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Wonkbook: Drilling ban lifted; Fed minutes hint at action; FinReg's first legal challenge

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After prolonged pressure from both industry and Gulf region politicians, Interior Secretary Ken Salazar announced yesterday that the moratorium on deepwater oil drilling has been lifted. Environmentalists are not happy, but budget wonks might approve: This means that Sen. Mary Landrieu is likely to lift her hold on Jack Lew's nomination to direct the Office of Management and Budget.

Meanwhile, the Federal Reserve is inching closer and closer to further action to support the economy. Whether it'll be enough is anybody's guess. But their ongoing efforts to hint at a coming announcement suggest they're preparing the market for that coming an announcement.

Welcome to Wonkbook.

Top Stories

The Obama administration has lifted the deepwater drilling ban, report Juliet Eilperin and Steven Mufson: "Most environmental groups lamented the early end to the ban, citing continued risks. 'Today's actions are premature,' said Peter Lehner, executive director of the Natural Resources Defense Council. 'To ensure a disaster like this never happens again, we must know what caused it in the first place. We're still waiting for that answer.'...[Salazar] said that lifting the temporary drilling ban before the Nov. 30 expiration date was possible because the petroleum industry now has more robust plans for responding to any future spill and because BP had finally capped its gushing Macondo well in mid-July."

Michelle Rhee, DC's reformist school chancellor, is resigning: http://wapo.st/bqPVGd

The Fed is inclined to adopt more stimulative measures, reports Neil Irwin: "The minutes of the Sept. 21 Federal Open Market Committee policy meeting, released Tuesday, reveal a panel that has significant divisions but that also appears supportive of new steps to try to strengthen a faltering economy and increase inflation above its current rock-bottom levels. The policy statement the officials issued the day of the meeting said that they would be prepared to provide "additional accommodation" to support the economy if necessary...There was a clear sense that the policymakers needed more data about how the economy was evolving, and more time to evaluate specific policy options, before pulling the trigger on any new monetary easing."

An excellent primer on the foreclosure crisis: http://bit.ly/cYmCqM

A bank is suing over FinReg's swipe fee restrictions, reports Ylan Mui: "TCF National Bank says that the language does not allow the Fed to consider all the costs of providing and maintaining consumer debit cards. It also argues that the legislation is unfair because it applies only to banks with $10 billion or more in assets...Swipe fees, which are also referred to as interchange, have become an increasingly important source of revenue for banks as strict new regulations restrict other fees and charges, such as overdraft and credit card interest rates. In its lawsuit, TCF said its customers used their debit cards 200 million times last year, generating about $100 million in fees."

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Indie R&B video interlude: How to Dress Well's "Ready for the World".

Still to come: US cities have hundreds of billions of dollars in unfunded pension liabilities; the EPA will allow more ethanol in gasoline blends; some fear Obama will let his transportation proposal die; and a four-year-old covers Louis Armstrong on ukelele.

Economy/FinReg

American municipalities have hundreds of billions of dollars in unfunded liabilities, reports Michael Corkery: "Many of the largest U.S. municipalities are understating the true size of their pension obligations by using inappropriate accounting methods, leading to $574 billion of unfunded pension liabilities, according to a study released Tuesday.Those unfunded pension benefits are in addition to $3 trillion of unfunded liabilities that the study's authors have said exist among state pension plans. The study, released by Northwestern University's Kellogg School of Management, hits on a hotly debated issue in the pension world: how to measure the size of future benefits promised to government retirees."

GMAC is reviewing mortgages in all 50 states: http://wapo.st/9CKpw7

At its current pace, the "recovery" will take decades, report Michael Powell and Motoko Rich: "The current rate of job creation, the nation would need nine more years to recapture the jobs lost during the recession. And that doesn’t even account for five million or six million jobs needed in that time to keep pace with an expanding population. Even top Obama officials concede the unemployment rate could climb higher still. Median house prices have dropped 20 percent since 2005. Given an inflation rate of about 2 percent -- a common forecast -- it would take 13 years for housing prices to climb back to their peak, according to Allen L. Sinai, chief global economist at the consulting firm Decision Economics."

Alice Rivlin is suggesting a compromise extending tax cuts for incomes under $500,000: http://bit.ly/aJRapE

Republicans won't try to repeal FinReg, reports Jake Sherman: "Leading Republicans on the committee...also say the panel will significantly ramp up oversight of agencies like the Securities and Exchange Commission in the wake of Democratic financial services overhaul, which they believe gives the regulators too broad authority over markets. But unlike Republicans’ pledges to repeal the health care reform law, the party is not looking to wipe off the books the financial services regulation law penned by Senate Banking Committee Chairman Chris Dodd (D-Conn.) and House Financial Services Committee Chairman Barney Frank (D-Mass.). To do that would create more uncertainty for the markets, so, instead, it will aim to defund 'portions of it,' Hensarling said."

