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Wonkbook: Bernanke expected to announce policy; risky bets allowed; SEC empowers shareholders

Dylan Matthews is writing Wonkbook while Ezra is on vacation.

Fed Chairman Ben Bernanke is expected to announce the Fed's course of action in a speech Friday. Meanwhile, despite FinReg, banks will still be allowed to make risky bets that could destabilize the economy at large. And the SEC has adopted new rules giving shareholders greater power in electing corporate board members, in a move that could serve as a check on executives.

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Bernanke will announce the Fed's course of action in a speech in Wyoming following the release of revised GDP data Friday, reports Neil Irwin: "Neither Bernanke nor those who are closest to him -- such as New York Fed President William C. Dudley and governors Donald L. Kohn and Kevin M. Warsh -- have made a public appearance to explain the rationale for the move or indicate the likelihood of more aggressive steps to support growth...Rather than criticize or call out colleagues for bringing the Fed's internal debates into the public sphere, Bernanke has subtly encouraged this airing of opinions, praising points that some of his colleagues have made in Federal Open Market Committee meetings or private e-mails."

Bets creating potentially systemic risk will still be allowed under FinReg, report Nelson Schwartz and Eric Dash: "Though these trades were made on behalf of clients, they subjected the banks to the kind of risk that Congress sought to curtail when it devised the Volcker Rule, which banned banks from speculating with their own money. That practice is known as proprietary trading. ... But for all the talk of shutting down trading desks and reassigning employees to prepare for the Volcker Rule, proprietary-style trading will probably survive, if under a different name."

The SEC is giving shareholders more power over corporate boards, reports Zachary Goldfarb: "Supporters point to the financial crisis as evidence that shareholders need new powers, saying boards failed to conduct rigorous oversight of pay practices and business decisions at banks and other financial firms...In the case of the financial crisis, Canada represents an example of where greater empowerment of shareholders works well, said James C. Allen, of the CFA Institute, a nonprofit group that represents investment professionals. Canada has allowed shareholders to directly nominate board members to boards since 1997."


Genre clash interlude: A jazz trio covers M.I.A.'s "Galang".

Still to come: The co-chair of the fiscal commission is facing calls for his resignation; the just-discovered story of the oil rig's last day; California sets up the first health-care exchange; and a robot learns to fold socks.

Economy/FinReg

Fiscal commission co-chairman Alan Simpson is in hot water over a letter on Social Security, reports Jackie Calmes: "At the White House, Jennifer Psaki, the deputy communications director, said, 'Alan Simpson has apologized and while we regret and do not condone his comments, we accept his apology and he will continue to serve.' ... Social Security Works, a coalition of liberal groups, denounced the comments as 'offensive and sexist' and said Mr. Simpson, who turns 79 next week, should resign or be fired. Representatives Peter DeFazio, a Democrat from Oregon, and Bernie Sanders, an independent from Vermont, wrote to Mr. Obama urging his removal, 'in order for your commission’s recommendations to have credibility with Congress.'"

Durable goods sales are up by a disappointingly low amount.

Disabled workers are far more likely to be jobless or working only part-time, reports Sara Murray: "The average unemployment rate for disabled workers was 14.5% last year, the Labor Department said Wednesday, well above the 9% rate for those without disabilities. By the Labor Department's count, there were roughly 27 million Americans 16 years or older with a disability last year. The employment situation doesn't appear to have improved this year: The unemployment rate for those with disabilities had risen to 16.4% as of July."

Food inflation is still mild despite fears of a spike.

Alan Blinder argues the Fed's options are limited: "To give quantitative easing more punch, the Fed may have to devise imaginative ways to purchase diversified bundles of assets like corporate bonds, syndicated loans, small business loans and credit-card receivables. Serious technical difficulties beset any efforts to do so without favoring some private interests over others. And the political difficulties may be even more severe. So the Fed will go there only with great reluctance."

Rahguram Rajan makes the case for raising Fed interest rates: "The real problem is that corporations are not hiring quickly. But corporations did not hire quickly following the recession of 2001 (or that of 1990-91), and the sustained monetary stimulus that many economists supported then led, in no small part, to the housing boom and bust. It did not, however, lead to an explosion in corporate investment. Before saying the real problem is that we are not providing enough monetary stimulus, should we not worry about why corporations didn’t invest then and what other problems will emerge as we keep rates ultra-low while hoping corporations will see the light?"

Chuck Marr explains the effect of the Bush tax cuts on economic inequality.

Janice Nittoli proposes aid for blue collar workers: "If the problem facing us is young blue-collar workers spending years at the margins of life, the solution includes a mix of new and old ways to create work--through public subsidies of private jobs in growth sectors such as small business, more traditional public works such as infrastructure, and supplemental efforts to make alternative jobs out of current societal needs, including elder care and neighborhood cleanup. Experience shows that this approach works. Thirty-seven states already use federal matching funds to provide subsidized employment in the private and public sectors that help 240,000 people participate in the labor market, get experience and connect with employers--opening doors otherwise closed to them."

