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Wonkbook: GM announces IPO; FinReg covers banker pay; small biz losing jobs; the tax cuts and you

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In what is due to be among the biggest stock offerings in history, GM has announced its initial public offering after being bailed out by the federal government. You'll be hearing a lot about this as the administration tries to sell its record this fall. Meanwhile, a little-noticed provision in FinReg will allow the federal regulators to limit executive pay if they so choose; the bulk of private-sector job losses are coming from small businesses; a handy interactive graphic allows you to see how different approaches to the expiring Bush tax cuts would affect you; a handy paper will help you figure out the Fannie and Freddie debate; and a handy cover of some 90s alt-rock will start your morning right.

It's Thursday, which is almost, but not quite, like it being Friday. Welcome to Wonkbook.

Top Stories

GM has filed for an IPO, reports Peter Whoriskey: "The public offering of stock -- which is likely to be one of the largest in history and unfold sometime in the fall -- will allow the U.S. government to offload some of its shares, dropping its stake to below 50 percent, according to sources familiar with the offering who spoke on the condition of anonymity because they were not authorized to discuss it publicly. According to the documents, the government will also give up the power to appoint members to GM's board."

Confused about Fannie and Freddie? Raj Date makes it simple: http://bit.ly/bwQw7h

Section 956(a) of FinReg gives regulators power over executive compensation, reports Zachary Goldfarb: "The pay decisions made by regulators will apply not only to banks but also to brokerages, credit unions, investment advisers, Fannie Mae and Freddie Mac, and other financial firms with $1 billion or more in assets..For now, banking regulators have decided to stick with the guidance-oriented approach they adopted in June. The guidance requires that banks ensure that pay plans reward long-term performance rather than excessive risk-taking; that banks monitor their risks carefully; and that boards play a large role monitoring compensation practices."

Look at how three different scenarios for the Bush tax cuts affect various earnings groups in this Washington Post interactive graphic: http://bit.ly/aJ3A9n

The bulk of job losses are coming from small firms, reports Sara Murray: "Businesses with fewer than 50 employees accounted for 61.8% of all job cuts in the private sector in the fourth quarter, the Labor Department reported Wednesday, while they created 54.1% of new jobs. Small companies employ roughly 29% of all workers. The numbers represent a reversal of the situation a year earlier, when small businesses made up a larger share of jobs added than of jobs lost. Small companies made up half of all jobs lost at the end of 2008 but also accounted for 53.9% of job gains."

Consumer credit defaults are down for the first time since 2006: http://nyti.ms/9gvmpl

'90s alt-rock cover interlude: Cymbals Eat Guitars play "Detroit Has a Skyline" by Superchunk.

Still to come: A new report indicates that tighter bank regulations won't hurt growth; BP is already trying to rehabilitate its public image; a study is reigniting the debate over "sanctuary" policies on immigration; and a toddler reads poetry.

Economy/FinReg

A study from the Basel Committee indicates that financial regulations won't hurt growth, reports Geoffrey Smith: "The FSB and Basel Committee said that for every 1% increase in the ratio of capital to assets that banks are asked to keep, growth would fall by only 0.04% a year over 4½ years. They said an increase of 25% in liquid assets held by banks would have less than half of the effect of a 1% rise in capital ratios over the same period. The regulators intend to phase in the new standards over a period of time, once they are finally determined. The FSB and Basel Committee said that the effect on output would be larger if the requirements were phased in over a shorter period, such as two years."

Regulators may make it easier for shareholders to oust corporate directors: http://bit.ly/dfUtEi

Fed officials are giving mixed messages in defending their latest action, reports Michael Derby: "Bullard, however, framed the issue in a way that lined up neatly with the prevailing market view. He told The Wall Street Journal in an interview 'I thought we should be in a position to return to a quantitative easing program if we got further disinflation.' Kocherlakota muddied the waters Tuesday, saying the market got the issue wrong. Low rates are driving more mortgage prepayments than the Fed anticipated, so purely for technical reasons, the Fed needs to act to keep its portfolio size up. 'I would say that there is no new information about the current state of the economy to be learned from the FOMC’s actions or its statement,' the policymaker said."

More and more white collar workers are holding down two jobs: http://bit.ly/bXWYTm

David Blanchflower argues only tax cuts can spur a recovery: "The AEI estimates that if the payroll tax (of which households pay half directly) were suspended -- say, for a year or 18 months -- households would experience an immediate 3.5 percent increase in disposable income that they could employ to sustain consumption and pay down debts. And it would give an incentive to hire. This would inject an additional $625 billion a year and would jumpstart the economy. But the likelihood of this happening any time soon is slight, so in the meantime it makes no sense to repeal the Bush tax cuts, which would lower the amount of stimulus. It would be better to reform them to maximize their job-creating impact."

The SEC is targeting New Jersey's pension system: http://bit.ly/dfLQAz

Luigi Zingales questions whether limiting executive compensation would help prevent another financial crisis: "In large financial institutions, however, the incentive to gamble at taxpayers’ expense does not apply only to managers; it extends to bondholders, who are de facto protected by the government. Having access to insured credit, banks’ shareholders find it irresistible to borrow excessively. Restricting managers’ incentive pay without changing shareholders’ incentives will only force shareholders to be more actively involved in the company and choose other ways to increase the level of risk-taking."

Radio interlude: Robert Krulwich and Malcolm Gladwell discuss the origins of success.

