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.

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RCP Obama vs. Romney: Obama +4.0%; 7-day change: Obama +1.0%.

RCP Obama approval: 49.9%; 7-day change: +0.7%.

Intrade percent chance of Obama win: 77.7%; 7-day change: +9.0%.

Top story: Governments are pushing hard on financial regulation

Treasury Sec. Geithner arm-twists the SEC on money market fund regulations. "Treasury Secretary Timothy F. Geithner laid out a plan Thursday that aims to strong-arm a federal agency into more tightly regulating the money-market fund industry, a once-reliably safe sector that nearly imploded during the financial crisis. The plan calls on a relatively new body of regulators -- the Financial Stability Oversight Council -- to come up with overhaul options, offer them to the public for comment and present a final recommendation to the Securities and Exchange Commission...Enter Geithner, who said FSOC’s proposal should include two of the changes Schapiro proposed. One of them would have required money-market funds to allow the value of a share to fluctuate...The other option would have required funds to put aside reserves as a buffer in times of crisis. It also would have called on each shareholder to have a minium account balance and to keep it there for at least 30 days...Geithner put a third option on the table that would also involve enhanced standards for liquidity and reserves but would put temporary limits on how much could be withdrawn from an account instead of requiring a minimum balance." Dina ElBoghdady in The Washington Post.

@sabrush: SEC's Gallagher says he may support a floating share price for money market funds. 'it is an attractive option that I am likely to support'

Libor, the rigged benchmark interest rate, is due for major changes to be announced today. "British authorities are set to announce significant changes to the interest rate at the heart of a recent manipulation scandal as they aim to improve the accuracy and reliability of the benchmark. On Friday, Martin Wheatley, the managing director of Britain’s Financial Services Authority, will outline plans to increase oversight of the rate-setting process...As part of that effort, regulators are stripping the British banking group that currently oversees the interest rate -- the London interbank offered rate, or Libor -- of its power. The British government, in turn, will take a more hands-on role, including making rate manipulation a criminal offense. The benchmark itself will also be retooled to address some of its inherent weaknesses. The goal is to base Libor, which measures the rate at which banks lend to each other, on actual market transactions, rather than estimates." Mark Scott in The New York Times.

WEIL: All we should ask from banks is the transparency we get from restaurants. "Here’s an idea for improving the regulation of banks: Treat them more like restaurants. One of the great things about eating out in New York, where I work, is that you can go to the local health department’s website and get inspection information for each of the city’s 24,000 restaurants...With banks, you can’t get report cards like this from regulators. And heaven forbid a U.S. lender ever wants to disclose its own supervisory rating to outsiders.Regulators haven’t shown themselves to be any better than the markets are when it comes to uncovering big problems at federally insured banks. We might as well make all their examination findings open records. That way, the public can see when the regulators are failing at their jobs. Depositors can make fully informed choices about where to keep their money. And banks will be under much greater pressure to fix their problems." Jonathan Weil in Bloomberg.

NORRIS: Fixing Libor? Ha! "That there was fraud based on made-up numbers is clear. That the system can be fixed is not. But Martin Wheatley, Britain’s top financial regulator, has concluded Libor can be saved. 'Although the current system is broken, it is not beyond repair,' he said in remarks prepared for delivery on Friday. He may turn out to be overly optimistic. Libor is, and is likely to remain, a fiction. You can maintain the fiction, or you can embrace a much less palatable reality...The Libor fiction began in the 1980s, when finance felt a need for a private sector, virtually risk-free interest rate to serve as a benchmark...Enter Libor. A loan could be long term, but with a rate that periodically reset based on the cost of funds to banks. If a loan were priced at, say, three percentage points above the three-month Libor, the bank would be getting a reasonable risk premium, and would face no risk from changing market rates, since the interest rate would be reset every three months. The borrower would get long-term money. There were two implicit assumptions in Libor. One was that banks were virtually risk-free, or at least that their risk was small and would not vary much over time. The other was that there was a way to actually calculate what the rate was. Both assumptions turned out to be wrong." Floyd Norris in The New York Times.

