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Wonkbook: Bank fee replaced with other bank fees; a utilities-only carbon price?


In a last-ditch attempt to secure Scott Brown's vote, FinReg conferees have scrapped a $19 billion bank fee intended to pay for the bill's implementation and replaced it with TARP money and a hike in FDIC fees. That means small banks, not just large banks and large hedge funds, will be on the hook for implementation.

Meanwhile, a White House summit on climate policy ended without agreement, but with Obama reiterating a commitment to carbon pricing and various senators -- including, crucially, Olympia Snowe -- moving towards a utilities-only cap-and-trade bill. Elena Kagan had a calm first day of testimony, and did offer some insight into how she'd judge different issues. Oh, and the Supreme Court ruled that the McCain-Feingold Act's ban on "soft" money campaign expenditures is constitutional. It was a busy day. Look forward, the Senate is going to try again on a jobs bill, the FCIC is hearing testimony on derivatives, the president's fiscal commission is meeting, and Kagan is answering more questions.

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In an effort to appease Senator Scott Brown, FinReg conferees have replaced the proposed $19 billion bank fee, reports Jia Lynn Yang: "To win back Brown's support, the House-Senate conference committee agreed Tuesday to instead pay for most of the bill by ending the Troubled Assets Relief Program early and shifting some of the money marked for that program toward the financial regulation bill, a move that would yield $11 billion. The rest would come from raising premiums paid by commercial banks to the Federal Deposit Insurance Corp., whose fund serves as a safety net for consumers when their banks fail."

While no consensus emerged from the White House climate summit, Senate advocates say they're willing to deal, reports Juliet Eilperin: "Kerry said in an interview that they would make more concessions to win Republican support, but he added: 'My question is, which is the compromise of any of the others? Show me the compromise.'…Lawmakers discussed a more modest climate and energy bill that would target electric utilities and other stationary sources: Power plants account for roughly 40 percent of the nation's greenhouse gas emissions. Snowe issued a statement after the meeting supporting such a plan."

Elena Kagan opened up on her legal views in Senate questioning, report Amy Goldstein and Alec MacGillis: "Kagan said that she respects legal precedent that upholds people's right to own guns and that she supports the use of military commissions to prosecute enemy combatants -- positions favored by many conservatives. But she also suggested that a controversial requirement in the new federal health-care law that most Americans obtain insurance has a legal basis -- a question that is likely to come before the courts. She indicated that she differed with a recent Supreme Court decision that struck down limits on corporate contributions to political campaigns."

The Senate is making yet another go at passing a jobs bill, albeit a pared down one, reports David Herszenhorn: "The new bill would reinstate extended federal unemployment benefits retroactive to the end of May, and provide extended benefits for those who qualify through November. The bill also extends the deadline for homebuyers to close on their deal to Oct. 30 from July 1 and still claim a tax credit of up to $8,000. To qualify, homebuyers must have signed a contract by April 30."

An equivalent measure failed to pass under expedited rules in the House:

What do you do with bay leaves? interlude: Even Mark Bittman isn't sure.

Still to come: David Leonhardt thinks withdrawing stimulus now could lead us into a 1930s-style secondary recession; most Americans want empathic Supreme Court Justices; Yucca Mountain may be going forward; and origami paper learns how to fold itself.


David Leonhardt warns that withdrawing the stimulus now would be a dangerous bet: " From 1936 to 1938, when the Roosevelt administration believed that the Great Depression was largely over, tax increases and spending declines combined to equal 5 percent of gross domestic product. Back then, however, European governments were raising their spending in the run-up to World War II. This time, almost the entire world will be withdrawing its stimulus at once. From 2009 to 2011, the tightening in the United States will equal 4.6 percent of G.D.P., according to the International Monetary Fund.…Worldwide, it will equal a little more than 2 percent of total output."

Concerns about growth in the US, Europe, and China scared markets yesterday:

Brace yourself for the coming public-sector job cuts, reports Annie Lowrey: "The teachers and other public-sector employees might be just the start. The CBPP has estimated that if states cut their spending from 2009 to 2010 the same level they did from 2008 to 2009, it might cost as many as 900,000 public- and private-sector jobs — swelling the ranks of the unemployed by five percent or more."

