Chase

Describes motivation process for creativity with emphasis on intrinsic motivation by Corey K Katir

Are you sitting down? Because you’re not going to believe this. The Senate actually got something done yesterday. Something big! They confirmed both Jeremy Stein and Jerome Powell to the Federal Reserve’s Board of Governors. That means, for the first time since 2006, there are no vacancies on the Fed’s Board.

Stein, a Harvard economics professor, was confirmed 70-24. Powell, a banker who served in George H.W. Bush’s Treasury Department, was confirmed 74-21. Neither seems evidently more qualified than Nobel laureate Peter Diamond, who Republicans filibustered last year. But the Obama administration’s ‘Noah’s Ark’ strategy — nominate one Republican and one Democrat — worked. Furthermore, the predicted collapse of the confirmation process after Obama recess appointed Richard Cordray to the Consumer Financial Protection Bureau hasn’t happened. So that’s another piece of good news.

The next question is whether Stein and Powell will exert any influence on the Fed, and if so, in what direction. That remains to be seen. Right now, the Federal Reserve seems in the unusual position of admitting that it has missed terribly on its mandate to maintain full employment, swearing that there is more it can do if need be, and yet not doing anything more. Given events in Europe, though, they may not be able to resist escalating for very much longer.

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According to Tim Geithner, we won’t hit the debt ceiling until a few months into 2013. By that time, either the Bush tax cuts will have already expired and the automatic spending cuts will have already begun or the parties will have come to some big fiscal deal and the debt ceiling will have been raised along the way.

I laid out some of the possible scenarios along these lines yesterday. But one thing I didn’t mention as clearly as I should have: In the no-deal scenario, our deficit problem is pretty much solved by the time we hit the debt ceiling.

According to the Committee for a Responsible Federal Budget, if there’s no deal on anything in the new year, the scheduled tax increases and spending cuts “would reduce ten-year deficits by over $6.8 trillion relative to realistic current policy projections a enough to put the debt on a sharp downward path but in an extremely disruptive and unwise manner.”

The Congressional Budget Office agrees. They’ve sketched the no-deal scenario out in their “current law” baseline. Public debt falls from 75.8 percent in 2013 to 61.3 percent in 2022. That’s as fast as Paul Ryan says it will fall under his budget.

For all sorts of reasons, simply doing nothing isn’t a desirable way to reduce deficits. It would probably throw us back into recession in the first half of next year, for instance. But it would be very odd for Republicans, in those circumstances, to refuse to raise the debt ceiling because America’s budgets are on an unsustainable path. The country would, at that very moment, be in the midst of the sharpest bout of deficit reduction in its history.

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“We shouldnat dread the debt limit,” said Speaker John Boehner at the Peter G. Peterson Fiscal Summit. “We should welcome it. Itas an action-forcing event in a town that has become infamous for inaction.”

These comments have been the occasion for much wailing and gnashing of teeth, as if anyone, anywhere, believed that the Republicans’ 2011 debt-ceiling antics were some sort of one-off. But Boehner was clear on Tuesday. “I will again insist on my simple principle of cuts and reforms greater than the debt limit increase,” he said.

Of course he will. For one thing, it worked well for him in 2011. Republicans got more than $900 billion in immediate spending cuts, as well as $1.2 trillion in triggered spending cuts — though they don’t much like the $500 billion or so of those cuts scheduled to fall on the Pentagon. They also drove President Obama’s approval ratings beneath 40 percent. And while I’m not one who thinks Republicans intentionally tank the economy to undermine Obama, there’s little doubt that the effect of the debt-ceiling debacle was to set back the recovery, brightening Republican prospects and darkening Democratic ones. The fact is that it’s easier to be sanguine about economic showdowns when you’re not the ones in charge.

For another, it’s Boehner’s only option in 2012. The Democrats, for once, have nothing but fiscal leverage. They’ve got the expiration of the Bush tax cuts, which all Republicans would hate and many Democrats would welcome. They’ve got the aforementioned spending trigger, which Republicans really have begun to fear for its cuts to defense spending. They can do nothing — or, more likely, offer Republicans a deal they can’t accept — and the resulting paralysis will swing fiscal policy far, far, far to the left. Threatening to default on the national debt is Boehner’s only piece of counter-leverage.

So of course Boehner will try and use the debt ceiling as leverage again. And again. And again. It’s pretty clear that, at this point, there’s no going back to the time when debt-ceiling increases came smoothly. If I were the market, I’d take the fact that the leader of one of the two parties has publicly said that he “welcomes” debt-ceiling showdowns as evidence that the United States is almost certain to default on its debt — if only temporarily — within the next decade or so.

The question is what, aside from complain, Democrats and the business community will do to stop him. Somehow, the debt ceiling needs to be taken off the table once and for all, either because Republicans forced a default in a way that they were blamed for the consequences and scared into never doing it again or because the president successfully pulled off one of the more creative maneuvers suggested during last year’s showdown (Bill Clinton, for instance, argued that Obama should invoke the Fourteenth Amendment — which says “the validity of the public debt of the United States … shall not be questioned” — to raise the debt ceiling unilaterally).

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Top stories

1) Boehner threatened another debt-mageddon “Washington braced Tuesday for a replay of last summeras tense battle over the burgeoning national debt as House Speaker John A. Boehner threatened again to block an increase in the federal debt ceiling without significant new cuts in spending. Treasury Secretary Timothy F. Geithner and other senior Democrats quickly blasted the Ohio Republican, arguing that his ultimatum could put the nationas credit rating — and the broader economy — at risk early next year, when the debt is expected to hit its $16.4 trillion limit.” Lori Montgomery in The Washington Post.

@damianpaletta: Boehner’s debt ceiling “line in the sand” is very similar to what he said last year; Definitely got the attention of White House and D’s

@ObsoleteDogma: Shorter Boehner: Regulatory uncertainty is bad. But default uncertainty is good.

INTERVIEW: Sen. Tom Coburn on defusing the debt bomb.

READ: Mitt Romneyas remarks on the debt.

@MichaelSLinden: As a fiscal policy analyst, I’d like to thank Mitt Romney for offering no specifics whatsoever so I can go home at a normal time tonight.

2) Greece failed to form a new government, triggering new elections. “The threat of a full economic collapse in Greece escalated Tuesday after warring political factions here failed to forge a new government, triggering fresh elections and heightening chances that this rudderless Mediterranean nation could be forced to abandon the euro…A nation in danger of running out of cash to operate the government, and where fearful residents in recent days have been rapidly withdrawing more of their savings from Greek banks, faces uncertain new elections next month. Opinion surveys have shown that Syriza, a party that wants to break the terms of Greeceas bailout deal and that came in a surprise second in the last vote, is polling in first place…European finance ministers — whose taxpayers have largely funded the bailout for Greece — were quick to push back Tuesday. Given the potential shock waves if Greece is forced to leave the euro zone, there have been suggestions in recent days that European officials might show more lenience with Athens.” Anthony Faiola in The Washington Post.

Surging bank withdrawals in Greece sparked fears of a bank run. “Greek depositors withdrew a!700 million ($898 million) from the country’s banks on Monday, fueling fears of a bank run amid the growing political disarray. With deposits falling, Greek banks become even more dependent on the European Central Bank to meet their funding needs, exposing the central bank to potentially huge losses if Greece leaves the euro area. Greek President Karolos Papoulias told the country’s political leaders that bank withdrawals plus buy orders received by Greek banks for German bunds totaled some a!800 million on Monday, a transcript of his comments said. A central bank official confirmed the figures…Monday’s deposit withdrawal far outpaced Greek banks’ steady decline in deposits since the start of the country’s debt crisis in 2009, as depositors withdraw cash and transfer funds overseas.” Brian Blackstone and David Enrich in The Wall Street Journal.