Top op-eds

BROOKS: The psychological barriers to success. "Childhood stress can have long lasting neural effects, making it harder to exercise self-control, focus attention, delay gratification and do many of the other things that contribute to a happy life...In the past several decades, policy makers have focused on the material and bureaucratic things that correlate to school failure, like poor neighborhoods, bad nutrition, schools that are too big or too small. But, more recently, attention has shifted to the psychological reactions that impede learning -- the ones that flow from insecure relationships, constant movement and economic anxiety." David Brooks in The New York Times.

KRUGMAN: The madness of European austerity. "So much for complacency. Just a few days ago, the conventional wisdom was that Europe finally had things under control. The European Central Bank, by promising to buy the bonds of troubled governments if necessary, had soothed markets. All that debtor nations had to do, the story went, was agree to more and deeper austerity -- the condition for central bank loans -- and all would be well...But the purveyors of conventional wisdom forgot that people were involved. Suddenly, Spain and Greece are being racked by strikes and huge demonstrations. The public in these countries is, in effect, saying that it has reached its limit." Paul Krugman in The New York Times.

@esoltas: Europe needs full banking union and fiscal integration, @BarrosoEU says.

BORDO: The conventional wisdom about recessions and recoveries is wrong. "There's a belief among policy makers that serious recessions associated with financial crises are necessarily followed by slow recoveries...But this widespread belief is mistaken. To the contrary, U.S. business cycles going back more than a century show that deep recessions accompanied by financial crises are almost always followed by rapid recoveries. The mistaken view comes largely from the 2009 book 'This Time Is Different,' by economists Carmen Reinhart and Kenneth Rogoff...In a recent working paper for the National Bureau of Economic Research, Joseph Haubrich of the Federal Reserve Bank of Cleveland and I examined U.S. business cycles from 1880 to the present. Our study not only confirms [economist Milton] Friedman's plucking model but also shows that deep recessions associated with financial crises recover at a faster pace than deep recessions without them." Michael Bordo in The Wall Street Journal.

@JimPethokoukis: 2010 economy -- first full year of "recovery" -- was weak. 2011 worse. 2012 worse still. And 2013 looking no better

GERSON: The federal role in education remains dysfunctional. "The commonwealth is one of those states granted a broad exemption by the Education Department from No Child Left Behind’s 'unrealistic' requirement that all schools dramatically improve educational performance for every ethnic group...But eventually it came out that Virginia was codifying the goal of having 57 percent of African American students proficient in math by 2017, compared to 78 percent of white students...It is an educational objective so 'realistic' that it is difficult to distinguish from racism...Whatever excuses are made, whatever euphemisms are employed, the waiver revolution is the broad institutionalization of lowered expectations. And all of this is being done in the best, bipartisan spirit...They are simply assuming that a separate and unequal educational system for minorities and the poor is inevitable and that a generation of children is expendable." Michael Gerson in The Washington Post.

ALTER: How small money can matter again in politics. "A funny thing’s happening on the way to Nov. 6. The billionaires trying to buy the U.S. election with contributions of $1 million, $10 million or even $100 million aren’t succeeding. If trends continue and the Democrats have a good year (still a big if), the notion that in order to win candidates must accept gobs of money from super-political action committees will be discredited...The reason is that big money in politics has a competitor: small money in politics...Super-PACs can dominate the air war, but they have trouble buying ground troops. Political strategists know from experience that phone banks and canvass teams made up of low-wage hired help are far inferior to those using volunteers sincerely trying to persuade voters. The reason the Obama campaign sends out so many irritating requests for $3 or $5 donations is that these solicitations do more than just raise cash. Once millions of small donors have a little skin in the game, they’re much more likely to assist with registration and get-out-the-vote efforts." Jonathan Alter in Bloomberg.

Top long reads

Jon Hilsenrath explains how Chairman Ben Bernanke swayed the Federal Open Market Committee to accept the need for further monetary easing: "[During the Fed's Jackson Hole conference in August,] a quiet drama was unfolding behind the scenes. Mr. Bernanke was negotiating a high-stakes plan in a flurry of private conversations with colleagues hesitant about aggressively re-engaging the levers of America's central bank. For weeks, Mr. Bernanke made dozens of private calls on days, nights and weekends, trying to build broad support for an unusual bond-buying program he wanted approved during the Fed's September meeting, according to people familiar with the matter...Mr. Bernanke set his sights on a handful of fence-sitters who could swing a strong consensus to his side...Interviews with more than a dozen people involved in the Fed decision, both supporters and opponents, show how Mr. Bernanke won over skeptics to advance his policy -- a distinction in a Washington era marked by rancor and gridlock. These people also gave a rare view of the low-key persistence of the former economics professor."