Kansas City Fed chief Thomas Hoenig is still skeptical of additional bond purchases: http://bit.ly/bUio2Z

The Fed can solve the Chinese currency dispute, write Barry Eichengreen and Douglas Irwin: "In the deflationary 1930’s, the most important way that countries could subdue protectionist pressure was to use monetary policy actively to push up the price level and stimulate economic recovery. The same is true today. If fears of deflation were to recede, and if output and employment were to grow more vigorously, the pressure for a protectionist response would dissipate. The villain of the piece, then, is not China, but the US Federal Reserve Board, which has been reluctant to use all the tools at its disposal to vanquish deflation and jump-start employment growth. Doing so would help to relieve the pressure in Congress to blame someone, anyone - in this case China - for America’s jobless recovery. Where the Bank of Japan has now led, the Fed should follow."

A GOP win in November will help Brazil, India, and China's economies, not the US', writes Eliot Spitzer: http://slate.me/9ddcoP

Wage cuts could be the only way to fight unemployment, writes Steven Pearlstein: "There are lots of reasons why American companies like GM have lost market share...but one is that in too many industries, our labor costs are now too high to be globally competitive. Reducing wages and benefits in those industries would not only help to create and save jobs, but would also force a further reduction in consumption and living standards that is necessary to bring the U.S. economy back into balance. The question is not whether this is an ideal outcome - obviously it's not. But for the 1,550 auto workers who would be called back to work at GM's Orion plant, the real-world choice is to either accept a 20 percent wage cut or remain unemployed with little prospect of getting another job at the old union wage."

Skynet is coming interlude: Video-editing software that can change actors' height and weight.

Energy

The EPA will allow more ethanol in gasoline blends, reports Stephen Power: "As early as Wednesday, the Environmental Protection Agency plans to announce it will allow ethanol levels in gasoline blends to be as high as 15% for vehicles made since 2007, up from 10% currently, according to two people familiar with the matter...The agency's move is likely to be strongly challenged by livestock ranchers, auto makers and oil refiners. While the groups have varying motives for opposing greater corn ethanol production, they--along with many environmentalists--generally say the government hasn't conducted sufficient testing to warrant higher concentrations of ethanol in motor fuels."

FinReg could hurt the energy industry: http://nyti.ms/9gprl9

Google is funding a "super-highway" for wind power, reports Juliet Eilperin: "The project, dubbed the Atlantic Wind Connection, calls for spending as much as $5 billion to create a 350-mile-long network of underwater cables stretching from northern New Jersey to Virginia. It would eliminate the need for offshore wind developers to build transmission lines of their own, easing what can be a barrier for such projects. Google is partnering with Good Energies, an environmentally focused international investment company based in New York, London and Switzerland, and Tokyo-based Marubeni to finance the project."

Space programs could help identify energy sources on Earth: http://nyti.ms/9NEoHa

The death of cap and trade is boosting proposals for green research, writes David Leonhardt: "On Wednesday, the reliably conservative American Enterprise Institute and the left-of-center Brookings Institution will release a joint proposal to increase federal spending on clean energy innovation to as much as $25 billion a year, from the currently planned $4 billion a year. The proposal would also toughen rules for such money, so that recipients could continue getting it only if they were reducing the cost of clean energy. Today, many subsidies for wind, solar power and ethanol are more lenient...History shows that government-directed research can work...The National Institutes of Health spawned the biotechnology industry."

Funding research is the most cost-effective way of fighting climate change, writes Bjorn Lomborg: http://bit.ly/a6zbMk

The Department of Energy is spurring "mini-Manhattan projects", writes Tom Friedman: "In the fiscal year 2010 budget, the Department of Energy requested financing for 'Energy Innovation Hubs' in eight areas: smart grid, solar electricity, carbon capture and storage, extreme materials, batteries and energy storage, energy efficient buildings, nuclear energy, and fuels from sunlight. In each area, universities, national labs and private industry were invited to put together teams of their best scientists and research ideas to win $25 million a year for five years, to, as Chu put it, 'accelerate the normal progress of science and technology for energy research' and thereby 'discover and commercialize the energy breakthroughs we need' and thereby spawn new jobs and industries."

Adorable kids being adorable interlude: A four-year-old plays "What a Wonderful World" on ukelele.

Domestic Policy

Mere days after Obama's transportation conference, some worry his $50 billion infrastructure plan is dead, reports John Maggs: "The confusion about the president’s transportation plans reflects the unsettled nature of the White House strategizing for a post-election lame duck session of Congress, and the president’s agenda in 2011. 'There is no plan yet,' said a top aide to a Democratic congressional leader, who said the White House doesn’t seem interested in contingency planning...The White House has shown no sign of moving any time soon with a plan to quickly enact $50 billion in infrastructure projects, either in the lame duck or early in 2011, according to industry officials and congressional aides."

