Welcome to Wonkbook.
The SEC is setting up a database to track all trades on all exchanges, reports Zachary Goldfarb: "The Securities and Exchange Commission took a step Wednesday toward making that job a bit easier by proposing to unify the collection of trading data across all stock and options markets. The many exchanges and self-regulatory organizations that Wall Street has set up to monitor financial activity have different standards for keeping track of trades, which occur at lightning speed on electronic hubs located around the world."
Adorable children interlude: The Langley Schools Music Project plays "I'm Into Something Good."
Table of Contents: The U.S. may lose money on its stake in AIG (and other FinReg news); BP is already fighting new offshore drilling regulation (and other energy news); Tim Geithner is in Europe urging fiscal discipline (and other economic news); and police chiefs say the Arizona immigration law will increase crime (and other domestic policy news).
FinReg
The federal government's investment in AIG might not be repaid in full, reports Sewell Chan: "The American International Group is likely to repay the $83.2 billion it owes the Federal Reserve, but whether an additional $49.1 billion in taxpayer investments in the company will ever be recovered remains uncertain, officials said Wednesday. Two discordant views of the company's condition emerged after a nearly six-hour hearing about the government bailouts. Elizabeth Warren, the chairwoman of the Congressional Oversight Panel for the Troubled Asset Relief Program, said afterward that the hearing had been 'an exercise in great frustration.' "
Treasury officials are cool to the Blanche Lincoln spinoff provision in FinReg, reports Carrie Budoff Brown: "'The key for us is what are the president's core set of reforms, and are those in the bill?" [assistant Treasury secretary Michael] Barr said, citing the need to require transparency of all derivatives transactions, central clearing and exchange trading of derivatives, prudential oversight, and strong enforcement. 'Those four key objectives need to be in the final bill,' he continued. 'There are other provisions like the Lincoln provision that are not part of the core set of questions, and I think those are going to be worked through in Congress.' "
Treasury made $1.32 billion selling Citigroup shares, report Matthias Rieker and Tom Barkley: "The sale of 1.5 billion shares by the Treasury Department reduced the size of the taxpayer-owned stake in the third-largest U.S. bank to about 22% from the previous 27%.…In a statement Wednesday, the agency said it plans to sell an additional 1.5 billion shares of Citigroup, out of a total of 6.2 billion still held by the U.S. government. Treasury officials said that Morgan Stanley, which was hired to manage the government's divestment, would complete the next phase of the sales effort by June 30 even if not all 1.5 billion shares are sold."
Lenders used flawed risk models before the economic crash, reports James Hagerty: "A long period of strong economic growth and rapidly rising house prices pushed defaults down to unusually low levels and created a 'mirage' of adequate risk management, according to the study by Clifford Rossi, a former banker who is now a finance professor at the University of Maryland. Because defaults were so low, lenders grew more willing to accept risk as they pursued market share and sought to please investors with rapid earnings growth, Mr. Rossi said in the study -- 'Anatomy of Risk Management Practices in the Mortgage Industry: Lessons for the Future.' "
European banks are hoarding cash, report Carrick Mollenkamp, David Enrich and Mark Gongloff: "In the latest signs of stress for European banks, new data show they are increasingly hoarding cash while borrowing far less in a key short-term funding market. In the past month, the amount of short-term IOUs, or commercial paper, issued by some European banks in Spain, Portugal and Italy has fallen, according to bankers operating in the financial hubs of London and Brussels. That is potentially a sign money-market funds and others that buy the debt are refusing to do business with these banks. At the same time, banks fortified with cash are keeping a tighter rein on it by moving it to the European Central Bank rather than lend it to other banks."
Politicos are overselling financial reform, writes Joshua Green: "First, the new financial regulations are the most profound since the Depression chiefly because most of what Congress did in the interim was to eliminate regulations, which brought on the recent crisis.æSecond, whatever Obama signs into law will be modest given the scope and severity of the crisis, nothing like the New Deal reforms. …The third point likely to be underplayed is that this unusual dynamic owes nothing to the integrity of the senators and everything to the anger of the American public."