@AndyHarless: And no, Siri, the Fed chairman's name is neither "burnt Yankee" nor "blue Nike"

Friday music interlude: "Eye in the Sky," Alan Parsons Project, 1982.

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

Still to come:the economy wears gray; the Dept. of Veterans Affairs isn't exactly "reporting for duty" for our vets; the FTC calls for online privacy rules for kids; how the wind industry might wither without subsidies; and probably the best XKCD cartoon ever (warning: you will spend a half-hour on it).


Two revisions of economic data changed our best read on the economy. Here's the first: hiring revised up. "The nation probably created 20 percent more jobs in the economy’s third year of recovery than previously estimated, with businesses hiring nearly half a million more workers than earlier thought. In its latest employment revision, the Bureau of Labor Statistics said Thursday that the economy added 386,000 more jobs than its earlier estimate, bringing total hiring from April 2011 through March 2012 to 2.3 million. The private sector added more than 453,000 jobs, the report said." Zachary A. Goldfarb in The Washington Post.

@justinwolfers: BLS Benchmark revisions mean that over the year to March 2012, the economy was adding 194k jobs per month, not 162k as previously thought.

Here's the second: GDP growth revised down. "The U.S. economy grew even more slowly than originally thought in the second quarter of 2012, according to new data from the Commerce Department. One culprit? The severe heat and drought that has dented crop production in the Midwest this summer. The overall economy grew at a disappointing 1.3 percent annual pace in the April through June period, down from the government’s previous estimate of 1.7 percent growth. Roughly half of that decline came from a sharp fall in farm inventories." Brad Plumer in The Washington Post.

@ryanavent: "The economy is growing more slowly than we thought!" - people talking about Q2 revisions three days from Q4.

And more data out today paints a decidedly gray picture. "Demand for long-lasting manufactured goods fell, and slightly fewer people signed contracts to buy homes...Companies cut orders for long-lasting goods by 13.2 percent in August, the Commerce Department said. That was the biggest drop in more than three years, but it was largely influenced by a large decline in aircraft orders. Excluding transportation equipment, orders fell only 1.6 percent. And in a positive sign, orders that reflect business investment plans rose 1.1 percent, the first increase since May." The Associated Press.

The stock market's mood is in flux. "After riding a quarter-long rally fueled by central bankers in Europe and the United States, investors are taking a more defensive posture on fears that politicians could derail the momentum. When the third quarter comes to an end on Friday, the Standard & Poor’s 500-stock index is set to close up over 5 percent for the quarter and 15 percent for the year, largely because of excitement about the unexpectedly aggressive bond-buying pledges by the Federal Reserve and the European Central Bank over the last few months." Nathaniel Popper in The New York Times.

Why is confidence rising amid a shaky recovery? "Both economists and the Romney campaign are puzzling over the same paradox: The recovery has flagged and yet the country’s mood appears to be improving...Economic experts pointed to several trends to explain how Americans were feeling better about the economy even though growth in jobs and the overall economy had weakened. First, the election is having a strong effect on economic perceptions. Second, though the recovery is weak, it has persisted, with employment and wages rising and some households feeling more secure." Annie Lowrey in The New York Times.

Rah-rah-rah interlude: Mitt Romney + cheerleading = epic fail.

Health Care

The Dept. of Veterans Affairs is seriously and increasingly delinquent on its obligations to provide benefits. "[What has emerged] has become known as 'the backlog': the crushing inventory of claims for disability, pension and educational benefits that has overwhelmed the Department of Veterans Affairs. For hundreds of thousands of veterans, the result has been long waits for decisions, mishandled documents, confusing communications and infuriating mistakes in their claims. Numbers tell the story. Last year, veterans filed more than 1.3 million claims, double the number in 2001. Despite having added nearly 4,000 new workers since 2008, the agency did not keep pace, completing less than 80 percent of its inventory." James Dao in The New York Times.