The biggest health insurers deny coverage to one out of seven applicants, reports Janet Adamy: "Two top House Democrats said the findings covered 2007 to 2009 for Aetna Inc., Humana Inc., UnitedHealth Group Inc. and WellPoint Inc. In total, the carriers denied coverage to more than 651,000 people due to pre-existing medical conditions over the three-year period...In a separate report released Tuesday, the lawmakers found that women who are pregnant, fathers-to-be and those attempting to adopt children are generally unable to buy policies on the individual insurance market."

A group of House members are pushing the FDA to delay its new medical device rules: http://politi.co/c7gexs

Governors are starting to get aggressive at blocking health care reform, reports Sarah Kliff: "Alaska and Minnesota were the only states not to apply for health exchange planning grants. Three others -- Wyoming, Iowa and Georgia -- joined them in not pursuing an additional $1 million grant for rate reviews, released in the summer. Most recently, Utah has become active in opposing more federal regulation of insurance markets. With Massachusetts, Utah is one of the few states that already operate a health exchange. State officials fear that new regulations could diverge greatly from the marketplace they know and like."

More states could resist after the midterms: http://politi.co/bAyv7n

Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews, Mike Shepard, and Michelle Williams. Photo credit: Saul Loeb Photo.

By Ezra Klein  | October 13, 2010; 6:40 AM ET
Categories:  Wonkbook  
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati   Google Buzz   Previous: Reconciliation
Next: Bills that Obama signed into law yesterday

Comments

That muscle reshape thing is interesting, but I'm waiting for the day when we have software that can analyze all an actor's work and then create a photo realistic model of the actor at any age. By analyzing the actor's voice it can recreate it. Thus, some day I'll get more John Candy movies.

Posted by: MosBen | October 13, 2010 7:20 AM | Report abuse

Ezra,

the headline from the WSJ article is just a tad misleading.

The biggest health insurers deny coverage to one out of seven applicants IN THE INDIVIDUAL MARKET.

You also conveniently omit the fact that insurers for years have been willing to forgo pre-existing condition exclusions if everyone was required to be covered and not "game the system" when they can.


"Robert Zirkelbach, a spokesman for the insurance trade group America's Health Insurance Plans, said that in the current market, insurers needed to have the option of factoring in health status. That discourages people from buying a policy only after they get sick, which increases costs for all consumers, he said.

Mr. Zirkelbach noted that insurers proposed eliminating denials based on pre-existing health conditions as part of the health overhaul, as long as everyone was required to have coverage"

Also this is the reason that some stopped offering child only policies because its not really insurance if you can buy fire insurance when your house is on fire of after its burnt down.

Posted by: visionbrkr | October 13, 2010 9:38 AM | Report abuse

"The Fed is inclined to adopt more stimulative measures, reports Neil Irwin: "The minutes of the Sept. 21 Federal Open Market Committee policy meeting, released Tuesday, reveal a panel that has significant divisions but that also appears supportive of new steps to try to strengthen a faltering economy and increase inflation above its current rock-bottom levels. The policy statement the officials issued the day of the meeting said that they would be prepared to provide "additional accommodation" to support the economy if necessary...There was a clear sense that the policymakers needed more data about how the economy was evolving, and more time to evaluate specific policy options, before pulling the trigger on any new monetary easing."

This is the money quote here (from the Fed minutes):

"providing more detailed information about the rates of inflation the Committee considered consistent with a dual mandate, targeting a path for the price level rather than the rate of inflation, and targeting a path for the level of nominal GDP"

Yikes. This could be huge. The Fed switching to an NGDP target, level targeting? I went over to Scott Sumner's blog and note that he is thrilled though cautious about the details.

If the Fed gives this a try, we'll have a very good test of the effectiveness of monetary stimulus - NGDP would need to grow about 13% in 2011 to catch up to a 5% NGDP growth trend starting in 2008.

By the way, if this works as Scott Sumner suggests, I'll have some sympathy for libs who think the Fed hates them. The surge in growth would occur after (probably) large gains for Republicans, and more importantly well after ARRA was estimated to have the most effect.

Posted by: justin84 | October 13, 2010 10:03 AM | Report abuse

Clean and Renewable Wind Energy Production or Dirty and Nasty Oil Drilling Destruction: Offshore Wind Can Deliver Cleaner, More Affordable Energy and More Jobs than Offshore Oil

http://www.nawindpower.com/e107_plugins/content/content.php?content.6613

“A new report from the nonprofit organization Oceana indicates that oil and gas exploration should be replaced by offshore wind development on the East Coast, an area targeted for expansion of oil and gas activities.

The report, "Untapped Wealth: Offshore Wind Can Deliver Cleaner, More Affordable Energy and More Jobs Than Offshore Oil," says that offshore wind can generate nearly 30% more electricity than offshore oil and gas resources combined.

http://na.oceana.org/sites/default/files/reports/Offshore_Wind_Report_-_Final_1.pdf

Posted by: Airborne82 | October 13, 2010 12:16 PM | Report abuse

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