FinReg should give free access to credit scores, writes Michelle Singletary: " 'I'm very pleased that the bill includes my credit score amendment, which is going to help arm consumers with the information they need to take control of their own financial health,' said Sen. Mark Udall (D-Colo.), who proposed the Fair Access to Credit Scores Act of 2010. Well, it's going to arm some people. To be truly significant, the final bill needs to give free access to credit scores for everyone, regardless of any action taken by a creditor or company. The earlier people have this information, the more likely they can make changes to improve their scores."
Classic rock cover interlude: Wye Oak plays the Kinks' "Strangers."
Energy
BP is already lobbying against new offshore drilling regulation, reports Elizabeth Williamson: "Since the April 20 oil rig explosion that started the Gulf spill, BP's lobbyists and crisis communications experts have helped to shore up congressional opposition to measures punishing oil companies, and moved to position BP as an ally with the government to manage the crisis. After the spill, the company brought on crisis communicator Hilary Rosen, former Democratic congressional staffer, former chief executive of the Recording Industry Association of America, and a current editor-at-large for HuffingtonPost.com."
BP says the "top kill" technique is "proceeding as planned", reports Joel Achenbach: "The 'top kill' is underway, success uncertain. BP engineers are pumping mud at a furious rate into the damaged blowout preventer that sits on the uncapped well at the bottom of the Gulf of Mexico. The high-risk, high-reward maneuver comes five weeks into the oil spill crisis amid an intensifying atmosphere of political recrimination that has spread from the Gulf Coast to the White House and Congress. The early bulletins on the top kill were encouraging. 'The operation is proceeding as we planned it,' BP chief executive Tony Hayward said Wednesday evening, adding that it would be 24 hours before BP knows if the well is dead."
Obama thinks the oil spill underscores the urgency of climate change legislation, reports Carol Lee: "Obama pivoted off the current crisis to reinforce how dangerous the United States' dependence on oil is and to press for energy and climate change legislation. 'We all know the price we pay as a country,' Obama said. 'With the increased risks and increased costs, it gives you a sense of where we're going. We're not going got be able to sustain this kind of fossil fuel use. This planet can't sustain it.' "
Ken Salazar still supports continued drilling, reports Jake Sherman: "The policy will 'strengthen safety and improve overall management, regulation and oversight.' No drilling permits will go forward, he plans to say, and legislation is pending that would give $29 million to his department for inspecting platforms until investigations are complete. But he remains committed to offshore drilling for a 'new energy future.' 'Offshore development is a necessary part of that future,' Salazar said, according to prepared testimony."
There are five questions Obama needs to answer on the spill, writes Karen Tumulty: "1. In explaining and defending your decision in March to open up additional offshore areas to drilling, you argued that improvements in technology have made drilling significantly less risky. Just 18 days before the explosion of the Deepwater Horizon drilling rig, you said: 'It turns out, by the way, that oil rigs today generally don't cause spills. They are technologically very advanced.' What kind of assurances were you given that this was the case and by whom? What do you think of those assumptions now?"
Everyone's a socialist when an oil rig explodes, writes E.J. Dionne: "'Deregulation' is wonderful until we discover what happens when regulations aren't issued or enforced. Everyone is a capitalist until a private company blunders. Then everyone starts talking like a socialist, presuming that the government can put things right because they see it as being just as big and powerful as its Tea Party critics claim it is. But the truth is that we have disempowered government and handed vast responsibilities over to a private sector that will never see protecting the public interest as its primary task. The sludge in the gulf is, finally, the product of our own contradictions."
Daytime television interlude: RIP, "The Tyra Banks Show."