The financial services industry is hiring aggressively again, reports Brett Philbin: "From the end of February through May, financial-services employment grew by 6,800 in New York City-the largest three-month increase in nearly two years, according to data from the New York State Department of Labor. The employment boost is the largest such gain within the industry since it reported the addition of 7,200 positions from May to August 2008."

Steve Pearlstein argues US needs to establish a tariff on Chinese and other currency-manipulated imports:

Allan Meltzer argues Obama's economic agenda creates dangerous uncertainty: "The president asks for cap and trade. That's more cost and more uncertainty. Who will be forced to pay? What will it do to costs here compared to foreign producers? We should not expect businesses to invest in new, export-led growth when uncertainty about future costs is so large."

Simpsons interlude: The complete filmography of Troy McClure.

Domestic Policy

The current Supreme Court could be the "least deferential since the New Deal":

Obama is still trying to juggle both immigration and climate change, reports Sam Youngman: "He met first with a bipartisan group of senators for talks on the way ahead on climate legislation, then sat down with members of the Congressional Hispanic Caucus on immigration reform.…The White House’s strategy continues to be to put the onus on Republicans to come to the table on both issues, claiming that neither can be done until the GOP puts politics aside."

Elena Kagan rejected an "empathy" standards for judges:

Automatic 401(k) enrollment may actually hurt retirement savings, writes Howard Gleckman: "Mauricio and Barbara found that employer match rates are about 7 percentage points lower for opt-out plans. They can’t say for sure whether auto enrollment causes lower match rates. But it sure is possible. After all, if more employees participate, their employers will have to spend more to match their contributions. Whatever the cause, it seems that while auto-enrollment may increase the number of workers with 401(k)s, it won't necessarily boost their retirement savings."

Transportation Secretary Ray LaHood is winning fights at the bully pulpit:

A study suggests most Americans want judges to demonstrate empathy, writes James Gibson: "In terms of the other expectations about which we asked, strong correlations are observed between the empathy expectation and the items about protecting people without power, listening to people when making decisions and making fair, not just legal, decisions. Clearly, these expectations reflect a contextualized view of judging, one in which strict legality is expected to take a back seat to fairness."

The Supreme Court upheld a lower court's affirmation of McCain-Feingold's "soft" money ban:

90s cover interlude: Frightened Rabbit covers the Lemonheads' "Confetti".


Tony Hayward did not improve BP's safety record, report Guy Chazan, Benoit Faucon, and Ben Casselman: "A Wall Street Journal examination of internal BP documents, legal filings, official investigations and reports by federal inspectors, as well as interviews with regulators, shows a record that doesn't always match Mr. Hayward's reports of safety improvements. Since Mr. Hayward took over, BP has continued to spar with regulators over the same issues that got it into trouble before his tenure as CEO. Some of its refineries still get poor marks for safety. And four years after one of Alaska's worst oil spills, BP's pipelines there have continued to leak."

BP is considering an alternative to relief wells:

A court ruled the Energy Department must move ahead with the Yucca Mountain nuclear waste site, reports Matthew Wald: "The three-judge panel noted that the Energy Department was not claiming that Yucca was unsafe or that there was anything wrong with the 86,000-page application, but was saying only that the site was 'not a workable option.' The decision on Tuesday could be overruled by the five-member Nuclear Regulatory Commission itself. The commission is studying the order, said a commission spokesman, Eliot Brenner."

Even the best scientists find predicting the aftershocks of climate change difficult:

David Roberts thinks Jeff Bingaman's pronouncements on cap and trade's viability evade responsibility: "After all, when a powerful U.S. senator says 'there aren't 60 votes,' he's not just observing the political situation, he's shaping it. He is a player in the game, not a referee or a spectator. Every time he says there aren't enough votes, it reassures Republicans and wavering Dems that they'll have plenty of cover from the herd if they duck and run. It takes the pressure off."

Science is magical interlude: Self-folding origami.

Closing credits: Wonkbook compiled with the help of Dylan Matthews and Mike Shepard. Photo credit: Melina Mara-The Washington Post.

By Ezra Klein  |  June 30, 2010; 6:21 AM ET
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   StumbleUpon   Technorati   Google Buzz   Previous: Unreconciled
Next: CBO: Long-term deficit depends on congressional decisions


I use bay leaves for clam chowder and several pasta dishes.

