Wonkbook: Containment cap (mostly) working; Kagan's policy views; a bailout for schools?
BP says its containment cap is capturing most of the oil spilling into the Gulf, Clinton-administration memos from Elena Kagan offer insight into her policy opinions and political skills, Sen. Lisa Murkowski wants to block the EPA from regulating carbon, House Dems are looking to pass an emergency stimulus for the education system before it's crippled by layoffs, and Arizona is spending $250,000 on a PR campaign to repair its battered image.
It's Monday. Welcome to Wonkbook.
BP claims the containment cap is diverting more than half of the leaking oil, reports Lyndsey Layton: "BP executives said that their efforts to capture the oil gushing into the Gulf of Mexico have begun to work and that a containment cap placed over the damaged well Thursday night sucked up about 10,500 barrels of oil -- 441,000 gallons -- on Saturday, up from around 6,000 barrels, or 250,000 gallons, on Friday. That oil was diverted to a waiting ship…Government scientists earlier estimated the flow at 12,000 to 19,000 barrels a day." The Coast Guard's Thad Allen confirms.
Memos from Elena Kagan's time shed light on her policy preferences, report Robert Barnes and Amy Goldstein: "Her policy portfolio included issues from agriculture to Viagra, and at times, her legal and political views aligned. 'FYI. I think this is exactly the right position -- as a legal matter, a policy matter and as a political matter,' she wrote to her boss, Bruce Reed, regarding the Clinton administration's position on some affirmative action goals...Kagan called a proposed law that would make assisted suicide a federal crime 'a fairly terrible idea.'…A box of documents on Kagan's efforts on behalf of campaign finance reform contained a graphic showing how various proposals would have affected the 1996 Democratic and Republican candidates for the Senate."
The Wall Street Journal profiles groups affected by FinReg, including the retailer, the auto dealer, and the big bank: http://bit.ly/baioNv
The Senate will debate stripping the EPA's authority over climate change Thursday, reports Taylor Rushing: "The debate will center on a Thursday vote on a disapproval resolution by Sen. Lisa Murkowski (R-Alaska) that would block the EPA from enforcing emission rules under the Clean Air Act...Murkowski is bringing the resolution forward under the Congressional Review Act, which prevents any filibusters and only requires 51 votes for passage. Murkowski has said she has about 41 votes, including Democratic Sens. Mary Landrieu of Louisiana, Ben Nelson of Nebraska and Blanche Lincoln of Arkansas."
Wondering what the Congressional Review Act does? The Congressional Research Service has you covered. Bottom line: Senate can't filibuster, but the president can veto, and that means Murkowski's resolution would need 2/3rds of both the House and the Senate to make it into law.
House Democrats want a vote on an education bailout as early as this week, reports Walter Alarkon: "Soon after Congress returns from the Memorial Day recess, liberal House Democrats and teacher unions will make one last push to pass a $23 billion fund to prevent teacher layoffs. Democrats are looking to package the fund with war and disaster spending in a supplemental appropriations bill the House will vote on as early as this week. The House approved the teacher fund in December as part of a jobs bill, but that legislation stalled in the Senate. With lawmakers wary of moving big spending measures, the upcoming bill may be the last vehicle that could carry the teacher money before the November elections."
GOOOAAAALLLL interlude: The New Republic kicks off 'Goal Post': "A World CUp blog for highbrow soccer dorks."
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Table of Contents: The Obama administration says the oil leak could last until fall (and other energy news); home purchases took a steeper plunge than expected (and other economic news); Kathleen Sebelius is warning insurers who want to participate in Medicare to lay off the rate increases (and other domestic policy news); and the White House is urging Congress to finish up on FinReg (and other FinReg news).
Thad Allen says the oil spill clean-up will last into the fall, reports Carrie Budoff Brown: "'We’re in the middle of a long-term campaign,' Allen, who’s coordinating the federal response, told CBS's 'Face the Nation.' 'This siege will go on for a long time.'"
The spill's ecological effects will likely last for decades, report Joel Achenbach and David Brown: "In most spills, the volatile compounds evaporate. The sun breaks down others. Some compounds are dissolved in water. Microbes consume the simpler, 'straight chain' hydrocarbons -- and the warmer it is, the more they eat. The gulf spill has climate in its favor. Scientists agree: Horrible as the spill may be, it's not going to turn the Gulf of Mexico into another Dead Sea. But neither is this ecological crisis going to be over anytime soon. The spill will have ripple effects far into the future, scientists warn."