Economy
Tim Geithner told European leaders to strive for fiscal discipline, report Bob Davis and Ian Talley: "U.S. Treasury Secretary Timothy Geithner landed in Europe and reasserted a traditional American role of dispenser of financial advice to the world, telling European governments to get their fiscal houses in order.…Inside No. 11 Downing Street, the home of his British counterpart, Mr. Geithner pushed continental Europe to speed up the rescue of debt-laden economies, and to not stint on fiscal stimulus. Thursday, in Frankfurt and in Berlin, he will chide the Germans about their recent move to ban certain financial practices, which has spooked markets."
Increasing jobless claims pose a mystery to economists, reports Kelly Evans: "Employers have added more than half a million private-sector jobs this year, and separate leading indicators of job growth—such as rising overtime, a growing workweek and temp hiring—are pointing to further gains.…It may be that special factors like the generosity of jobless benefits and the lag between layoffs and filings are making claims stickier lately. And most economists think the recent spike will prove temporary, with Thursday's report expected to show claims falling back to about 455,000 last week."
The OECD's global growth projection is up, report Paul Hannon and William Horobin: "In its twice-yearly Economic Outlook published Wednesday, the Paris-based think tank cited strong growth in developing economies and the rapid rebound in world trade to predict that the OECD's 31 members will see their combined gross domestic product will increase 2.7% this year, and 2.8% next. In November, the OECD forecast growth in its members at 1.9% this year and 2.5% next. The OECD also raised its growth forecasts for the global economy. Having previously expected world GDP to rise 3.4% this year and 3.7% next, it now expects growth of 4.6% in 2010 and 4.5% in 2011."
Expiring tax credits boosted home sales, reports Renae Merle: "The biggest boost, economists said, came from an $8,000 tax credit available to some first-time home buyers and a $6,500 tax credit available to some repeat homeowners who buy a new primary residence. To qualify for the tax credits, a buyer must have entered into a contract by April 30 and complete the transaction by June 30. The tax credits also helped boost existing home sales, which jumped 7.6 percent in April, according to an industry report released this week. Now that the tax credits have expired, many economists are expecting to see sales activity in both markets begin to slow. The tax credits probably spurred some people planning to buy a house to purchase them earlier, analysts said."
House Democrats are speeding up deficit reduction, reports Jared Allen: "House Majority Leader Steny Hoyer (D-Md.) said during a Wednesday morning meeting with committee chairmen that he and Speaker Nancy Pelosi (D-Calif.) intended to hold them to a Friday deadline to submit detailed lists of duplicative and wasteful programs that can be eliminated from the $3 trillion budget. 'You need to produce something on this,' Hoyer said, according to a person in the room. 'You all need to find some programs to cut.' "
Entrepreneurship can solve government problems, writes Matt Miller: "Entrepreneurs, given the chance to ply their talents, can. And liberals -- paradoxically, the group that tends to bash business the most -- have the greatest stake in these entrepreneurs' success. Here's why. Making our health-care and education sectors run smarter and better will become a national imperative in the era of permanent fiscal pressure ahead, an effort with special stakes for those who believe in using government for affirmative purposes. Even if taxes are inevitably going up as the baby boomers retire, there will be limits to how high voters will let taxes rise. That means the vast waste in our health-care and education systems will soon take a huge bite out of other liberal priorities."
E.U. austerity requirements are hollow, writes David Ignatius: "Investors keep pounding Europe in part because they don't yet see the mechanisms that will enforce discipline. The European Union just established a trillion-dollar bailout fund, but what happens when it runs out? There's a pledge to impose strict conditions on Greece, Portugal and the rest in exchange for loans, but it still isn't clear how Brussels will make this austerity regime work. The problem is the one Napolitano describes: Europe remains a union of convenience, which can be discarded by national governments when it suits their purpose."
Standup interlude: Aziz Ansari on the perils of Craigslist roommates.
