Wonkbook: Cloture coming on FinReg; First success against oil spill; Jon Kyl dismisses filibuster against Kagan
Word is that Harry Reid is likely to file cloture on financial regulation today, setting up a final vote as early as Wednesday. But no one is celebrating yet: There are still amendments left to be voted on, including a restoration of Glass-Steagall and the Volcker Rule. And what's going to happen in Conference Committee? Meanwhile, the opposition hasn't found its voice against Elena Kagan, but nor, it seems, have her supporters. The oil spill is still a disaster, but for the first time, we're making some headway against it.
It's Monday. Welcome to Wonkbook.
Harry Reid might file cloture on financial reform today, but some big-ticket amendments still need to be resolved. Damian Paletta lists them: http://bit.ly/b4FJ4e
BP is finally making progress in stopping the oil leak, report Steven Mufson and Joel Achenbach: In the first progress in containing the oil gushing from a blown-out well at the bottom of the Gulf of Mexico, BP engineers on Sunday successfully inserted a tube into a leaking pipe and began siphoning some of the oil to a drilling rig at the surface...If it works, the inserted pipe could keep a substantial amount of the oil out of the sea by siphoning it up a mile-long pipe to the Discoverer Enterprise drillship and then to nearby barges. "So far it's working extremely well," said Kent Wells, senior vice president for exploration and production at BP.
Senate Republicans are hesitant to filibuster Elena Kagan, reports Kendra Marr: "The filibuster should be relegated to extreme circumstances, and I don't think Elena Kagan represents that," Arizona Sen. Jon Kyl, a member of the Senate Judiciary Committee, told CBS’s "Face the Nation."
Horse racing interlude: The Wire references as horse names.
Table of Contents: The US isn't using its manufacturing base (and other economic news); FinReg could increase the power of the Fed (and other FinReg news); plenty of BP lawsuits are on their way (and other energy news); Kagan may find common ground on speech with Scalia and Thomas (and other Kagan news); and health care reform will leave employer-based health care largely intact (and other health care news).
US manufacturers are letting machines and assembly lines go unused, reports Justin Lahart: On Friday, the Federal Reserve reported that the U.S. cut manufacturing capacity, or the amount of goods that can be made in the nation's factories when they are operating at full tilt, by 0.1% in April, compared with the month before, putting it a total of 1.7% below the peak it hit in late 2008. By comparison, the U.S. cut capacity by a total of only 0.6% in the aftermath of the last recession, which was the only other time the U.S. has shed capacity.
State tax revenues are down, reports Amy Merrick: April is the biggest revenue month for many states because it is when they collect a large portion of income taxes. The month's collections came up short of expectations in California by 26.4%, or $3.6 billion; in Pennsylvania by 11.8%, or $390.1 million; and in Kansas by 10.2%, or $65.3 million. More states will report in the next few weeks.
Rich countries are now riskier for investors than developing ones, writes Zachary Karabell: The crises of the past two years, however, stemmed not from the risky parts of the world but from the supposedly safe havens of the U.S. and the euro zone. Risk is no longer over there; it's here. It isn't in exotic parts of the world; it's in the cradle of Western civilization. In the fall of 2008, it wasn't oil shocks in the Middle East that triggered the meltdown; it was subdivisions in Phoenix and financial wizardry on Wall Street. In the 1970s, sovereign-debt defaults in Latin America hit Citibank hard; in the past two years, the near default of Citi rocked Latin America.
We still don't know why the stock market took a dive two weeks ago, writes Heidi Moore: Worse than not knowing: the vastly conflicting accounts. The only real piece of information after five days of investigations was this: It probably started with "aberrations" in Chicago. The Chicago Mercantile Exchange, however, said it recorded no glitches or unusual activity. The White House doesn't know what caused it, either, but is somehow sure it wasn't a cyberattack.
Large businesses can't hire enough to drive the recovery, writes Meredith Whitney: Small businesses created 64% of new jobs over the past 15 years, but they have cut five million jobs since the onset of this credit crisis. Large businesses, by comparison, have shed three million jobs in the past two years. Small businesses continue to struggle to gain access to credit and cannot hire in this environment. Thus, the full weight of job creation falls upon large businesses. It would take large businesses rehiring 100% of the three million workers laid off over the past two years to make a substantial change in jobless numbers.