Rise of Skynet interlude: Robots learn to flip and pair socks.

Energy

BP staff on the Deepwater rig argued over an ambiguous safety test the day of the explosion, report Russell Gold and Ben Casselman: "Workers performed the test again, but this time the results were even more perplexing. One smaller tube that led up from the well showed no pressure, a sign that the well was stable. But gauges on the main pipe did show pressure, according to BP's preliminary investigation. ... Finally, about 7:50 p.m., Mr. Vidrine made a decision, according to Mr. Pleasant. He turned to Mr. Kaluza, his colleague, and told him to call BP engineers in Houston and tell them he was satisfied with the test, Mr. Pleasant said."

BP hit a snag in trying to plug the oil well for good.

The oil spill is spurring increased regulation, but not less drilling, abroad, reports Clifford Krauss: "Canada is moving forward with offshore drilling off its Atlantic coast, but the gulf accident has added to the controversy surrounding future drilling in the Arctic. In Mexico, the BP blowout has hardened the positions of some in the political opposition and within the union representing workers employed by the national oil company, Pemex, against reforming regulations that would open foreign oil company involvement in future deepwater drilling. And in perhaps the most strenuous response to the gulf disaster so far, Angola is moving forward with more rig inspections and tougher regulations."

Hearings on the spill still have not determined whether BP, Transocean or Halliburton was in command.

The last head of the Minerals Management Service supports a new inspections system for oil rigs, reports John Broder: "Ms. Birnbaum, who ran the minerals service from July 2009 to May, also urged the agency to give new focus to safety by looking beyond technical standards for blowout preventers and other equipment, and adopting some of the safety protocols used in industry. Such systems involve double-checking inspection reports and requiring the kinds of safety checklists that airlines and some hospitals now require. She said the agency was just beginning to look into such systems when she left."

The BP rig's blowout preventer was not connected properly.

Domestic Policy

California has become the first state to pass legislation creating a health insurance exchange, reports Anna Wilde Mathews: "The California exchange would be governed by a new board, which will be given robust authority, including the power to selectively contract with insurers to offer plans within the exchange. That provision drew opposition from some health insurers. 'Health plans are concerned that an appointed board could decide to limit choice to the disadvantage of consumers,' said Patrick Johnston, chief executive of the California Association of Health Plans."

The farmer at the heart of the salmonella outbreak already ran into trouble with regulators.

New Jersey lost Race to the Top funding on a technicality, reports Abby Phillip: "New Jersey was in the running for up to $400 million in grants, but walked away empty-handed in part because the state was docked 5 points for an error in their application -- and the penalty put them below the 440-point threshold to qualify for the money. ... Not only has it dismissed Christie's appeal, it has rejected the the governor's request for a share of $100 million left over in the Race to The Top pool. ... Said Department of Education spokesman Justin Hamilton. 'At some point, you have to say: Time’s up, pencils down.' "

Health-care reform could hamper college and university health plans.

Arne Duncan is arguing schools should provide more data to parents and teachers, reports Nick Anderson: "'In other fields, we talk about success constantly, with statistics and other measures to prove it,' Duncan said in the advance text of a speech he planned to give Wednesday evening in the Arkansas capital. 'Why, in education, are we scared to talk about what success looks like? What is there to hide?' Duncan added: 'Every state and district should be collecting and sharing information about teacher effectiveness with teachers and -- in the context of other important measures -- with parents.' "

Earl Blumenauer is making a liberal's case for cutting Social Security, writes Matt Bai: "Mr. Blumenauer argues that the program can’t exist on make-believe money, and he says Democrats should remain open to changes in the benefit structure, including what is known as 'progressive price indexing.' What this means, essentially, is that more affluent Americans would have their benefits -- at least when they first retire -- pegged to the consumer price index, rather than to wages, which would have the effect of reducing payouts."

Dylan Matthews is a student at Harvard and a researcher at The Washington Post.

By Dylan Matthews  |  August 26, 2010; 8:42 AM ET
 
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Comments

I'm torn on the NJ Race to the Top fiasco. On the one hand I'd obviously like to have seen some money flow to NJ schools (where I reside, though possibly not for much longer, but that's another story), and in general it seems a shame to deny funding on the basis of a technicality. On the other hand, I have a hard time not blaming this on the people in charge of NJ's submission. From what I've read the NJ application got the very same question right on the first round of RttT. Even if their second, and current, submission was much stronger overall, it seems like somebody would go through each application line by line just looking at the differences and seeing whether they were correct. I mean, when you're vying for billions of dollars of funding, you have someone make a second or third pass at your application before you submit it. Pretty embarassing for NJ though, no matter what.

Posted by: MosBen | August 26, 2010 9:55 AM | Report abuse

Re: Chuck Marr - looks to me like the Bush Tax Cuts are the real wealth redistribution.

Posted by: fakedude1 | August 26, 2010 11:31 AM | Report abuse

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