The administration is relying on Energy Secretary Steven 'Incredible Hulk' Chu's scientific expertise in solving the crisis, report Karen Tumulty and Juliet Eilperin: "Obama has also called in some of the many scientists on the federal payroll, led by Energy Secretary Steven Chu, a Nobel Prize-winning physicist. Chu at one point pushed the unusual idea of using gamma rays to peer into the blowout preventer to determine if its valves were closed, a technique he experimented with in graduate school while studying radioactive decay. The suggestion at first elicited snickering and 'Incredible Hulk' jokes. Then they tried it, and it worked. 'They weren't hot on his ideas,' a senior White House official said of BP's initial reaction to Chu's suggestions. 'Now they are.'"
The spill shows the limits of Obama's management style, write Glenn Thrush and Carol Lee: "The Gulf crisis has shed light on the strengths and weaknesses of Obama’s unique management style, which relies on a combination of his own intellect, a small circle of trusted advisers and a larger group of outside experts. But it’s also driven home a more generic lesson all presidents learn sooner or later: Administrations are defined, fairly or not, by their capacity to control stagnant backwater agencies, in Obama’s case the Minerals Management Service, which failed to detect problems with the Deepwater Horizon well."
BP CEO Tony Hayward is insistent he won't resign, reports David Stringer: "BP PLC chief executive Tony Hayward said Sunday he won't step down over the Gulf of Mexico oil spill, and predicted his company will recover from the disaster. Hayward told BBC television's 'Andrew Marr Show' that he would not quit, and he had the 'absolute intention of seeing this through to the end.' 'We are going to stop the leak. We're going to clean up the oil, we're going to remediate any environmental damage and we are going to return the Gulf coast to the position it was in prior to this event,' Hayward said. 'That's an absolute commitment, we will be there long after the media has gone, making good on our promises.'"
Former DOJ environmental crimes prosecutor David Uhlmann explains how BP could be prosecuted: "No one thinks BP, Transocean or Halliburton intended to spill oil into the gulf. But given good evidence, the government could argue that the companies cut corners or deviated so much from standard industry practice that they knew a blowout could happen. Or, the government could argue that, even if the initial gusher involved only negligence (a misdemeanor under the Clean Water Act) each additional day represents a knowing violation. Both approaches are untested, because there have been so few oil spill cases - but the gulf disaster warrants trying aggressive strategies."
"Mr. Show" interlude: Pre-taped call-in show.
Home sales are down dramatically since the buyers' tax credit expired, report James Hagerty and Nick Timiraos: "The withdrawal of federal tax credits for home buyers led to a steeper-than-expected plunge in May home sales in much of the U.S., as the housing market struggles to wean itself from government support. Economists and real estate analysts expected home sales to slow after the tax credit, of as much as $8,000, expired at the end of April. But early data from real estate brokers indicate that the sales decline has been far more substantial than expected, with some markets showing declines of 25% to 30%."
The Euro-Zone crisis makes Fed interest rate hikes unlikely, reports Jon Hilsenrath: "Worries about the 16-nation euro zone's financial turmoil has pushed U.S. stocks lower and the dollar higher, made risky debt in the U.S. costlier compared with less-risky debt, inflated interest rates for the short-term loans that banks make to one another and helped slow down the issuance of commercial paper. As a result of that, along with meager job growth and low inflation, the odds that Mr. Bernanke will soon reverse the easy-money policies that have greased the wheels of the financial system since the crisis began are far smaller than they seemed just a few months ago."
IRS audits are threatening the effectiveness of Build America Bonds, report Meena Thiruvengadam, Kelly Nolan, and Romy Varghese: "Build America Bonds, or BABs, are taxable municipal bonds that give issuers a 35% subsidy on interest costs under the U.S. government's stimulus program. They were designed to encourage construction projects and create jobs. The program has been popular since its start in April 2009, accounting for roughly a third of municipal bonds that have been sold. But the IRS has said it was concerned that BABs may be being priced incorrectly, in some cases increasing the cost of subsidies from Washington."
Mortgage delinquencies on FHA-insured mortgages are down, reports Nick Timiraos: "The government agency that backs home loans may have some good news for taxpayers. Home mortgages insured by the Federal Housing Administration are falling into delinquency at a slower rate than they have in the past. If the trend is maintained, it could help the government agency avoid a taxpayer bailout. In April, nearly 8.5% of loans backed by the agency were 90 days or more past due. While that was still higher than a year earlier, April marked the third consecutive month in which delinquencies, which peaked at 9.4% in January, declined."