@grossdm: So, Greece is seeking to solves its economic problems through QE — quantitative electioneering

3) The Senate will vote on several GOP budget proposals today. “The Senate on Wednesday will hold six hours of debate and votes on four different Republican budget resolutions, in an apparent attempt to demonstrate that they will not be supported in the Democratic-led Senate. A fifth budget measure up for a vote, from Senate Budget Committee ranking member Jeff Sessions (R-Ala.), is based on President Obama’s budget and is seen as an attempt to embarrass the White House. But Senate Budget Committee Chairman Kent Conrad (D-N.D.) said Tuesday that debate and votes on the GOP proposals would show there is little appetite for these plans. He also said it would give the country a chance to understand that last year’s Budget Control Act already sets spending caps for Congress. Democrats have been under fire for failing to pass any budget resolution…One of the four GOP budget resolutions to be debated Wednesday is H.Con.Res. 112, the budget resolution approved by the House in March.” Pete Kasperowicz in The Hill.

4) The Justice Department started a criminal probe into JPMorgan Chase’s loss. “The Justice Department has initiated a criminal probe into the $2 billion trading loss at JPMorgan Chase, a law enforcement representative familiar with the situation said Tuesday. The inquiry is at a very early stage, said the person, who spoke on the condition of anonymity because the matter is private. Many details about the loss at JPMorgan are murky, so it is unclear what laws, if any, may have been violated. But the attention from federal officials indicates that regulatory pressure is rising on JPMorgan, and its chief executive Jamie Dimon, to explain what exactly led to the bankas multi-billion dollar misstep. That, in turn, has rekindled questions about whether government regulators are equipped to monitor banks making risky, complex trades…Dean Boyd, a Justice spokesman, declined to comment.” Jia Lynn Yang and Sari Horwitz in The Washington Post.

Too big to fail banks have gotten bigger. “JPMorgan Chaseas $2 billion blunder is throwing the spotlight on an awkward truth for President Barack Obamaas promise to end the era of big bank bailouts: The same institutions that were deemed ‘too big to fail’ before the financial collapse are even bigger now. Efforts to manage the size of such institutions were at the heart of the Dodd-Frank financial law passed in July 2010. But nearly two years later, many of the lawas regulations remain in limbo, as federal agencies muddle through long rule-making processes against stiff industry opposition…All the while, the countryas biggest financial institutions continue to grow. The five largest, which controlled $6.1 trillion in assets before the collapse, by the end of 2011 had assets worth $8.5 trillion — equal to more than half of U.S. economic output, according to Federal Reserve data.” Patrick Reis in Politico.

@BCAppelbaum: This whole JPM story underscores one reason we don’t have effective financial regulation: Our public officials don’t understand finance.

Top op-eds

1) PORTER: It’s time for the euro to come to an end. “Social upheaval across the euro area suggests that it may be time to call it quits and try to work out an orderly process to re-establish national currencies throughout the bloc. Europe would be in much better shape if the euro didnat exist and each member country had its own currency. Monetary union has shackled together nations with vastly different economies, depriving them of an independent monetary policy that can help them through rough times. The interest rate and exchange rate that serve Germany also have to serve Spain, though that country has more than four times Germanyas joblessness. The main problem is that while leaders eagerly embraced the monetary bond, they rejected its necessary complement: a central budget that would transfer money from successful regions to underperforming ones, as the United States government sends tax dollars collected in Massachusetts to pay for unemployment benefits in Nevada.” Eduardo Porter in The New York Times.

2) FROST: The FDIC shouldn’t protect investment banks. “I suggest that we divide the two functions into separately owned, managed and regulated entities. That’s the only way we can ensure that their riskier businesses don’t undermine the insured deposits that are the foundation of a stable and healthy economy. Taxpayer safety-net programs, such as the Federal Deposit Insurance Corporation (FDIC), should be available only to banks in business to provide insured deposits. Financial institutions that provide primarily investment, hedging and speculative services don’t deserve protection either by the FDIC’s explicit guarantees or by an implicit understanding that taxpayers will bail them out because there is no other alternative. Indeed, this kind of protection is a perversion of capitalism and can distort its good outcomes…We need a real and impregnable firewall that keeps one part of the banking system–and the economy–from being consumed when the other goes into flames.” Tom Frost in The Wall Street Journal.

3) ROSEN: Competitive bidding can hurt patients. “On the face of it, competitive bidding sounds like a very good idea. If one supplier can provide power wheelchairs or oxygen masks for 30 percent less than another, itas hard to argue for contracting with the more expensive supplier, especially at a time when everyone is looking for ways to save money. A one-year experiment with expanded competitive bidding that was recently conducted by Medicare yielded cost savings of 42 percent, without reducing the quality of care, and was hailed as a great success. But as a doctor working with patients on the ground, I have doubts about that quality-of-care measure, and I worry that those savings obscure a potentially serious problem…If competitive bidding is predicated on supplying equipment at the lowest possible price, something has to give. And more likely than not, that something will be patient care.” Dennis Rosen in The New York Times.

4) ORSZAG: Want good news on jobs? Look to big businesses. “Big business, we keep being told, has been so hampered by regulatory uncertainty over the past few years, it has been reluctant to hire workers. So it is surprising to read the results of a little-known survey from the Bureau of Labor Statistics: Very large businesses, it turns out, have been expanding their domestic workforces relatively rapidly. If, since January 2011, businesses of all sizes had hired at the same rate as those with 5,000 or more employees, we would have almost 4 million more jobs today…The JOLTS data highlight the importance of exploring how the continuing deleveraging process and resultant sluggish growth in demand is affecting smaller businesses in particular. With the percentage of working Americans stuck at a depressed level, we sure could use those extra 2 million to 4 million jobs.” Peter Orszag in Bloomberg.

5) ALEXANDER: Washington should take over Medicaid and let states handle education. “Staring down steep tuition hikes, students at the University of California have taken to carrying picket signs. As far as I can tell, though, none has demanded that President Barack Obama accept a Grand Swap that could protect their education while saving them money. Allow me to explain. When I was governor of Tennessee in the early 1980s, I traveled to meet with President Ronald Reagan in the Oval Office and offer that Grand Swap: Medicaid for K-12 education. The federal government would take over 100% of Medicaid, the federal health-care program mainly for low-income Americans, and states would assume all responsibility for the nation’s 100,000 public schools…If we had made that swap…states would have about $92 billion a year in extra funds, as they’d keep the $149 billion they’re now spending on Medicaid and give back to Washington the $57 billion that the federal government spends per year on schools.” Lamar Alexander in The Wall Street Journal.

Cover interlude: Screaming Females play Sheryl Crow’s “If It Makes You Happy” for the AV Club.

Got tips, additions, or comments? E-mail me.

Still to come: Free trade with Colombia is in effect; Catholic bishops are close to suing over birth control; backlash against tests is growing; energy independence is within reach; and a puppies’-eye view of life.

Economy

The Senate will vote on two Fed nominees on Thursday. “Senate Majority Leader Harry Reid (D-Nev.) today set up a procedural vote for Thursday on two nominees to join the Federal Reserve whose nominations have stalled because of opposition from Sen. David Vitter (R-La.)…Vitter blocked attempts in March to quickly confirm Harvard University economics professor Jeremy Stein, a Democratic nominee, and former private-equity executive Jerome Powell, a Republican nominee…Asked whether he was confident that he would have the 60 votes to invoke cloture on the nominations, Reid said, ‘Well I sure hope so, weave been waiting months and months.’…Senate Minority Leader Mitch McConnell (R-Ky.) said he believes there is bipartisan support for the nominees…Without the two nominees in place, the Federal Reserve Board will remain short-handed as it attempts to support the economic recovery” Humberto Sanchez in Roll Call.

The dip in gas prices eased inflation. “The recent slide in gasoline prices in the U.S. has pushed the nation’s annual rate of inflation to its lowest level in more than a year, easing some economic strains on consumers. The consumer price index, which measures what Americans pay for everything from breakfast cereal to doctor visits, was unchanged from March to April, ending three months of increases, the Labor Department said Tuesday. A 2.6% drop in the gasoline-price index helped offset rising costs for many other items. Overall prices are now running 2.3% higher than a year ago, the smallest increase since February 2011…The inflation figures have mixed implications for the recovery. Lower gasoline and utility costs are keeping a lid on household expenses, effectively boosting Americans’ spending money. However, prices are climbing broadly, most notably for food, but also medical care, rents, autos and airfares.” Josh Mitchell in The Wall Street Journal.