Posted by: JakeD2 | June 30, 2010 8:03 AM | Report abuse

Bay leaves: flavorful in soups and stews. Especially in soups or stews with heavy beef or bean components.

Posted by: Kevin_Willis | June 30, 2010 8:39 AM | Report abuse

Re 401k match rates.

I have a really hard time imagining that the match rates are literally 7 percentage points lower, i.e. (average match rate, 2 or 3)% minus 7%. I'm going to guess that it's more like (average match rate) X 0.93.

Is there any way of clarifying that, please?

P.S. Interesting article/concept. Can't win all the time, I suppose.

Posted by: Klug | June 30, 2010 9:10 AM | Report abuse

Klug, you're probably right about it being 93% of the average match rate. Reducing the match by seven percentage points would put most people's matches in negative territory.

The overall story makes sense though. Bringing employees into 401(k)s with matching programs is basically like a wage increase. Auto-enrollment almost certainly will boost aggregate retirement savings, and will make a lot of people's retirements much more comfortable.

Posted by: justin84 | June 30, 2010 9:56 AM | Report abuse

that self-folding origami was magical, indeed!
five roses that have "shape memory," just "unfolded" in my garden today, in much the same way!

a magical universe!

Posted by: jkaren | June 30, 2010 10:24 AM | Report abuse

In David Leonhardt's article, he says:

"The parallels to 1937 are not reassuring. From 1933 to 1937, the United States economy expanded more than 40 percent, even surpassing its 1929 high."

But the federal deficit only increased from 2.78% of GDP in 1932 to 4.76% of GDP in 1936. In particular, the deficits from 1932-1936 were, in order, 2.78%, 3.27%, 3.11%, 4.12% and 4.76%. How did this account for a 40% increase in GDP? Why did a much larger and more rapid increase in the deficit, from 1.2% in 2007 to 10% in 2009 still result in 2009's GDP being 2% lower than 2007's?

From 1936-1938, the deficit was cut from 4.76% of GDP in 1936 to 2.84% in 1937 and 1.42% in 1938. Spending, which was $7.55 billion in 1935 and $9.17 billion in 1936, only fell to $8.81 billion in 1937 and $8.45 billion in 1938. Since GDP was about $90 billion in 1937, how did a spending cut of 1% of GDP spread over 2 years single handedly turn a boom which generated 10% annual GDP growth into a recession? Maybe it was the tax hikes.

"The recovery has continued this year, and it has the potential to create a virtuous cycle. Higher profits and incomes can lead to more spending — and yet higher profits and incomes. Government stimulus, in that case, would no longer be necessary."

By David's own admission, GDP grew 40% from 1933-1937, which is roughly 10% annually. How then did a modest pullback derail the recovery? How long of a recovery, how rapid, and how much growth need there be before a virtuous cycle takes place?

Also, let's take a look at total government spending which Ezra is telling us to do today. It rose from $12.8 billion in 1937 to $13.8 billion in 1938, despite nominal GDP falling from $91.9 billion in 1937 to $86.1 billion in 1938. The recession's lost output was primarily caused by private investment falling from $12.2 billion to $7.1 billion over those two years.

I'd argue the Wagner act which raised money wages via unionization drives combined with a dollar panic which generated deflation (further raising real wages) to be the primary cause of the 1937-1938 downturn. Monthly real wages show a very strong negative correlation with monthly industrial output throughout the 1930s.

Anyway, you might see some loss of GDP after huge stimulus packages are withdrawn, but that's because the stimulus package directs resources to certain areas (say infrastructure), and when the stimulus is withdrawn those resources aren't automatically and immediately employed in some other use - but this will happen no matter when the stimulus is taken away.

Posted by: justin84 | June 30, 2010 10:54 AM | Report abuse

re 401k match rates-

That was truly a ridiculous article. "They can’t say for sure whether auto enrollment causes lower match rates. But it sure is possible." Basically, they are saying that if more people participate, the employer would spread the same amount of money to more people. Even if that were true, and it's only "possible", the employer wouldn't be contributing less money, they would just be giving it to people who were previously getting nothing. Isn't that what you equal results progressive types want???

In any case, matching isn't interesting to us, we just give a percentage of income.

Posted by: staticvars | June 30, 2010 1:16 PM | Report abuse

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