight years. Critics, such as Romney campaign adviser Avik Roy, argue that the ACA cuts don’t help the program’s solvency because they go to fund insurance coverage for low- and middle-income people. In the Ryan budget, Roy argues, the same cuts are preserved but used to shore up the trust fund...The Affordable Care Act shores up the trust fund but it’s not clear that means much. The Ryan budget shores it up in a more meaningful way but repeals the ACA’s new benefits for seniors. The Romney-Ryan plan to reverse the ACA’s cuts weakens the trust fund considerably, and their plan to repeal the ACA as a whole would hit seniors’ new benefits as well." Dylan Matthews in The Washington Post.

@greg_ip: Medicare won't be allowed to be 100% GDP. Or 30%. Relevant question is how to bend it down. Neither ACA nor Ryancare solves it.

Domestic Policy

Immigration agents file suit against Obama's 'deferred action' plan for young immigrants. "Claiming they are being forced to carry out an illegal policy, 10 immigration agents filed a federal lawsuit in Texas on Thursday against Homeland Security Secretary Janet Napolitano, seeking to overturn an Obama administration program that suspends deportations for illegal immigrants who came here when they were children. In the lawsuit, filed in Federal District Court in Dallas, the agents from Immigration and Customs Enforcement said the program prevented them from detaining illegal immigrants who were public safety risks. The suit contends that the program, which started on Aug. 15, violates a law requiring agents to arrest illegal immigrants and infringes on the powers of Congress." Julia Preston in The New York Times.

Online poker gambling may soon be legal in the U.S. "Is poker more a game of skill or of chance? A federal judge in New York concluded this week that skill plays the bigger role in determining who wins a poker game, in a ruling that could strengthen the hand of the companies seeking to get online poker legalized in the U.S...The ruling marked the first time a federal court has directly considered poker's status, even though it is generally treated as a game of chance that is covered by gambling laws. State courts have been divided on the issue." Alexandra Berzon in The Wall Street Journal.

The definition of 'rape' is changing. "Embedded, if unexamined, in all the talk [about Rep. Todd Akin] is the rapidly shifting definition of rape, the history of the derided but longstanding term 'forcible rape,' and the wildly varied databases on sexual assault...Many experts now believe that rape is best understood as an act of unwanted bodily invasion that need not involve force. Aware that federal rape data are flawed, the Justice Department is investing millions of dollars in an examination of how to better collect information, including interviewing victims out of the presence of family members to increase their comfort levels...States have been adjusting their definitions of rape for the past 30 years, many moving away from the insistence on evidence of force because most rapes do not result in harm to the woman separate from the act itself."Ethan Bronner in The New York Times.

Cute animals interlude: A baby monkey gets a bath.


Romney's energy plan would shift the role of the federal government onto the states. "By proposing to end a century of federal control over oil and gas drilling and coal mining on government lands, Mitt Romney is making a bid for anti-Washington voters in key Western states while dangling the promise of a big reward to major campaign supporters from the energy industry...Giving states control over the energy resources on millions of acres of federal lands would be a radical shift from decades of policies under both Democratic and Republican presidents, dating all the way to Theodore Roosevelt, who first set aside vast tracts of territory to preserve wildlife. Since then, the federal government has tried to balance exploitation of mineral resources with other uses like recreation and environmental protection." Eric Lipton and Clifford Krauss in The New York Times.

Wonkblog explains: 5 takeaways for the Romney energy plan.

@mattyglesias: Romney’[s] goal of North American energy independence is total nonsense:

Wonk for president? Romney continues to break out the graphs. "America is meeting its newest professor: Mitt Romney. Mr. Romney, a detail-oriented former consultant, was already something of a legend among campaign staff for his elaborate and organized PowerPoint presentations. But in recent days he has been unveiling a wonky arsenal of props — white boards and charts, for instance — on the campaign trail, emerging as a mix between a professor addressing a lecture hall and a traveling salesman making his pitch. On Thursday, Mr. Romney used an oversize bar graph to help unveil his new energy plan here...Mr. Romney is a natural-born number cruncher, and his charts and graphs seem to be part of an effort to both convey his understanding of complex issues and try to simplify them into digestible bites for the average voter. But his approach to educating the electorate can also seem a bit stilted, a touch more like offering up policy broccoli than riveting the crowd with his solutions and ideas." Ashley Parker in The New York Times.

Keystone pipeline gets clearance from Texas judge. "A Texas judge ruled in favor of pipeline operator TransCanada Corp.'s use of eminent domain in its effort to build an oil pipeline that could ultimately stretch from the Canadian tar sands to the U.S. Gulf Coast. Lamar County Judge Bill Harris ruled late Wednesday in favor of the Canadian firm in a dispute with a corn and soybean farmer over a patch of land about 100 miles northeast of Dallas, where TransCanada wants to bury part of its pipeline...TransCanada has said its use of eminent domain is legal because its pipeline will benefit the public by creating jobs and reducing U.S. dependency on oil from hostile nations." Ana Campoy in The Washington Post.

Wonkbook is produced with help from Sarah Halzack.