States are using foreclosure prevention funds to plug budget gaps. “Hundreds of millions of dollars meant to provide a little relief to the nationas struggling homeowners is being diverted to plug state budget gaps. In a budget proposed this week, California joined more than a dozen states that want to help close gaping shortfalls using money paid by the nationas biggest banks and earmarked for foreclosure prevention, investigations of financial fraud and blunting the ill effects of the housing crisis. California was awarded more than $400 million from the banks, and Gov. Jerry Brown has proposed using the bulk of that sum to pay the stateas debts. The money was part of a national settlement valued at $25 billion and negotiated with five big banks over abuses in their mortgage and foreclosure processes…As part of the settlement, the banks agreed to pay the states $2.5 billion, money intended to help homeowners and mitigate the effects of the foreclosure surge.” Shaila Dewan in The New York Times.

House Republicans are planning a vote on a ‘fast track’ proposal for tax reform. “Speaker John Boehner said in a speech Tuesday that House Republicans would try to attach a timeline to fast-track a broad tax overhaul to a vote extending the George W. Bush-era tax rates before the November elections…’Our bill to stop the New Yearas Day tax increase will also establish an expedited process by which Congress would enact real tax reform in 2013,’ Boehner (R-Ohio) said in remarks to a fiscal summit in Washington. ‘This process would look something like how we handle Trade Promotion Authority, where you put in place a timeline for both houses to act.’…GOP aides said that, even though Boehner specifically discussed Trade Promotion Authority on Tuesday, House Republicans are looking at a variety of expedited processes that have been used in the past, and have yet to settle on just one.” Russell Berman and Bernie Becker in The Hill.

@grossdm: Memo to Boehner, the markets, etc.: the House passing legislation won’t be sufficient to avert tax increases. They’ll have to make a deal

The euro zone narrowly missed recession. “The euro-zone economy narrowly escaped recession in the latest quarter thanks to a surprising rebound in Germany, which offset deepening downturns in Spain and Italy. Although the region avoided two straight quarterly drops in gross domestic product, the common benchmark for recession, the figures nonetheless reflect a deepening divide between Germany and the rest of the euro zone that complicates the bloc’s efforts to stem its debt crisis…Euro-zone GDP was unchanged from the previous quarter, said Eurostat, the European Union’s statistics agency. In annualized terms, GDP rose 0.1% from the fourth quarter, according to calculations by J.P. Morgan Chase. Economists had expected an annualized contraction of around 1%. GDP fell at a 1.2% rate in the fourth quarter…European stock markets rose initially on the figures, which eased fears that the debt crisis may trigger an economic free fall.” Brian Blackstone in The Washington Post.

Export-Import Bank reauthorization cleared the Senate by a wide margin. “On a broad bipartisan vote of 78 to 20, the Senate voted Tuesday to extend the life of the U.S. Export-Import Bank and expand its authority to make loans to U.S. exporters. In the ‘Schoolhouse Rock’ version of how Capitol Hill works, this is what Congress does all the time — passes legislation. But it made for big news on this Capitol Hill, where protracted partisan warfare has meant that lately the story has more often been about votes forced by one party or the other to indignantly demonstrate the otheras opposition…Tuesdayas bill was the rarest of breeds: a lasting compromise on an issue of substance. It renewed the charter of what is commonly referred to as the Ex-Im bank for three years and will over that time raise the cap on the total financing the bank can guarantee from $100 billion to $140 billion.” Rosalind Helderman in The Washington Post.

The U.S.-Colombia free trade agreement took effect. “A free-trade agreement between the U.S. and Colombia took effect Tuesday after years of negotiations and despite strong opposition from U.S. labor organizations, which are worried about jobs being sent abroad and union-busting violence in Colombia. The first products shipped tariff-free were crates of Colombian roses and other flowers that landed Tuesday morning at Miami’s airport…President Barack Obama signed the free-trade agreement with Colombia in October, days after Congress gave its final approval following heated debates. The deal was originally negotiated by the Bush administration, but President Obama reworked the deal to satisfy Democrats. The U.S. exported $14 billion of goods to Colombia last year, everything from cars to consumer electronics to food, and exports are expected to rise by more than $1.1 billion as a direct result of the pact, according to the International Trade Commission.” Dan Molinski in The Wall Street Journal.

Adorable children singing interlude: Two girls cover Gotye’s “Somebody That I Used To Know” from the back seat of the car.

Health Care

Catholic bishops are threatening to sue over the birth control mandate. “The Catholic Church’s U.S. hierarchy warned Tuesday that without quick action by Congress, it will sue the Obama administration for mandating that insurance plans provide birth control to women without a co-pay. ‘[F]orcing individual and institutional stakeholders to sponsor and subsidize an otherwise widely available product over their religious and moral objections serves no legitimate, let alone compelling, government interest,’ lawyers for the U.S. Conference of Catholic Bishops wrote in a letter to federal regulators. Several small Catholic universities have already filed suit over the policy…The bishops’ notice came in 20 pages of comments submitted to the Department of Health and Human Services (HHS) on a forthcoming rule to accommodate certain religious organizations, such as Catholic hospitals, that were not exempted from the original mandate.” Elise Viebeck in The Hill.

Obamacare will expand healthcare options for immigrants. “The Obama administrationas drive to cut down on Americaas uninsured is about to get multilingual. Come 2014, when core provisions of the Affordable Care Act kick in, millions of legal immigrants will have new options for gaining health coverage. And like U.S. citizens, most will be subject to the individual mandate, under which they will be required to get coverage to avoid a penalty. The national health law explicitly excludes illegal immigrants — a politically explosive topic — and bans them from the new state insurance exchanges, even if they use their own money. They will make up a big chunk of the remaining uninsured population. But advocates say states have good reasons to reach out and get uninsured legal residents covered — especially as the federal government picks up most of the tab…In 2014…legal immigrants will be able to shop for health coverage through the new state insurance exchanges.” Kyle Cheney in Politico.

Domestic Policy

The backlash against standardized testing is growing. “The increasing role of standardized testing in U.S. classrooms is triggering pockets of rebellion across the country from school officials, teachers and parents who say the system is stifling teaching and learning. In Texas, some 400 local school boards–more than one-third of the state’s total–have adopted a resolution this year asking lawmakers to scale back testing. In Everett, Wash., more than 500 children skipped state exams in protest earlier this month…The efforts are a response to the spread of mandatory testing in the past decade. Proponents say the exams are needed to ensure students are learning and teachers’ effectiveness is measured. Critics say schools are spending disproportionate time and resources on the tests at the expense of more-creative learning. They also contend the results weigh too heavily in decisions on student advancement, teacher pay and the fate of schools judged to have failed.” Stephanie Banchero in The Wall Street Journal.

The NLRB suspended implementation of its union elections rule. “The National Labor Relations Board (NLRB) suspended implementation on Tuesday of a rule that would speed up union elections. On Monday, U.S. District Judge James Boasberg struck down the regulation. In his ruling, the judge said the labor board only had two members vote on the final rule in December 2011 when it needed three members to form a quorum. In the wake of the court decision, the agency is temporarily suspending the rule’s implementation, which went into effect on April 30. Further, Lafe Solomon, the NLRB’s acting general counsel, withdrew guidance he sent to the labor board’s regional offices and told those offices to follow the old union election rule instead. The agency is still considering its response to the court ruling…’We continue to believe that the amendments represent a significant improvement in our process and serve the public interest by eliminating unnecessary litigation,’ said NLRB Chairman Mark Pearce.” Kevin Bogardus in The Hill.

Dog’s-eye view interlude: Life from on top of puppies.