Cat Power interlude: Chan Marshall covers "Bathysphere".
The Fed's powers may increase under FinReg, reports Neil Irwin: The reasons things are turning out this way vary depending on the specific provision. But they reflect at their core a combination of a subtle but savvy campaign by Fed officials to make arguments about what they view as flaws in some proposals; a less subtle but perhaps more savvy effort by financial firms, especially small banks, on the same issues; and a recognition by senators that some of their proposals may have reflected more populist anger than sound policy.
Banks are recruiting card sharks, reports Nathaniel Popper: Chris Fargis thought his big job interview was over. But when the partners at Wall Street upstart Toro Trading finished with their questions, they broke out a deck of cards and a green-felt card table. Mind playing a few hands of poker?
It was a final test, and Fargis was relieved. The 30-year-old never went to business school or even took a finance class. But he knew poker. He had made a living playing the game online for six years from his Manhattan apartment, betting on up to eight hands at a time. Within a few days, Fargis — with no Wall Street experience — was offered a position trading stock options, a job that entails making multimillion-dollar gambles. His poker skills sealed the deal.
The Merkley-Levin ("Volcker Rule") amendment is a joke, writes the anonymous blogger at Economics of Contempt: Ideally, what the financial reform bill would do is just say, "Proprietary trades are banned; market-making trades are allowed," and then let the regulators work out how to define "market-making trades" and "proprietary trades." This is something that simply can't be done at the statutory level; it has to be done at the regulatory level. Unfortunately, these days it's fashionable for people to bash any sort of regulatory discretion as tantamount to letting Wall Street win. This is where Merkley-Levin comes in, because it's clearly a response to this "anti-regulatory discretion" meme.
The biggest problem with Merkley-Levin is that its authors appear to confuse "definitions with more words" with "more specific definitions" (and thus less of that evil regulatory discretion). Merkley-Levin prohibits "proprietary trading," which it defines very broadly, and then creates 9 categories of "permitted activities" (listed in section (d)(1) of the amendment). The categories of "permitted activities," which function like exceptions to the definition of "proprietary trading," are so ridiculously broad that they completely swallow the amendment's prop trading ban
Senators are trying to compensate for TARP with FinReg, reports Shailagh Murray: Of the 74 senators who voted for TARP, 17 are seeking reelection this year. Sen. Blanche Lincoln (D-Ark.), dubbed "Bailout Blanche" by her opponent in a Democratic primary Tuesday, is pressing for the toughest approach...Sen. Charles E. Grassley (R-Iowa), a "yes" on TARP who is showing signs of vulnerability back home for the first time in his career, has emerged as one of the few Republicans to support Lincoln's strict rules for derivatives trading. The White House and senior Senate Democrats hope to dilute the language, but Lincoln's proposal will remain at least until Tuesday' primary.
The New York Fed chair is looking into the causes of the crisis, reports Jon Hilsenrath: "There were shortcomings in supervision at the New York Fed in the years running up to the crisis, and I would say that about every other financial regulator in the U.S. government," says Daniel Tarullo, a Fed governor in Washington...He is pushing 18 internal projects aimed at addressing causes of the crisis, from getting more transparency in Wall Street derivatives trading, to more stability in the "repo" funding markets where big banks get short-term loans, to getting banks to develop "living wills" to map out how to respond if they fail.
Long-form interlude: How a bank whistleblower ended up in federal prison.
All-star plaintiff lawyers lining up to sue those responsible for the Gulf spill, report Steven Mufson and Juliet Eilperin: The law firms now assembling are members of the all-star team of plaintiffs' attorneys. They have experience suing big companies over asbestos, tobacco, oil company waste, breast implants and Chinese drywall. They have represented Ecuadoran shrimp farmers and New York lobstermen, patients who have swallowed Vioxx and investors who lost money on shares of Enron. And their ranks include the likes of Erin Brockovich, Robert F. Kennedy Jr. and partners of the late Johnnie L. Cochran Jr.