Consumer debt-cutting is threatening the economic recovery, writes Kelly Evans: "Despite a vigorous bounce-back in corporate earnings and a veritable factory boom, job growth is decidedly sluggish. Gross domestic product is growing at only half of the 7% to 8% pace that typically has been seen after past deep recessions. One reason: deleveraging. After years of bingeing on debt, U.S. households are paring back. Those not doing so by choice are often being forced, because lending standards remain tight. The question now, both for consumer spending and growth more broadly, is how much further the process has to go. The answer is probably a lot."
The era of Chinese cheap labor may be over soon, reports Keith Richburg: "China has been hit with a recent wave of labor unrest, including strikes and partial shutdowns of factories, underscoring what experts call one of the most dramatic effects of three decades of startling growth: A seemingly endless supply of cheap labor is drying up, and workers are no longer willing to endure sweatshop-like conditions. China's export-driven growth has long been linked to its abundance of workers -- mostly migrants from the impoverished countryside who jumped at the chance to escape a hardscrabble rural life to toil long hours in factories for meager wages."
Politicians of both parties are targeting public employees, and their unions, for cuts, report Ben Smith and Maggie Haberman: "Spurred by state budget crunches and an angry public mood, Republican and some Democratic leaders are focusing with increasing intensity on public workers and the unions that represent them, casting the workers as overpaid obstacles to good government and demanding cuts in their often-generous benefits.…But the immediate cause of the new spotlight on public-sector unions is the collapse in tax revenues that came with the 2008 Wall Street crash, something union leaders bitterly note is not their fault."
E.J. Dionne says Obama can't let the oil spill distract him from fixing the economy: "Thus Obama's test: He needs to establish that he is doing all he can to repair the damage in the gulf even as he maintains his focus on the economy and convinces reluctant conservative Democrats that the job of ending the downturn is not done. However unfair the first impressions of Obama's response to the oil spill may be, he can't afford to let them stand. He also can't afford to let oily waters engulf his priorities. It's worth remembering that while the daily countdown on the Iran hostage crisis helped create a famous television show, it was an unruly economy that ultimately upended Jimmy Carter's presidency."
Innovative instrument interlude: Playing musical Tesla coils.
HHS has warned health insurers against rate increases, reports Janet Adamy: "On Monday, insurers that sell Medicare Advantage plans must submit their 2011 bids to the government. In a letter to four insurance industry executives, Health and Human Services Secretary Kathleen Sebelius warned the companies not to increase premiums and co-payments for seniors. 'Focus on price and quality rather than asking seniors who need health care the most to pay more for it,' Ms. Sebelius wrote in a letter sent Friday and reviewed by The Wall Street Journal. The letters went to WellPoint Inc., Cigna Corp., BlueCross BlueShield Association and Health Care Service Corp., according to a person familiar with the situation."
Debate is raging over the correct approach to the federal deficit, reports Deborah Solomon: 'On one side is the Obama administration-and Keynesian economists-who argue the U.S. needs to spend more, not less, to help gird the nascent economic recovery.…On the other side are lawmakers and economists who say the U.S. cannot afford to wait to cut spending. The deficit will grow by as much as $9 trillion over the next decade, according to the White House, in large part because of increased spending on benefit programs, such as Social Security and Medicare, as well as an explosion in interest costs on debt."
Arizona is launching a $250,000 charm offensive to combat immigration law criticism, reports Peter Slevin: "Gov. Jan Brewer (R) has appointed a committee and allocated $250,000 to re-brand the state's image, while 13 Arizona chamber of commerce executives appealed to Major League Baseball Commissioner Bud Selig to keep the 2011 All-Star Game in Phoenix after he faced pressure to change locations. They said it would preserve jobs for 'innocent citizens, including our Hispanic community.'...Phoenix City Hall calculates that Arizona has lost nearly $100 million in convention commitments."
Anita Dunn is heading the administration's effort to sell the health care reform law, reports Sheryl Gay Stolberg: "A veritable army of outside groups - including an ambitious new initiative by Anita Dunn, Mr. Obama’s former communications director, and Andrew Grossman, a top Democratic strategist who spent 2009 coordinating advocacy groups in support of the overhaul - are orchestrating campaigns to echo the White House message. The Dunn-Grossman effort, a pair of related tax-exempt groups to be run by Mr. Grossman, hopes to raise $25 million from unions, foundations, corporations and Democratic donors to build a Washington-based operation with a staff of as many as 15 researchers, communications strategists and policy experts."