Energy

Energy independence is no pipe dream. “Every president since Richard Nixon has called for the U.S. to wean itself from needing oil from unstable or unsavory countries. The nation’s new-found energy riches are likely to bring that ambition closer to reality in the next two decades, according to many forecasters. It’s no pipe dream. The U.S. is already the world’s fastest-growing oil and natural gas producer. Counting the output from Canada and Mexico, North America is ‘the new Middle East,’ Citigroup analysts declare in a recent report. The U.S. Energy Information Agency says U.S. oil imports will drop 20% by 2025. Oil giant BP projects the U.S. will get 94% of its energy domestically by 2030, up from 77% now, as oil imports fall by half…Most enticing, a team of analysts and economists at Citigroup argues that the U.S., or at least North America, can achieve energy independence by 2020.” Tim Mullaney in USA Today.

@umairh: So consider how our political institutions are paralyzed by a financial crisis. Now think about energy, water, etc crises. Sweet!

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.

Don’t think of gay marriage as a cultural issue. Don’t think of it even as an equality issue. Don’t even think of it as a political issue. Think of it, just for a moment, as an economic issue.

In the traditional view of marriage, write economists Betsey Stevenson and Justin Wolfers, “the joining of husband and wife yields a more productive firm, because it allows one spouse to specialize in earning income from working in the market, while the other specializes in the domestic sphere. The division of labor allows for greater productivity, just as it does in the workplace. The different skills required for these separate roles provide an economic rationale for the advice your grandmother may have offered, that ‘opposites attract.’” Romantic, right?

But in recent decades, the marriage-as-firm view has crumbled — and not just because social mores have changed. “Washing machines, dishwashers and microwave ovens have reduced the value to the family ‘firm’ of employing a domestic specialist,” say Stevenson and Wolfers, who are, themselves, married. “Cheap clothes can be imported from China, rather than sewn at home. Healthy meals can be purchased from the freezer at Trader Joeas. Whatas more, legal and social changes have broken down many of the barriers keeping women out of the labor market…All these developments have increased the opportunity cost of having a spouse stay home, because that spouse now has greater value in the marketplace.”

One possibility was that, as the traditional economic case for marriage fell apart, marriage itself would decline as an institution. But that didn’t happen. Rather, we developed a new kind of marriage. “Modern partnerships are based upon ‘consumption complementarities’ — the joy of sharing things and experiences — rather than the production-based gains that motivated traditional marriage,” continue Stevenson and Wolfers. “Consistent with this, co- parenting has replaced the separate roles of nurturer and disciplinarian. We have called this new model of sharing lives ‘hedonic marriage.’ These are marriages of equality in which the rule aopposites attracta no longer applies in the same way, because couples with more similar interests and values can derive greater benefits. So likes are now more likely to marry each other.”

And it’s into this institution that gay couples are being admitted, because the nature of this institution doesn’t provide a good argument for their exclusion.

Gay couples couldn’t credibly promise to provide each other with the separate and specialized skills — separate for reasons of legal discrimination, and social beliefs about what men and women could do — that were the basis of the older conception of marriage. But gay couples can certainly share the joy of things and experiences, they can certainly improve each other’s lives, they can certainly co-parent, they can certainly bring increased economic stability to a household by combining two incomes — they can do all the things that form the basis of what Stevenson and Wolfers call “hedonic marriages.”

In other words, one story here is that our attitudes have changed towards homosexuality, and that’s certainly true. But another is that our attitudes have changed towards marriage — even heterosexual marriage — in ways that opened the institution for gays. And that’s true, too.

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Top stories

1) Greece’s coalition talks remain deadlocked. “Greeceas president is set to resume coalition talks on Tuesday with the countryas political leaders in another attempt to avoid a fresh general election after a meeting on Monday evening ended without agreement. Antonis Samaras and Evangelos Venizelos, the conservative and socialist leaders, and Fotis Kouvelis, head of a leftwing splinter group, held a fruitless one-hour discussion on how to escape the crisis but agreed to meet again, along with other party heads. President Karolos Papoulias has another 48 hours to persuade politicians to join a national unity government according to the constitution or face having to call another election…Alexis Tsipras, the leader of Syriza, the radical leftwing coalition that rejects the terms of Greeceas international bailout, refused to participate in Mondayas talks. ‘Weare not going to join in selective meetings of political leaders … The circle of contacts provided for by the constitution has been completed,’ he said.” Kerin Hope and Peter Spiegel in The Financial Times.

The standoff is raising worries of a European economic crisis. “Political deadlock in Greece rattled world markets Monday, reviving fears that the fractious Mediterranean country could spurn an international bailout, abandon the common European currency and risk a fresh round of world economic turmoil. European stock indexes fell, with Greeceas market now at a 20-year low, while the euro currency continued a recent decline against the dollar. U.S. stocks also fell. Coming only days before the leaders of the worldas Group of Eight industrialized nations meet at Camp David, the standoff in Greece over its political direction has thrust Europeas troubles to the top of the agenda. A downturn in Europe could stagger a fragile recovery in the United States and undermine growth around the world. Fighting a new downturn would be a challenge for the major economies, many of which have not fully stabilized since the last big economic crisis.” Howard Schneider and Anthony Faiola in The Washington Post.

FAQ: Why is Greece in such trouble? And can it be fixed?

@ezraklein: “Syriza” is a rather evil-sounding name for a political party. Pretty sure it means Hydra in Greek.

2) Senate leaders reached a deal to move the Export-Import Bank bill forward. “Legislation to extend the Export-Import Bankas charter advanced in the Senate Monday evening after agreement was reached on addressing tea party demands to reopen a bipartisan deal approved only days ago by the House. Five GOP amendments will be permitted Tuesday — some re-litigating specific agreements reached by House leaders. But in each case, a supermajority of 60 votes would be required, leaving Senate Majority Leader Harry Reid (D-Nev.) hopeful that the House package will survive intact and go quickly to President Barack Obama for his signature this week…Mondayas agreement, as announced by Reid, came only minutes before a scheduled procedural vote in which he would have needed 60 votes himself to move on to the bill. By coming to terms on the amendments, Reid avoided that challenge, but as part of the same deal, he will need 60 votes for passage of the bill.” David Rogers in Politico.

3) JPMorgan Chase’s loss has the banking industry scared. “A Congressional committee announced plans on Monday to hold a hearing on the financial regulatory overhaul that will look at the JPMorgan loss. Wall Streetas representatives, fearing that the entire banking industry might pay for JPMorganas sins, are trying to contain the fallout in Washington, people close to the matter said…JPMorgan, however, is stepping away from another public panel on the Volcker Rule. The Commodity Futures Trading Commission, one of the regulators writing the Volcker Rule, will host a public roundtable this month about the new regulation and has invited JPMorgan to speak. Last week, JPMorgan suggested that one of its top Volcker Rule experts would attend. But then the bank said that this person had a scheduling conflict. Rather than dispatch another executive to Washington, the banks recommended an employee at another bank..” Ben Protess and Ed Wyatt in The New York Times.

The fiasco claimed its first casualty. “JPMorgan Chase on Monday announced the abrupt retirement of the executive who oversaw the unit that lost $2 billion trading exotic securities, the latest twist in a story that has exposed the gulf between how Wall Street views itself and how the public sees the financial sector. To the bank, its actions — which included appointing an executive to investigate what went wrong — were an example of how it could take the initiative in cleaning up its own shop. But to many lawmakers and analysts, the question remains how a bank with a sterling reputation could get into such trouble two years after Congress passed laws to prevent dangerous financial gambling…On Monday, the bank announced that Chief Investment Officer Ina Drew, who oversaw the London unit, would leave the firm, which she has served for 30 years…The bank also announced that Mike Cavanagh, a top executive, would lead a team of officials to investigate the losses.” Zachary Goldfarb and Steven Mufson in The Washington Post.

FAQ: What happened at JP Morgan? And should you care?