Check out the eight potential probes into the spill: http://bit.ly/9qOJ21
Chuck Schumer thinks the oil spill hurt climate legislation, reports Marin Cogan: Sen. Chuck Schumer (D-N.Y.) said on Sunday the huge oil spill in the Gulf of Mexico has hurt prospects for comprehensive climate change legislation, contrary to what some members in his own party have suggested. Appearing on NBC's "Meet the Press," Schumer said the spill “changes the politics” of the legislation, adding that “it’s going to be harder to get one done given that drilling off coast was a part of the compromise.”
Janet Napolitano is under fire for her handling of the spill, reports Keith Johnson: Ms. Napolitano will testify Monday on the federal government's response to the Deepwater Horizon oil spill, involving a BP PLC well, before the Senate Committee on Homeland Security and Government Affairs. "We have lots of questions about what happened," said Sen. Joseph Lieberman (I., Conn.), who is chairman of the committee. He added that Ms. Napolitano, who "has one of the toughest jobs in the country," has done a "really good job marshalling resources" after the spill. Since the oil-rig explosion, "federal authorities, both military and civilian have been working onsite and around the clock bringing every available resource to bear to respond to and mitigate the impact of the resulting BP oil spill on public health, the environment and the economy," said Nick Shapiro, assistant press secretary at the White House.
This is George Bush's oil spill, writes Matthew Yglesias: By 2009, of course, Barack Obama was already in the White House. But it takes time to staff an administration and take charge of an agency. Current MMS director Liz Birnbaum didn't take office until July 2009, months after the exclusion was granted. More to the point, the dysfunctional attitude of MMS managers reflected problems that were deeply ingrained under the previous administration.
Consider, for example, the fiasco of the Royalty in Kind program. The saga starts back in 1997 when, under Bill Clinton, the government cared about doing things properly. At this point in time, MMS responded to evidence that energy interests were underpaying royalties to the federal government by proposing a more stringent rule to collect Royalties in Value (RIV), i.e., money from drillers and miners. Industry didn't like that and countered instead with a proposal to pay Royalties in Kind (RIK), i.e., oil or gas that they thought would be cheaper. The Clinton administration agreed to an RIK pilot program, but soon found itself out of office. Then along came the Bush administration and Dick Cheney's Energy Task Force, which was urged by the American Petroleum Institute to aggressively expand the program. Starting in 2003, the Government Accountability Office repeatedly issued criticisms of the RIK program on a nearly annual basis saying it lacked "clear strategic objectives linked to statutory requirements" and shouldn't be expanded.
Adorable children interlude: Babies eating lemons.
Kagan takes a stronger view of the First Amendment than Justice Stevens, reports Adam Liptak: Justice Stevens is not a First Amendment absolutist. He wrote the majority opinion in 1978 in Federal Communications Commission v. Pacifica Foundation, which said the government could ban the broadcast of George Carlin’s “seven dirty words” monologue. And he dissented in Texas v. Johnson, a 1989 decision striking down a state law that made it a crime to burn the flag, while Justice Scalia was in the majority. There is good reason to think Ms. Kagan disagreed with Justice Stevens in both cases.
The Bork confirmation hearings were not as honest as Kagan thinks, writes Gordon Crovitz: [Kagan] wrote that the most notable quality of the Bork hearings "was not the depths to which it occasionally descended, but the heights that it repeatedly reached." She claimed that "senators addressed this complex subject with a degree of seriousness and care not usually present in legislative deliberation."
Really? The most famous comment by a senator was by Ted Kennedy, speaking on the floor just after President Reagan announced the nomination: "Robert Bork's America is a land in which women would be forced into back-alley abortions, blacks would sit at segregated lunch counters, rogue police could break down citizens' doors in midnight raids, schoolchildren could not be taught about evolution, writers and artists could be censored at the whim of the government, and the doors of the federal courts would be shut on the fingers of millions of citizens." The standard for dishonest claims against Judge Bork thus established, the hearings became a farce. The daily drill, funded by dozens of liberal lobbying groups, was to take the facts of a case, twist them into a sound bite, then ignore the underlying legal issue.
