Wonkbook: FinReg deal; Obey tired of explaining the Senate; Republicans take on Fannie and Freddie
House: Ready for the Home Star Energy Retrofit Act of 2010? Hope so, as the House is voting on it this morning. Meanwhile, the Select Committee on Energy Independence and Global Warming is holding a hearing on 'The Foundations of Climate Science Energy and Commerce is looking at 'the Transparency in All Health Care Pricing Act of 2010,' and the Financial Services' Subcommittee on Oversight and Investigation is sounding a bit dramatic with a hearing on 'The End of Excess (Part One): Reversing Our Addiction to Debt and Leverage.'
Senate: Happy financial-regulation amendments day! Also, you might see some angry floor speeches on stalled nominations, as the number of nominees cooling their heels on the Senate calendar is nearing three digits.
White House: President has his regular Af/Pak meeting. Presumably, he's doing other things, too. I just wasn't told about them.
And! More FCIC hearings on shadow banking, the Labor Department releases its initial estimate of nonfarm productivity and costs for the first quarter of 2010, and we're only one day away from Iron Man 2!
Republicans and Democrats reach deal on too-big-to-fail: "The heart of the agreement was Dodd's willingness to drop a proposed $50 billion fund, which would be filled upfront by the financial industry, that would cover the cost of closing down failing firms," report Brady Dennis and Shailagh Murray. "Under the Dodd-Shelby deal, the Federal Deposit Insurance Corp. would liquidate faltering firms by borrowing money from Treasury to cover initial costs. The government would recover the costs by selling off the firm's assets, with creditors and shareholders incurring losses. Other large banks could be assessed to pay for additional costs as a last resort."
"Also, creditors of a failing firm would be forced to pay back the government any money they received above what they would have gotten under a bankruptcy proceeding. Any seizure of a large, failing firm would require court approval to ensure that the government not shut down a company inappropriately. In addition, Congress would have to approve the use of federal debt guarantees, and regulators also would be able to ban management and directors of failed firms from working in the financial sector for a minimum of two years."
Rep. David Obey is retiring. From his statement: "In the last months, two colleagues, Charlie Wilson and Jack Murtha, have died. Both were 76. For me, that is only four years away. At the end of this term I will have served in the House longer than all but 18 of the 10,637 men and women who have ever served there. The wear and tear is beginning to take its toll. Given that fact, I have to ask myself how I want to spend the time I have left. Frankly, I do not know what I will do next. All I do know is that there has to be more to life than explaining the ridiculous, accountability destroying rules of the Senate to confused, angry, and frustrated constituents."
Republicans get specific on Fannie Mae and Freddie Mac: Damian Paletta gets an amendment that Judd Gregg, John McCain, and Richard Shelby plan to offer on the mortgage giants. Summary: About five years from now, "their government charter would expire. Then the companies would have 10 years to operate under a special holding company so that they can dissolve remaining mortgages or debt obligations they held as government-sponsored enterprises. After the companies leave conservatorship, their mortgage assets would have to steadily decline, capital standards would have to go up, and the size of loans they would be able to purchase would shrink."
Bottom line: "It dissolves Fannie and Freddie over a fifteen year time frame," writes Annie Lowrey. "And it marks a sea change from three decades of Washington policy pushing and subsidizing homeownership."
Existential interlude: Woody Allen is a grim guy.
Table of Contents: Economy (How much damage can Greece do?); FinReg (Sandy Levin skeptical of a bank tax); Environment (Gulf oil industry will survive the oil spill a lot better than other Gulf industries).
How much danger does Greece post to the U.S.? "There are a number of ways that a crisis in Greece can spread to the U.S., say economists, though most would require Greece's problems to jump first to larger European countries, such as Spain and Italy," report Bob David and Mark Gongloff. "By itself, Greece is far too small to have much effect directly on the U.S. Its economy is about 2% the size of the U.S.'s and it takes in less than 0.1% of U.S. exports."
"But Europe as whole has powerful ties to the U.S. through trade, investment and finance. U.S. banks hold more than $1 trillion of European debt, according to the Bank for International Settlements. Bruce Kasman, J.P. Morgan's chief economist, estimates that the 16 nations of the euro zone account for about 14% of U.S exports, apart from petroleum products. Those ties can become weaknesses in bad times."
Payrolls up! Private payrolls grew in April, while layoff announcements fell to a near 4-year low, according to data released Wednesday," reports Kathleen Madigan. "Private-sector jobs in the U.S. increased by 32,000 last month, according to a national employment report published Wednesday by payroll giant Automatic Data Processing Inc. and consultancy Macroeconomic Advisers. Economists had expected ADP to report a job gain of 20,000 in April."