@lizzieohreally: Carl Levin just waved highlighted parts of Dodd-Frank at me. Which was awesome.

@SuzyKhimm: Part of Obama’s problem in selling Dodd-Frank: many new regs aren’t written yet, much less implemented. Similar to Obamacare conundrum.

4) Businesses are bracing for taxmageddon. “Defense contractors have slowed hiring. Tax advisers are warning firms not to count on favorite breaks. And hospitals are scouring their books for ways to cut costs. Across the U.S. economy, anxiety is rising about the potential for widespread disruptions after the November election, when a lame-duck Congress will have barely two months to resolve a grinding standoff over taxes and spending. The halls of the U.S. Capitol are already teeming with people warning of disaster if lawmakers fail to defuse a New Yearas budget bomb scheduled to raise taxes for every American taxpayer and slash spending at the Pentagon and most other federal agencies…The uncertainty is already prompting some firms to take action. Many more say they will be forced to contemplate layoffs and other cost-cutting measures long before the end of the year unless the Republican House and the Democratic Senate come up with an alternative path to tame deficits.” Lori Montgomery and Rosalind Helderman in The Washington Post.

5) The House GOP may link tax cut extensions with a tax reform vote this summer. “House GOP leadership is considering linking a short-term extension of the expiring Bush-era tax cuts to an overhaul of the tax system this summer, aiming to give its party a campaign talking point and to pressure Senate Democrats to act. While the details of the plan are very much up in the air, one option being considered is passing a bill extending the 2001 and 2003 tax rates for one year along with a resolution affirming GOP principles for tax reform. The measures could also include some form of fast-track authority, much like the power granted to the Joint Committee on Deficit Reduction, to expedite floor consideration of a tax reform plan in 2013, when the Bush-era tax cuts would again expire…Boehner is expected to address this and other financial issues at a speech before the Peter G. Peterson Foundation Fiscal Summit today.” Daniel Newhauser and John Stanton in Roll Call.

Top op-eds

1) KLEIN: The filibuster may be unconstitutional. “According to Best Lawyers — ‘the oldest and most respected peer-review publication in the legal profession’ — Emmet Bondurant ‘is the go-to lawyer when a business person just canat afford to lose a lawsuit.’ He was its 2010 Lawyer of the Year for Antitrust and Bet-the-Company Litigation. But now, heas bitten off something even bigger: bet-the-country litigation. Bondurant thinks the filibuster is unconstitutional. And, alongside Common Cause, where he serves on the board of directors, heas suing to have the Supreme Court abolish it…At the core of Bondurantas argument is a very simple claim: This isnat what the Founders intended. The historical record is clear on that fact. The framers debated requiring a supermajority in Congress to pass anything. But they rejected that idea.” Ezra Klein in The Washington Post.

2) SALAM: The U.S. economy shouldn’t follow China’s model. “Americans have always looked abroad for inspiration. Alexander Hamilton drew on the experience of Britain and France to shape the economic institutions of the early republic. In the early 19th century, Henry Clay championed tariffs, a national bank, and internal improvements in an effort to match Britainas economic might. As the 19th century gave way to the 20th, Germany emerged as an industrial colossus, and American intellectuals had a new model. During the 1950s, at least some Americans, mainly but not exclusively on the political left, saw the breakneck modernization of the Soviet Union as a clear indication that the old-fashioned market economy was on its last legs…But the belief that we had much to learn from the Soviets was both dangerous and stupid. And much the same can be said for the current enthusiasm over Chinaas economic model.” Reihan Salam in National Review.

3) BERWICK: Cheaper healthcare can mean better healthcare. “Reducing costs wonat just rescue health care; it will also help rescue our schools, our roads, our museums, our wages, and the competitiveness of our corporations…The route is simple: improve care. In a study in the Journal of the American Medical Association, my colleague Andy Hackbarth and I estimated the amount of pure waste in American health care — overtreatment that helps no patient at all (like treating viral infections with antibiotics), errors and injuries from unsafe care, failures in coordination (such as sending people home from hospitals without supports), needless administrative complexity, failures of price competition, and fraud. The lowest estimate of total waste in these six categories was 21 percent of health care costs; the highest was 47 percent; and the midpoint was 34 percent. When we are wasting $1 in of every $3, it makes no sense to say we cannot afford to make health care a human right without rationing. Donat cut care. Cut waste.” Donald Berwick in The Boston Globe.

4) SCHMITT: Link worker pay to corporate taxes to fight inequality. “The tax code can be part of the solution. The first step is to end the preferential treatment of income from capital gains, which economists like Princetonas Alan Blinder have shown to have no lasting effect on total investment or the economy. But we can and should go further, actively using the corporate tax code to create a real incentive to pay CEOs less, and workers more, by linking the head honchoas compensation to both employee salaries and tax rates. Hereas how the idea could work. The current corporate tax rate is a flat 35 percent. In an equity-based corporate tax system, companies with a pay ratio at the historic norm of 40:1, or even up to 60:1, would pay the existing rate and be able to deduct executive pay. But companies that pay their top executives more than 60 times the average worker (including employees in overseas subsidiaries) would pay a higher rate, 40 percent, and those with extreme pay differentials, 80:1 or higher, would pay 45 percent.” Mark Schmitt in GOOD.

5) STEVENSON AND WOLFERS: An economic mode of marriage equality. For our grandparentsa generation, marriage was about separate roles, separate spheres and specialization. Gary Becker, an economist at the University of Chicago, won the Nobel Prize partly for describing the family as an economic institution — a bit like a small firm that employs people with different skills to produce both income and a well-run household. In Beckeras view, the joining of husband and wife yields a more productive firm, because it allows one spouse to specialize in earning income from working in the market, while the other specializes in the domestic sphere. The division of labor allows for greater productivity, just as it does in the workplace…Modern marriage offers different benefits. Today, we search for a soul mate rather than a good homemaker or provider. We are more likely to regard marriage as a forum for shared experiences and passions. Viewed through an economic frame, modern partnerships are based upon ‘consumption complementarities’ — the joy of sharing things and experiences — rather than the production-based gains that motivated traditional marriage. Consistent with this, co- parenting has replaced the separate roles of nurturer and disciplinarian.” Betsey Stevenson and Justin Wolfers at Bloomberg View.

Anti-folk interlude: Kimya Dawson plays “I like Giants” live.

Got tips, additions, or comments? E-mail me.

Still to come: A fall in commodities prices sparks worries of deflation; a turf war over primary care; colleges begin to confront costs; regulators worry about solar flares; and a harbor seal pup explores the water for the first time.

Economy

New data suggests the eurozone has returned to recession. “Industrial production in the 17 countries that use the euro fell unexpectedly in March, leaving little doubt the region contracted for a second straight quarter in the first three months of the year and returned to recession, data by Eurostat showed Monday. The European Union’s statistical agency will publish the first estimate of first-quarter gross domestic product Tuesday. Economists are forecasting a 0.2% quarterly decline, according to a Dow Jones Newswires poll. Industrial production fell 0.3% on the month in March and by 2.2% on the year. The latter was the steepest drop since a 3.7% decline in December 2009, while the monthly decline was because of a sharp 8.5% decrease in energy production as the weather in March was warmer than usual for the time of year, a Eurostat statistician said…The data were weaker than expected. Economists had forecast a 0.5% monthly increase and a 1.2% year-on-year fall.” Ilona Billington in The Wall Street Journal.

Commodities prices fell to a new yearly low. “The prices of key commodities fell to their lowest level of the year on Monday, dragged down by worries about Europeas debt crisis and the possibility of a slowdown in China, the worldas second-largest economy. An emerging concern among some economists and investors is that the declining prices of materials such as gold and crude oil could be an early signal of deflation — a decline of prices that is economically corrosive because it makes it more difficult for businesses to make a profit. The downturn in prices is reflected in broad measures of commodity prices. The Standard & Pooras GSCI, an index tracking prices for crude oil, gold, copper and several other commodities, has dropped more than 6 percent this month so far. Even the price of gold, which usually rises when investors have concerns about the economy, has fallen.” Jia Lynn Yang in The Washington Post.