Romney's health care plans are more expensive to the average family than Obama's. "Families would pay nearly twice as much for non-group health insurance under a President Romney than under President Obama, according to a new report from the liberal advocacy group Families USA. The study found that Mitt Romney's pledges to repeal the 2010 healthcare law, create a health insurance tax deduction and block-grant Medicaid would result in higher coverage costs and more uninsured Americans...Specifically, it estimated that families buying non-group health insurance on their own would pay an average of $11,481 in 2016 if Romney's campaign-trail pledges take effect. Families would pay $5,985 if Obama remains president, the study found." Elise Viebeck in The Hill.

Domestic Policy

Lots of processing delay for applications for deferred immigration action. "As of Thursday the agency, United States Citizenship and Immigration Services, had received more than 100,000 applications, officials said, with more than 63,000 in the last stages of review. But so far the agency has confirmed only 29 approvals...By independent estimates, some 1.2 million immigrants are immediately eligible for the program. Some have struggled to compile evidence of lives lived in shadows during the last five years and to raise the $465 fee. But applications have also been slowed by bottlenecks that arose due to a crush of demand." Julia Preston in The New York Times.

The Supreme Court may axe affirmative action in public universities. "If the court rules broadly, college administrators could be barred from considering race in admissions. Arguments in the case are scheduled for next month, and the decision could be one of the most important and revealing of the Supreme Court’s term that begins Monday." Robert Barnes in The Washington Post.

Tighter privacy protections are coming for kids online. "Federal regulators are about to take the biggest steps in more than a decade to protect children online...[T]he Federal Trade Commission that the agency is moving to overhaul rules that many experts say have not kept pace with the explosive growth of the Web and innovations like mobile apps. New rules are expected within weeks...The proposed changes could greatly increase the need for children’s sites to obtain parental permission for some practices that are now popular -- like using cookies to track users’ activities around the Web over time." Natasha Singer in The New York Times.

Comics interlude: The best XKCD ever, a massive click-and-drag map. Also, when you want 'the answers,' here's a zoom-able version.


New power plant design gets green light: nuclear power with lasers. "A nuclear power partnership of General Electric and Hitachi has received federal approval to build the first plant to enrich uranium for use in commercial reactors using a classified laser technology. The Nuclear Regulatory Commission issued a license to General Electric-Hitachi Global Laser Enrichment this week to build and operate a uranium enrichment plant near Wilmington, N.C., deploying the laser technology instead of costlier centrifuges." The Associated Press.

Wind industry to collapse in U.S. without tax subsidy, producer says. "The US wind turbine market will shrink by up to 95 per cent if a crucial tax credit for wind power is allowed to expire at the end of the year, according to Vestas, the world’s largest turbine manufacturer by output...The US was the world’s second-largest market for wind power in 2011 after China, and fears of a collapse in demand are already forcing international manufacturers to cut jobs and scale back expansion plans. Vestas’ planning is based on the assumption that a slump in the US market will contribute to a fall of about 20 per cent in its worldwide production next year." Ed Crooks in The Financial Times.

U.S. Geological Survey report links fracking fluids to groundwater contamination. "Chemicals linked to hydraulic fracturing, or "fracking," have been found again in the groundwater of a town in Wyoming that has become a flashpoint in the debate over the drilling practice. A U.S. Geological Survey (USGS) report found traces of methane, ethane and phenol in a monitoring well in rural Pavillion, Wyo., where residents say fracking has contaminated their drinking water." Zack Colman in The Hill.

Congress votes against E.U. plan to hike environmental-pollution fees on air travel. "Approved unanimously on Saturday before Congress adjourned for a fall campaign hiatus, the Senate bill drew relatively little attention. It was the 'European Union Emissions Trading Scheme Prohibition Act of 2011,' the latest attempt to exempt American airlines from paying fees imposed by the European Union to cover the greenhouse gases their planes emit while flying to and from European airports...The measure, which drew bipartisan sponsorship, is the latest salvo in the tug-of-war over whether American air carriers should pay what is essentially a carbon tax for flights to and from Europe under the European Emissions Trading System, which the aviation sector became a part of on Jan. 1." Elisabeth Rosenthal in The New York Times.

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