Watch today's productivity numbers: "As the long recession lifts," reports Justin Lahart, "American businesses are grappling with a big question: Are we working smarter, or simply working harder?...An important indicator comes Thursday when the Labor Department releases first-quarter productivity figures. Economists polled by Dow Jones Newswires estimate productivity rose at a 2.5% annual rate, less than half its 6.9% growth rate in the fourth quarter."
2010 a rough year to be getting your law degree: "This year's classes have it particularly bad, according to lawyers and industry experts," reports Nathan Koppel. "Though hiring was down last year as well, they said 2009 graduates applied for jobs before law firms had felt the full brunt of the downturn. The situation is so bleak that some students and industry experts are rethinking the value of a law degree, long considered a ticket to financial security."
Chinese currency levels matter less than you think. "To some in Washington these days, adjusting the yuan-dollar exchange rate is the fix for all America's ills," writes Joseph Sternberg. "That single number supposedly determines which jobs stay in the United States and which go to China. It dictates which and how many goods move where. It's attributed the mystical power to raise or destroy mighty economies by its movements or lack thereof. Except that the real world doesn't work that way. Recent conversations with executives responsible for supplying clothes from Asia to American shelves suggest that the yuan case may not be as clear-cut as U.S. revaluationists would have us believe."
Culinary cage match interlude: The technical precision of Cook's Illustrated squares off against user-generated cacophony of Food 52 -- and you're the judge.
Liberal amendments gather steam: "The liberal amendment that could be hardest to defeat — and is among the most deeply dreaded by Wall Street — also has some of the purest populist appeal," reports David Herszenhorn. "A proposal by Senator Sherrod Brown of Ohio and Senator Ted Kaufman of Delaware to break up the nation’s biggest banks by imposing caps on the deposits they can hold and limits on other liabilities...[And] odd as it might seem, liberal Democrats are aligned with conservative Republicans on some issues, further lifting the chances of amendments like one by Senator Bernard Sanders, independent of Vermont, to audit the Federal Reserve."
Federal Reserve trying to fend off challenges: "Federal Reserve officials are becoming increasingly concerned that challenges to their authority and independence are gaining momentum in the Senate as it considers financial overhaul legislation," report Jon Hilsenrath and Michael Crittenden. "Presidents of four regional Fed banks went to Capitol Hill Wednesday to personally make their case against several proposals in the legislation, including one that would strip them of authority to oversee thousands of small, state-chartered banks and one that would make the president of the Federal Reserve Bank of New York a presidential appointee."
House Ways and Means Chair skeptical of bank tax: "Mr. Levin signaled he doesn't favor pairing the bank tax with legislation already pending in Congress, such as the financial-overhaul bill or a separate bill to extend expired tax breaks," reports Martin Vaughan. "First, he said, the tax should be used for deficit reduction and not to pay for new spending...More generally, Mr. Levin said, lawmakers need more time to study how to structure the tax and whom it would affect before they are ready to flesh it out into legislation."
Lincoln clarifies her derivatives proposal: "A controversial derivatives regulation plan would allow large banks to spin off their derivatives operations into an affiliate under the same parent company," reports Damian Paletta. "The statement from Courtney Rowe, a spokeswoman for Ms. Lincoln, clarifies confusion about a fundamental part of the financial-overhaul bill, which many believed could have forced banks to completely spin off their derivatives desks into separate entities."
A European TARP? "Fears have spread through the financial markets that a larger epidemic would infect Spain, Portugal and perhaps other indebted countries outside the euro zone, like Britain and the United States," reports Landon Thomas. "In response, analysts are calling for a shock and awe option — some rescue of the largest of the peripheral euro zone economies suffering from stagnation and high levels of debt, not unlike the Troubled Asset Relief Program that was created to restore confidence in the American financial system."
And maybe some European rating agencies? "The European Union’s financial services commissioner, Michel Barnier, vented his frustration with American-based credit ratings agencies Wednesday as Moody’s Investors Service put Portugal on review for another possible downgrade that could make it more difficult for the country to service its debt," reports James Kanter. "Mr. Barnier complained that there were too few debt rating agencies, and he suggested that they were dominated by American owners."
Bear Stearns exec blames people who are not Bear Stearns execs: "James Cayne, the colorful former chief executive who built the company into one of Wall Street's juggernauts, said 'Bear Stearns's collapse was not the result of any actions or decisions unique to Bear Stearns,'" reports Zachary Goldfarb. "Rather, he told the committee, 'the market's loss of confidence, even though it was unjustified and irrational, became a self-fulfilling prophecy.'