Smile for the camera interlude: Videos of people who think they are posing for a picture.

Health Care

Romney and Obama differ sharply on Medicare. “President Obama and Mitt Romney agree on one thing about Medicare: the differences between them are huge…Mr. Romney, who would limit the governmentas current open-ended financial commitment to Medicare, contends that Mr. Obama has no workable plan to prevent Medicare from going bankrupt. Under the Romney proposal, the government would contribute a fixed amount of money on behalf of each beneficiary, and future beneficiaries could use the money to buy private insurance or to help pay for traditional Medicare…Mr. Obama assails the Romney proposal for the same reason he denounced a similar plan devised by Representative Paul D. Ryan, Republican of Wisconsin and chairman of the House Budget Committee: the government contribution, he says, would not keep up with the rising cost of health care, so Medicare beneficiaries — older Americans and people with disabilities — would have to pay more of the cost.” Robert Pear in The New York Times.

A primary care turf war is heating up. “Nurse practitioners are rolling out a campaign this week to explain what, exactly, nurse practitioners do — and why patients should trust them with their medical needs…The AANP will follow up on the public relations blitz with state-level lobbying efforts, looking to pass bills that will expand the range of medical procedures that their membership can perform…All states have ‘scope of practice’ laws, which regulate what medical procedures each profession can, and cannot, perform, given their level of education…In 16 states, nurse practitioners can practice without the supervision of another professional such as a doctor. Other states, however, require a physician to sign off on a nurse practitioneras prescriptions, for example, or diagnostic tests. As the health insurance expansion looms, expanding those rules to other states has become a crucial priority for nurse practitioners.” Sarah Kliff in The Washington Post.

A senator is floating a plan to make HIV drugs cheaper. “Why do American patients pay tens of thousands of dollars each year for HIV drugs that cost just hundreds in Africa? Drugmakers wave their patent rights in developing countries as part of the Presidentas Emergency Fund for AIDS Relief. But the higher cost of brand-name drugs in the United States makes it difficult for many HIV patients to stay on drug regimens that can cost as much as $30,000 a year. Thatas the challenge a Senate subcommittee will explore on Tuesday at a hearing on how to narrow the gap. Itas mainly a vehicle one proposed solution — a proposal by Sen. Bernie Sanders (I-Vt.) that would award prize money rather than grant patent rights to manufacturers that develop new HIV drugs, allowing the medication to go straight to the generic market. But the hearing will also look at the root causes of a dilemma that has had some HIV patients and drugmakers at odds for years.” J. Lester Feder in Politico.

@petersuderman: This new issue of Health Affairs looks so, so awesome. All coverage expansion all the time!

Domestic Policy

Broadcasters are pushing back on recent FCC moves. “TV broadcasters look at the Federal Communications Commissionas recent drive to move them off frequencies and put their political advertising rates on the Internet and draw one conclusion: The FCC has it in for television. And broadcasters are fighting back by publicly airing that charge in the midst of the ongoing policy debate on freeing up airwaves for wireless broadband…For decades, televisionas use of the airwaves was virtually unchallenged. Under Chairman Julius Genachowski, the FCC has focused on fostering mobile broadband as the essential communications platform of the future. As broadcasters see it, television has become a much less important medium to the agency…In the wrangling over spectrum, broadcasters see the wireless industry — which is clamoring for access to more airwaves to satisfy the exploding amount of broadband data traffic — as their main foe. As the wireless industry sees it, the best use of finite spectrum resources is mobile broadband.” Brooks Boliek in Politico.

A federal judge struck down a NLRB rule on union elections. “A federal judge ruled Monday that a contentious union election rule proposed by the National Labor Relations Board (NLRB) is ‘invalid.’ In an 18-page memorandum opinion, U.S. District Judge James Boasberg struck the regulation down, saying the labor board only had two members when it voted on the final rule in December 2011. Boasberg said the agency needed at least three members to have a quorum for action on the rule…Two NLRB members — Chairman Mark Pearce and then-Member Craig Becker, both Democrats — participated in adopting the rule. The labor boardas third member at the time, Republican Brian Hayes, did not participate…The judge said the decision by the U.S. District Court for the District of Columbia ‘may seem unduly technical,’ but cited a 2010 Supreme Court ruling that the NLRB needs a quorum of three members to issue regulations and make rulings. Boasberg said his ruling was not made on the merits of the union election rule and noted the NLRB could vote again to pass it.” Kevin Bogardus in The Hill.

@AlecMacGillis: Dems’ failure to pass labor law reform in ’09-’10 haunts once again–a judge just threw out NLRB’s incremental new rule to ease organizing.

Colleges are beginning to confront costs. “College presidents across the country are confronting the same realization, trying to manage their institutions with fewer state dollars without sacrificing quality or all-important academic rankings. Tuition increases had been a relatively easy fix but now — with the balance of student debt topping $1 trillion and an increasing number of borrowers struggling to pay — some administrators acknowledge that they cannot keep putting the financial onus on students and their families. Increasingly, they are looking for other ways to pay for education, stepping up private fund-raising, privatizing services, cutting staff, eliminating departments — even saving millions of dollars by standardizing things like expense forms…The problems arenat confined to public colleges. Administrators at some nonprofit private institutions said they too had come to realize they could not keep raising tuition and fees.” Andrew Martin in The New York Times.

Adorable animals exploring the world interlude: The firsts of a harbor seal pup.

Energy

A transmission line for offshore wind is moving forward. “A pioneering proposal to build a wind power transmission line on the ocean floor from southern Virginia to northern New Jersey cleared a hurdle on Monday when the Interior Department opened the way for the projectas sponsors to start work on an environmental impact statement. The Bureau of Ocean Energy Management, part of the Interior Department, said that no competitor had emerged for the right-of-way for the proposed transmission line, known as the Atlantic Wind Connection, allowing the bureau to issue a ‘determination of no competitive interest.’ By linking wind farms 15 to 20 miles off the coast, the backbone would greatly reduce the number of individual radial lines needed to bring the energy to shore…Construction of the full project would take about 10 years, according to the company. The right-of-way corridor, including branches to reach the shore at intermediate points, would run about 790 miles, the Interior Department said.” Matthew Wald in The New York Times.

Regulators are considering options to protect the grid from solar flares. “With a peak in the cycle of solar flares approaching, U.S. electricity regulators are weighing their options for protecting the nation’s grid from the sun’s eruptions–including new equipment standards and retrofits–while keeping a lid on the cost. They are studying the impact of historic sunstorms as far back as 1859 to see if the system needs an upgrade, and encountering a clash of views on how serious the threat is and what should be done about it…The sun is expected to hit a peak eruption period in 2013, and while superstorms don’t always occur in peak periods, some warn of a disaster. John Kappenman, a consultant and former power engineer who has spent decades researching the storms, says the modern power grid isn’t hardened for the worst nature has to offer. He says an extreme storm could cause blackouts lasting weeks or months, leaving major cities temporarily uninhabitable and taking a massive economic toll.” Ryan Tracy in The Wall Street Journal.

Highway crashes are the leading cause of fatalities for oil and gas workers. “Over the past decade, more than 300 oil and gas workers like Mr. Roth were killed in highway crashes, the largest cause of fatalities in the industry. Many of these deaths were due in part to oil field exemptions from highway safety rules that allow truckers to work longer hours than drivers in most other industries, according to safety and health experts. Many oil field truckers say that while these exemptions help them earn more money, they are routinely used to pressure workers into driving after shifts that are 20 hours or longer…Last year, the National Transportation Safety Board said it ‘strongly opposed’ the oil field exemptions because they raise the risk of crashes. This threat will grow substantially in coming years, safety advocates warn. According to federal officials, more than 200,000 new oil and gas wells will be drilled nationwide over the next decade.” Ian Urbina in The New York Times.

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.