Energy

BP's public rehabilitation campaign has begun, reports Krissah Thompson: "Other companies associated with disasters have bounced back. Tylenol rescued its brand after a 1982 incident in which someone added cyanide to bottles of pills, causing seven deaths in the Chicago area. Johnson & Johnson, which owns the brand, reacted by trying first to protect consumers, then the product..At a news conference, the company introduced 'triple safety seal packaging,' making Tylenol the first product in its industry to use a glued box, a plastic seal over the neck of the bottle and a foil seal over the mouth. Consumers returned."

China is looking into a "straddling bus" that drives over cars to relieve traffic and air quality problems: http://nyti.ms/bIHPyK

A study indicates Gulf oil plumes could be more toxic than thought, reports John Collins Rudolf: "The toxic effects observed by the Florida researchers suggest that this highly dispersed oil, though at very low concentrations, may still pose a risk to microscopic marine life, including eggs and larvae of fish and other creatures. The threat is greatest to spawning grounds in the vicinity of the wellhead, where the plumes are concentrated, with fisheries in the broader Gulf of Mexico unlikely to suffer an impact, Dr. Short said."

The "bottom kill" in the Gulf is still on hold: http://bit.ly/99fubV

Matthew Wald looks at gasoline substitutes being researched with federal funds: "Scientists are tantalized by plants and trees because they store far more energy than is consumed by cars, trucks, trains and planes, and they do it by taking carbon out of the atmosphere. But they do not give that energy back in an easy-to-use form, at least not without taking millions of years to turn into oil. Instead, they make energy-bearing sugars in a form called cellulose, which forms the sinew or skeleton of the plant. Cellulose is hard to break down..Engineers have tried using steam, acids and enzymes to break cellulose into useful sugars."

David Roberts notes that coal reaches peak production in the US next year: http://bit.ly/c8d8zP

Adorable children being literary interlude: A three-year-old reads a Billy Collins poem from memory.

Domestic Policy

An AP analysis suggesting allowing illegal immigrants to get driver's licenses encourages illegal immigration is reigniting the "sanctuary city" debate, reports Elise Foley: "While 'sanctuary cities' don’t really exist, there are differences among states’ and cities’ policies for illegal immigrants, and allowing undocumented people to obtain driver’s licenses is a crucial distinction. The argument is that allowing driver’s licenses means illegal immigrants can buy car insurance, which increases public safety -- much like laws in some cities that prohibit employees from questioning immigration status for queries that could impact public health."

Charitable donations are falling even as demand for them increases: http://bit.ly/b46Uoy

Net neutrality talks are on again, reports Amy Schatz: "According to people close to the talks, a larger number of companies are involved in this round of negotiations, including Cisco Systems Inc. and Microsoft Corp. Officials from the Federal Communications Commission aren't involved in the latest discussions..Telecommunications companies say re-regulating Internet lines under rules designed for old phone networks will discourage new investments in wireless or Internet lines. Internet companies and public interest groups want the FCC to have clear authority to enforce net neutrality rules to prevent broadband providers from deliberately favoring some traffic over others."

Felix Salmon proposes giving minors bank accounts: http://bit.ly/b30iBE

Michelle Singletary thinks regulations on student debts should not be limited to for-profit colleges: "Only 36 percent of students at for-profit schools were paying down their student loans in 2009, according to an analysis of Education Department data by the Institute for College Access and Success, a nonprofit group whose mission is to help make higher education more affordable. At public colleges, 54 percent of borrowers were paying down the principal on their loans, compared with 56 percent of those from private, nonprofit schools. These are not great percentages, either."

The labor movement is getting more immigration-friendly: http://bit.ly/cpln2O

Kevin Carey argues value-added measures are problematic estimates teacher effectiveness: "Students not randomly assigned. For this value added data to be a good measure (unbias) of teacher effectiveness and comparable across a district, students would need to be randomly assigned to schools and to teachers. This obviously does not happen. Although there is some level of school choice in LA, student assignment across schools is still largely based on a student’s home address which means that demographics are the largest indicator of school assignment. Similarly, well informed parents are likely to influence which teacher their children get."

Closing credits: Wonkbook compiled with the help of Dylan Matthews, Mike Shepard, and Sakina Rangwala.

By Ezra Klein  |  August 19, 2010; 6:41 AM ET
Categories:  Wonkbook  
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Comments

Jim Cramer is slamming GM IPO as deeply and bitterly cynical ploy of politics. It is true that GM seems to have been rushed to IPO altar too soon. It is better that they improve finances further to become Public. People suspect was that the reason Whitacre resigned from CEO position - that he disagreed to the timing of GM IPO? Overall, more information will help here. Ezra, do you have any scoop here?

Funny thing is GOP and Tea Party would prefer to get out of GM too even if it is not a sound financial decision. I guess that cuts some slack for White House and Treasury.

Posted by: umesh409 | August 19, 2010 10:06 AM | Report abuse

WRT Luis Gonzales:

Shareholders aren't nearly the problem that execs are; stock value can be wiped even if the business is implicitly guaranteed by the government.

WRT David Roberts:

Good to see David Roberts is still a moron. Nice 'peak coal' chart.

WRT Kevin Carey:

Of the four criticisms he lists, that is the least relevant. It should make a fairly negligible difference what group of students a given teacher gets dumped with in a proper value-added assessment system.

Posted by: eggnogfool | August 19, 2010 10:56 AM | Report abuse

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