Civil rights leaders are skeptical of Kagan, reports Josh Gerstein: Few civil rights leaders have criticized Kagan’s nomination publicly – much as few black civil rights leaders have been willing to publicly criticize Obama, despite sometimes grumbling over his president-of-all-people reluctance to forge race-based solutions to problems like high minority unemployment. But for the first time in decades, civil rights groups face the question of how much orthodoxy to insist on from a Democratic Supreme Court nominee.
Kagan should stonewall the Senate, writes Stuart Taylor: Why so? Because we don't want prospective justices to commit to subordinate their independent judgment to the demands of the elected officials. Such commitments would be corrupt bargains. Chief Justice John Roberts made a similar point in explaining his own artful dodging of senators' questions in 2005. To do otherwise, he explained, would become a "bargaining process" rife with pressure to "promise to do certain things in exchange for votes."
Obama is rejecting the Warren court by picking Kagan, writes Dahlia Lithwick: This explains Obama's increasingly strong efforts to distance himself from the liberal lions of the '60s and '70s. Like Kagan—who, as the New York Times' Charlie Savage notes, admired her former boss, Justice Thurgood Marshall, but "had a far more ambivalent attitude toward his jurisprudence"—Obama respects what they achieved but also takes pains to explain that their kind of jurisprudence is an anachronism today. In remarks last month he sent many liberals into a tailspin when he explained: "It used to be that the notion of an activist judge was somebody who ignored the will of Congress, ignored democratic processes, and tried to impose judicial solutions on problems instead of letting the process work itself through politically … and in the '60s and '70s, the feeling was—is that liberals were guilty of that kind of approach."
Obama has made this point before—that the moment for Warren Court liberalism has come and blessedly gone. In a 2008 interview with the Detroit Free Press, Obama mused that "the Warren Court was one of those moments when, because of the particular challenge of segregation, they needed to break out of conventional wisdom because the political process didn't give an avenue for minorities and African Americans to exercise their political power to solve their problems. So the court had to step in and break that logjam." In other words, segregation was a specific problem that required strong liberal "activists." But we don't have those sorts of logjams anymore.
Techno-lust interlude: How to DJ on an iPad.
Health care reform won't break the employer-based system, reports Anna Wilde Mathews: The Congressional Budget Office estimates the new law will result in about three million fewer people having employer health benefits in a decade than would have otherwise been the case, while the Lewin Group, a consulting unit of UnitedHealth Group Inc., sees a slightly smaller dip. The chief actuary of the agency that oversees Medicare projects even less of a drop-off, about one million people by 2019.
But the Medicare actuary, Richard Foster, writes that his projected small overall change masks a bigger loss—balanced by a compensating gain. He predicts that nationally, 14 million people will move out of employer coverage. That is partly because companies will have the option of throwing at least part of the cost of covering lower-income employees onto the government.
Doctors alone can't get prevention done, reports Jonathan Finkelstein: It turns out that simple exhortations, even by doctors, don't help very much. We help our patients most by determining what they would like to accomplish and supporting a specific action plan. As with seat-belt use, we also need simultaneous public-health approaches to improve our nutrition and physical activity. As doctors and patients, we can press our elected representatives for health-related policy changes, like calorie labeling on restaurant menus. When I hear these decried as infringements on personal freedoms, I recall some of the children I've treated: toddlers with lead poisoning, before its removal from house paint; babies with meningitis, before present-day vaccines; and children with severe motor-vehicle injuries, before modern car seats.
Business groups are joining a health care lawsuit, reports Kevin Sack: An amended complaint filed Friday in Federal District Court in Pensacola, Fla., lists the lobbying group, the National Federation of Independent Business, as a plaintiff in the lawsuit that was originally filed in March by attorneys general from 13 states. Attorneys general or governors from seven other states formally joined the lawsuit on Friday. Among the state plaintiffs, only Attorney General James D. Caldwell of Louisiana is not a Republican.
Closing credits: Wonkbook compiled with the help of Dylan Matthews. Photo credit: Melina Mara/the Washington Post Photo.
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