Elizabeth Warren, who is running for Senate in Massachusetts, thinks JP Morgan Chase CEO Jamie Dimon should resign his seat on the New York Federal Reserve. Beating up on Dimon is, of course, a popular position among politicians right now, but Warren has special credibility on this point: She chaired the congressional oversight panel on TARP from 2008 to 2010, and led the Consumer Financial Protection Bureau from 2010 to 2011. We spoke by phone Monday afternoon. A lightly edited transcript follows.

Ezra Klein: So JP Morgan lost $2 billion. Theyare not asking for a bailout. Theyare not threatening to capsize either themselves or anyone else in the system. And so they say, and itas not an entirely unfair question, why is this Elizabeth Warrenas business, or the U.S. Congressas business? Isnat making bad investment decisions legal?

Elizabeth Warren: That is what Jamie Dimon has said. He says itas stupid and sloppy but weall fix it. So stay away. But what if the next loss is $20 billion or $200 billion? Is he saying JP Morgan should be entitled to continue to take these bets right up until the day it lands in the taxpayers lap again?

Banks are different than other kinds of companies. We learned that in 2008. They run the risk of bringing down our jobs, our pensions, our economy. The basic deal we made with them is they get to operate banks a the things that take savings and investments and checking accounts and get a federal guarantee a in return for submitting to substantial oversight to make sure their activities are safe.

EK: That gets us to the Volcker rule, which is what would keep banks that get that guarantee from gambling with customer money and a federal backstop. But at this point, I donat think very many people a even people who follow this stuff quite closely a have a very specific sense of what the difference between a good and bad Volcker rule is. So how do you think about that?

EW: Iam going to reframe it slightly: Who profits from the complexity of the Volcker rule? Itas the largest financial institutions. No financial institutions want a simple Volcker rule. They want layers and layers of complexity because itas in complexity that there are loopholes. Thatas where itas possible to back up regulators who are not quite certain about the ground they stand on. And itas a larger problem with our regulatory structure: Complexity favors those who can hire armies of lobbyists and lawyers. The big push I made at the Consumer Financial Protection Bureau was simple rules. Simple mortgage documents. Simple credit card agreements. Because complexity creates too many opportunities for an army of lawyers to turn the rules upside down.

EK: I agree that complexity is where lobbyists and lawyers work their dark magic. But when I talk to people in the industry about this, they say that simple rules sound great, but theyare not really possible. Itas hard to distinguish a hedge from a bet, or a speculative trade from a legitimate one. The world is complex, and thatas why regulators and politicians who donat like Wall Street and donat like being browbeaten by lobbyists end up allowing complex rules, too.

EW: Hereas another way to look at what you just described: Thatas the strongest argument for a modern Glass-Steagall. Glass-Steagall said in effect that hedge funds should be separated from commercial banking. If a big institution wants to go out and play in the market, thatas fine. But it doesnat get the backup of the federal government. If itas too complicated to implement the Volcker rule, do you say we give up and let the largest financial institutions do what they want? Or do you say maybe thatas the reason we need a modern Glass-Steagall?

EK: Do you support a modernized Glass-Steagall law?

EW: Yeah! Iave talked with Sen. Maria Cantwell from Washington State. Sheas been working on that, and I think the debate should be on the table.

EK: What about breaking up the big banks?

EW: Youare approaching risk from two different directions. One is the risk of the activity. Thatas the Volcker rule. The other direction is to say risk is an assumption of size. Community banks shouldnat have to deal with complex regulatory oversight, but the largest institutions should be subject to far more aggressive oversight and have to pay more for the protections they receive from the American taxpayer. Then shareholders may decide to invest in institutions that are not so large.

EK: One of the scarier aftereffects of the crisis is that the biggest banks have become much bigger, right? JP Morgan Chase, if I remember correctly, now has more than $2 trillion in assets, where before the crisis, it was well beneath that.

EW: I was just talking about this this morning. One of the things I remember is when we were writing the reports trying to put some accountability into the system in 2008 we kept talking about how there was too much concentration in the banking industry. I remember this! I was on television talking about it. I talked to reporters about it. And now thereas more concentration than there was then. We moved in exactly the wrong direction.

EK: And the thing that worries me about that, at least when applied to this crisis, is that if you think about the appetite for risk being a contributor to bubbles and blowups, weare not even five years out from Lehman. Regulators are looking over everyoneas shoulder. Youad expect the appetite for risk to be very low right now. And even in this atmosphere, JP Morgan managed to blow up billions of dollars in insanely complex derivatives.

EW: And when Jamie Dimon is holding himself out as the hero of the day for having been the worldas most prudent banker. All of that is going on at the same time. The moment of once-burned, twice-shy, passed quickly! The bankers have been ready to get right back into playing with matches and firecrackers and every other combustible thing they can find. Thatas why I think this is really about the system, not Dimon. If JP Morgan has to admit to taking on risks that would cause a $2 billion loss, whatas happening at the other financial institutions, the ones that havenat held themselves out as models of prudence? No one knows because there is no effective oversight.

EK: Can Dodd-Frank work if itas effectively implemented?

EW: I think Dodd-Frank is a strong bill that moves in the right direction. But the market keeps changing. The practices keep changing. The idea that weall pass one law and then declare that problem is solved, weall be back again in 50 years, just doesnat work anymore. We had a double problem here: Both deregulation and the failure to adapt to new financial conditions and products and practices. Thatas what permitted risk to multiply in the system until it nearly brought the economy to its knees.

What was the trade?

As Michael Hiltzik of the Los Angeles Times writes, we donat need to get too technical here. aLeaving aside the sophistication of the transactions themselves, JPMorganas trader, a London-based derivatives expert whose portfolio was so outsized he became known in the markets as the London Whale, essentially bet that corporate debt was becoming less risky as corporations were getting stronger — in trading parlance, he was long corporate debt. But he did so in a way that even a tiny hiccup in the index he was trading could be exploited by rival traders. And thatas what happened.a If you want to get technical, however, FT Alphaville has you covered.

How did they make this mistake?

No one really knows yet. Matt Levine, the editor of Dealbreaker, thinks they simply messed up the math that was governing the trade. aThis looks like the CIOas trading desk modelling the actual [profits and loss] and risks of the trade wildly wrong. That seems to me like the simplest way to lose a billion dollars without noticing it. You can see that in Jamieas ajust acause weare stupid doesnat mean everybody else wasa: this was not driven by the market moving against them (though it seems to have), it was driven by them getting the math wrong.a

How much did JP Morgan lose on it?

We donat know. We probably wonat know for awhile. The number $2 billion is floating around. But it could easily be closer to $5 billion when all is said and done. The key here is that the trade isnat over. JP Morgan Chase is still trying to get out of its positions. How quickly they do that, and where the market moves between now and then, will decide the extent of their total losses.

Will JP Morgan need a bailout?

No. Itas hard to believe, but $2 billion, or even $5 billion, just isnat that much money to the bank. In 2011, JP Morganas profits were $19 billion in 2011. And CEO Jamie Dimon called that amildly disappointinga at the time.

So does this matter at all?

Yes.

Why?

For one thing, JP Morgan was known as the best manager of risk on Wall Street. Thatas largely because they made it through the financial crisis mostly unscathed. But it turns out that even the best manager of risk isnat very good. This trade, in fact, looks a lot like the financial crisis: They bet on something unlikely as if it was impossible. Thatas what all those banks did when they made bets on the belief that the housing market never goes down everywhere all at once. Itas a reminder that this is a kind of mistake that even agooda banks make. And remember — JP Morgan made this mistake less than four years after the fall of Lehman Brothers, so this came at a time when the lessons of the crisis are fresh in everyoneas mind, and when regulators are watching closely.

So thatas it? The national media is engaged in a collective attack of post-traumatic stress because the only bank it kinda-sorta trusted did something dumb?

No. Thereas a political dimension here, too. JP Morgan has used its sterling reputation to fight the Volcker rule. Thatas the regulation that says that banks that take commercial loans and get federal insurance to protect those loans — banks that you might open a checking account with, like JP Morgan — canat make speculative bets on their own behalf. If youare going to be a bank, then you canat play at the casino.