FCC chair Julius Genachowski is worried about US broadband capacity, reports Walter Mossberg: "MR. GENACHOWSKI: People here are probably familiar with the statistics showing the U.S. ranks 17th or 18th when it comes to key broadband metrics. The study I saw that makes me most concerned is one that looked at 40 industrial countries and ranked them on a small number of metrics relating to innovative capacity. It ranked the U.S. 40th out of 40 when it came to rate of change of innovative capacity."
Home ownership is overrated, writes Richard Florida: "The cities and regions with the lowest levels of homeownership-in the range of 55% to 60% like L.A., N.Y., San Francisco and Boulder-had healthier economies and higher incomes. They also had more highly skilled and professional work forces, more high-tech industry, and according to Gallup surveys, higher levels of happiness and well-being. A greater percentage of their residents are younger and more transient; many of them prefer to rent. Higher income levels drive up housing prices, putting homeownership beyond others' means. But with fewer residents locked into mortgage payments, there is a greater degree of flexibility and resilience in the face of economic shocks and downturns."
"Kids in the Hall" interlude: "I'm Crushing Your Head".
The White House wants a FinReg conference report by this month's G20 summit, reports Sewell Chan: "As Congressional negotiators begin this week to merge two bills overhauling the financial system, the White House wants them to reach an agreement before President Obama leaves for a Group of 20 meeting this month in Toronto. The administration has tried to use the summit meeting to foster a sense of urgency among lawmakers. It thinks a deal would give Mr. Obama greater leverage in efforts to persuade other countries to support proposals like a global bank tax and higher capital standards for the largest financial institutions. The higher standards are part of the legislation but would require international coordination."
Build America Bonds are enriching Wall Street, reports Dan Eggen: "Goldman Sachs, J.P. Morgan Chase and other firms that dominate the U.S. underwriting market stand to earn millions, if not billions, of dollars under a planned expansion of the Build America Bonds program, which provides tax credits to local and state governments seeking to finance capital projects. Major banks lobbied heavily for the program's expansion under a jobs bill recently passed by the House and under consideration in the Senate. The bonds…provide two key benefits for Wall Street firms: new customers who would not usually buy municipal debt and, in many cases, higher commissions than those for traditional tax-exempt bond deals."
Private equity groups are thriving, reports Thomas Heath: "The value of private-equity acquisitions has climbed 75 percent in the first five months of 2010 compared with the corresponding period last year, according to the Private Equity Council, the industry's trade group. Firms invested $80 billion of equity and new debt in acquisitions, compared with $45.7 billion at this time last year. The industry is also doing 12 times as many IPOs for its portfolio companies as it did last year. The stock valuations in those companies are higher as well. So far this year, private-equity-backed companies raised nearly $9.3 billion through IPOs, compared with $309 million last year."
The G-20 is nearing agreement on capital requirements, report Michael Phillips and Alex Frangos: The world's leading economic powers edged toward agreement on new rules to ensure that major banks keep enough money in reserve to insulate them against future crises.…Top finance officials from the Group of 20 major industrial and developing economies agreed Saturday they would finish work on the tightened banking standards before their leaders meet for a summit in Seoul in November, ahead of their original year-end goal."
Giving speeches to businesses on the effects of regulation can be big business, writes Thomas Heath: "Friedman said his niche is offering information in an analytical, nonpartisan fashion. In an era of talking heads and politicized television shows, he seeks to stay objective and talks about how people can improve their investment returns.…Friedman writes his own speeches, and sometimes gives the same speech over and over, depending on how quickly Congress is moving. He speaks on a variety of subjects, from the estate tax to the stimulus bill's effect on municipal bonds."
David Leonhardt explains how both the oil spill and financial crisis are instances of risk mis-estimation: "For all the criticism BP executives may deserve, they are far from the only people to struggle with such low-probability, high-cost events. Nearly everyone does. 'These are precisely the kinds of events that are hard for us as humans to get our hands around and react to rationally,' Robert N. Stavins, an environmental economist at Harvard, says.
We make two basic - and opposite - types of mistakes. When an event is difficult to imagine, we tend to underestimate its likelihood. This is the proverbial black swan. Most of the people running Deepwater Horizon probably never had a rig explode on them. So they assumed it would not happen, at least not to them. Similarly, Ben Bernanke and Alan Greenspan liked to argue, not so long ago, that the national real estate market was not in a bubble because it had never been in one before. Wall Street traders took the same view and built mathematical models that did not allow for the possibility that house prices would decline."
Mashup interlude: Super Mash Bros' "Meet Me At Fantasy Island".
Closing credits: Wonkbook compiled with the help of Dylan Matthews. Photo credit: Eric Gay-AP.
June 7, 2010; 6:26 AM ET
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