Domestic Policy
U.S. police chiefs say the Arizona immigration law will increase crime, reports Spencer Hsu: "Arizona's new crackdown on illegal immigration will increase crime in U.S. cities, not reduce it, by driving a wedge between police and immigrant communities, police chiefs from several of the state's and the nation's largest cities said Wednesday. Arizona's law will intimidate crime victims and witnesses who are illegal immigrants and divert police from investigating more serious crimes, chiefs from Los Angeles, Houston and Philadelphia said before meeting with Attorney General Eric H. Holder Jr. to discuss the measure."
Neither side is happy about the jobs bill, reports Perry Bacon: " 'Economic studies consistently show that when workers collect longer UI benefits they also stay unemployed longer,' said James Sherk, a fellow at the conservative Heritage Foundation. 'This does not happen because unemployed workers are lazy, or want welfare handouts. It happens because unemployment insurance changes the jobs the unemployed look for.'…'It's definitely a good bill,' said Ross Eisenbrey, vice-president of the liberal Economic Policy Institute, of the legislation the House is considering. 'But we should be doing twice as much as we are considering right now. We have to do more about high unemployment now.' "
John McCain and Tom Coburn are proposing cuts to offset war spending, reports Ed O'Keefe: "Sens. Tom Coburn (Okla.) and John McCain (Ariz.) said they will not vote for the $59 billion war spending bill unless lawmakers come up with ways to offset its costs. Their first proposal would cap the number of workers at each federal agency and implement a one-year freeze on pay raises, bonuses and other salary increases for civilian federal workers, saving $2.6 billion. It would also cancel $1.8 million in expenses for a commission reviewing the financial crisis, eliminate $68 million in foreign aid, cancel a $500 million State Department training facility planned for a Maryland community that opposes its construction and collect more than $3 billion in unpaid taxes from federal workers."
The House is set to pass a package to stop 100,000 teacher layoffs, reports Nick Anderson: "Senior congressional Democrats and the Obama administration scrambled Wednesday to line up support for $23 billion in federal aid to avert an estimated 100,000 or more school layoffs in a brutal year for education budgets coast to coast. As early as Thursday, the House Appropriations Committee expects to take up a bill that couples the school funding with spending for the Afghanistan war -- a measure that has bipartisan support. But a parallel push in the Senate stalled this week after a leading proponent concluded that he couldn't muster enough votes to surmount Republican opposition."
Mitch McConnell is condemning the jobs bill as "reckless," reports Meredith Shiner: "'Let's be perfectly clear: there's one reason Democrats are having trouble getting an agreement on this bill and one reason only — and that's because it's so blatantly reckless,' McConnell said. 'Europe's in the midst of what German Chancellor Angela Merkel describes as an existential crisis, all brought about by governments that spent money they didn't have. Americans are watching this crisis play out, and they see Democrats doing the same thing here day after day after day. 'This extenders package is just the latest example, just the latest evidence of a majority that's out of control.' "
The property tax is faring surprisingly well in the recession, writes Kim Reuben: "Nationally, property tax revenues have yet to fall both because the levy tends to be backward-looking (it takes a while for assessed values to catch up with reality on both the upside and the downside) and because local governments can raise rates. The strength of the property tax was the main driver of the small positive growth in overall state and local taxes for the fourth quarter of 2009.…New research by Byron Lutz, Raven Malloy and Hui Shan illustrates that house value declines don't necessarily lead to lower property taxes, and when they do, it can take a while."
Small business groups are mounting a legal challenge to health-care reform because they say it threatens business owners, writes Dan Danner: "National Federation of Independent Business (NFIB), on behalf of small business owners nationwide, has joined the lawsuit with 20 states mounting a constitutional challenge to this devastating new health-care law. This law is death by a thousand cuts for small business owners. According to the Congressional Budget Office (CBO), the overhaul will cost about $115 billion more than first projected, bringing the total to more than $1 trillion. Small businesses will also now have to deal with an onslaught of new taxes and burdensome paperwork."
-- Dylan Matthews is a student at Harvard and a researcher at The Washington Post.
By Washington Post editor | May 27, 2010; 9:10 AM ET
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