The dangers of derivatives clearinghouses: "Since a clearinghouse is itself at risk of being too big to fail, regulators need to police its capital and collateral requirements," writes Mark Roe. "If the derivatives market sees the clearinghouse as too big to fail, the potential for derivatives players making overly risky derivatives trades becomes real. Clearinghouses can help manage some systemic risk if they're run right. If not, they can become the Fannie and Freddie of the next financial meltdown."
Onion interlude: The case against Goldman Sachs.
Environmentalists trying to seize the moment. "National environmental groups -- including the Sierra Club and the Natural Resources Defense Fund -- have rushed volunteers and scientific experts to the Gulf of Mexico to help with the cleanup in the aftermath of the Deepwater Horizon rig's collapse," reports Juliet Eilperin. "But they are also holding news conferences, filming TV spots and organizing protest rallies, all aimed at persuading lawmakers to block new offshore oil drilling and pass legislation curbing U.S. greenhouse gas emissions."
"'It's very difficult, in our society, to cut through the din and get people to listen and pay attention,' said Friends of the Earth Managing Director David Hirsch, whose group is preparing TV ads on the issue. 'Unfortunately, these are the times when it happens. These are the moments when you can be heard.'
John Kerry talks climate change: "I know what the conventional wisdom is out there," Kerry said, "that with all the election-year jitters, a looming Supreme Court confirmation and a difficult legislative schedule, that Congress is going to avoid tough choices as November nears. But I believe this is the year – perhaps our last, best chance – to pass comprehensive climate and energy legislation."
Gulf oil industry will not be the main victim of, well, the Gulf oil industry: "Analysts, politicians and businesses are now starting to grasp the extent of the financial damage of the ecological disaster," reports Annie Lowrey. "The Gulf Coast economies in Louisiana, Mississippi, Alabama and Florida are heavily reliant on three interconnected industries: Energy, fishing and tourism. Ironically, the energy industry that caused the spill looks likely to emerge relatively unscathed from the disaster, while the service industries, including fishing and tourism, are already starting to suffer from its effects."
What does it mean that the Deepwater Horizon drill site was supposed to be one of the safe ones? "Everyone's now calling for a regulatory overhaul," writes Brad Plumer, "though there's a broader question here. To what extent was this a problem of lax oversight (or regulators who were way too lenient toward well-heeled oil companies)? And to what extent are big spills like these just inherently impossible to prepare for and prevent, no matter how diligent regulators might be? That's going to be a key distinction in the coming months, as Congress debates whether further offshore drilling in the Gulf should be halted altogether, or whether it's something that's acceptable as long as stricter safety rules are put in place."
Still, regulators failed, and failed big: "The oil well now spewing large quantities of crude oil into the Gulf of Mexico lacked a remote-control acoustic shutoff switch used by rigs in Norway and Brazil as the last line of defense against underwater spills," writes William Galston. "There’s a story behind that."
"As the Journal reports, after a spill in 2000, the MMS issued a safety notice saying that such a back-up device is 'an essential component of a deepwater drilling system.' The industry pushed back in 2001, citing alleged doubts about the capacity of this type of system to provide a reliable emergency backup. By 2003, government regulators decided that the matter needed more study after commissioning a report that offered another, more honest reason: 'acoustic systems are not recommended because they tend to be very costly.' I guess that depends on what they’re compared to. The system costs about $500,000 per rig. BP is spending at least $5 million per day battling the spill, the well destroyed by the explosion is valued at $560 million, and estimated damages to fishing, tourism, and the environment already run into the billions."
Most-annoying-umbrella-in-the-world interlude: These should be outlawed.
Odd that this Haim Saban profile came out the same week Newsweek went up for sale. "At a conference last fall in Israel, Saban described his formula," writes Connie Bruck. "His 'three ways to be influential in American politics,' he said, were: make donations to political parties, establish think tanks, and control media outlets. In 2002, he contributed seven million dollars toward the cost of a new building for the Democratic National Committee—one of the largest known donations ever made to an American political party. That year, he also founded the Saban Center for Middle East Policy at the Brookings Institution, in Washington, D.C. He considered buying The New Republic, but decided it wasn’t for him. He also tried to buy Time and Newsweek, but neither was available.
Closing credits: Wonkbook is compiled with the help of Dylan Matthews and Mike Shepard. Photo by NoiseLab.com.
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May 6, 2010; 7:38 AM ET
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