The problem is that itas very hard to say when a bank is betting on its own behalf and when its betting on its clientsa behalf. JP Morgan says that this trade was a ahedgea: It was there to reduce risk, not make money. But given how exquisitely it blew up in JP Morganas face, now regulators are going to make sure that the Volcker rule would stop trades like this one from happening. Otherwise, theyall get the blame next time. That means a much tighter Volcker rule — which in turn means JP Morgan (and other banks) wonat make as much money in the coming years. Thatas part of why all their stocks are tumbling. JP Morgan, for instance, lost $14.5 billion on Friday.

And the government may not stop with the Volcker rule. The SEC has opened an investigation. And remember: this is an election year. If a few congressmen band together to propose some much more stringent regulations on the banks, thereas some chance that they could sail through as both parties try to show theyare tougher on the banks.

What else could they do?

Lots. If you look hard enough, you can find many, many regulatory changes that were left out of Dodd-Frank.

For instance, Eliot Spitzer points out that Jamie Dimon, the CEO of JP Morgan Chase, asits on the board of the New York Federal Reserve Bankathe very organization that is supposed to oversee his bankas financial practices, the organization that is supposed to issue all sorts of regulations that control what his bank can do, the very organization he has been lobbying to relax the rules about the bets he wants to make…The Fed conflict is so obvious that it defies any possible rationalization or explanation. For a decade, the New York Fed has failed to pick up on any of the significant Wall Street threats: excess leverage, subprime fraud, dangerous concentration in atoo big to faila entities. Maybe the reason is that the board is controlled by the very voices that have been at the root of the failure. There has been not the slightest voice of protest from the boardayet it is a public organization!a

Canat Wall Street just lean on Congress to stop them?

Possibly. But remember that the most aggressive and effective of Wall Streetas defenders was…Jamie Dimon. And his argument was always that the financial crisis was, in large part, a case of many banks being stupid. But JP Morgan had been smart. And was it really fair to punish JP Morgan for the mistakes of Washington Mutual.

But as Noam Scheiber writes, JP Morganas bad trade just annihilated that argument. aWe now have ironclad proofaas if we really needed itathat everyone is capable of disastrous stupidity. But thatas the one thing Dimon canat admit, since it would require him to support intrusive regulations. Stupidity, in Dimonas mind, is always isolated and explainable, not systemic and unavoidable…[but] almost every mitigating circumstance he cited actually strengthens the case for reform. Dimon made clear that the loss wasnat the work of a rogue trader: The position was completely authorized, he suggested, just poorly executed and weakly monitored. One shudders to think what might have happened at a less scrupulously-managed bankaof which there are manyawhen the losses could have escaped detection much longer. a

What are you more worried about? JP Morgan or Greece.

Oh, Greece. A thousand times Greece. This JP Morgan thing is bad for JP Morgan. Whatas going on in Europe might be bad for the global economy. Or, to put it another way, JP Morganas losses are something you might be angry about, or smug about, but theyare not something you should be worried about. This isnat a second financial crisis or anything.

I have more questions, and you havenat answered them.

Leave them in comments. Iall try and update this post as appropriate.

On Saturday, at 9:17am, Henry Blodget, the editor of Business Insider, asked the question that was on everyone’s mind: “So, when is JP Morgan going to fire the incompetent fools who just lost $2 billion and trashed the firm’s reputation?”

The answer, according to the Wall Street Journal, is…soon. The paper reports that the botched trade is “likely to result this week in the departure of three of the highest ranking executives with direct ties to the investments.”

Over at Seeking Alpha, Gene Kirsch tried to put Hedgegate into a broader context. “JPMorgan losses are reported to be actually $800 million in Q2 with the potential for legal and other losses up to $4.2 billion over a longer period of time, possibly exceeding one year,” he wrote. “The banking unit of JPMorgan Chase alone made $12.4 billion last year. The holding company has over $2.26 trillion in assets and is the largest U.S. bank and 8th largest in the world. The holding company made $29.9 billion in operating income and just over $20 billion in net income for 2011. So, this initial loss of $800M represents approximately 4% of its total net profit for all of 2011, less than 2.7% of its operating income.”

The firm, in other words, can manage it. Though as Brad DeLong was quick to point out, tallying the direct losses misses the episode’s larger impact on the firm’s value. “The revelation that JPMC did not have control over its derivatives book–even though accompanied by promises of multiple firings and deep reforms–destroyed 1/7 of JPMCs franchise value.” Turns out the market doesn’t much like it when what’s reputed to be the safest bank on Wall Street turns out to be incompetent.

Jared Bernstein draws out the larger lesson nicely, and so I’ll quote him at some length. “The fundamental truth here is the one known since Adam (Smith, that is) and amplified by the great financial economist Hy Minsky: humans underprice risk. Their proclivity to do so increases as the business cycle progresses and confidence takes over (remember, JPas bet was unwound by the fact that the economy wasnat as strong as they thought). The advent of a global derivatives market with notional trades in the trillions greatly amplifies the risks.”

“The fact that humans like Jamie Dimonahe who presided over JPas self-proclaimed ‘fortress balance sheet’ahe who inveighed against financial reform as imposing unnecessary oversight on such skilled risk managers as he and his staffafall prey to this fundamental truth only underscores the lesson of this episode in financial hubris.”

“And that is this: financial markets are inherently unstable. They will neither self-correct nor self-regulate. Their instability poses a threat to markets and economies and people across the globe. Therefore, they need to be regulated. Thatas not to say that anyone knows the best way to do this yet in order to balance the necessity of oversight with the dynamics of the markets. We donat know where to set the speed limits. It must be an iterative process. But we do know they need to be set, and JPas loss should be taken as a warning that our tendency is to set them too low.”

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RCP Obama approval: 48.0%; 7-day change: +0.7%.

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Top stories

1) Euro zone leaders are seriously discussing a Greek exit. “Eurozone central bankers have talked publicly for the first time of managing a possible Greek exit from Europeas monetary union as stalemate in Athens talks on a coalition government raises the prospect that Greece will renege on the terms of its international bailout. The comments by members of the European Central Bankas governing council indicate that the risk of eurozone fragmentation is being taken increasingly seriously by the regionas policymakers. They mark a significant shift at the ECB, which has previously argued that European treaties do not allow for an exit and that a break-up would cause incalculable economic damage.” Ralph Atkins in the FT.

Greece is headed towards new elections. “Greece appears headed to new parliamentary elections next month, further delaying its efforts to meet international demands to overhaul its economy, after leaders of the countryas major political parties declared little hope Sunday for a last-ditch effort to form a coalition government…Greek President Karolos Papoulias met with politicians Sunday in an effort to construct a unity government that could guide the country through the bailout program, and he planned to continue discussions Monday. But with top leaders expressing little hope for compromise after a week of efforts, it appeared likely that Papoulias would be forced to call new elections, most likely for June 10 or 17. Hopes for compromise have rested on Alexis Tsipras, the leader of the anti-bailout Coalition of the Radical Left Party, also called Syriza…But Tsipras has refused to go along with the pro-business New Democracy party, which won 19 percent of the May 6 vote, and the Socialists, who won 13 percent.” Michael Birnbaum in The Washington Post.

KRUGMAN: “weare talking about months, not years, for this to play out.”

@TheStalwart: Weird. As @renovatio_news points out, #quediceKrugman (What Krugman Says) is trending in Spain. http://twitpic.com/9ktvbo

2) Wall Street looks the same to voters. The giant $2 billion trading loss at JPMorgan Chase highlights a central problem in President Barack Obamaas case for a second term: Four years after the financial crisis nearly brought the nation to its knees, very little appears to have changed. No high-profile bank executives are in jail. Special multi-agency task forces to go after financial fraud and mortgage market abuses appeared in State of the Union addresses, only to issue a few news releases and mostly vanish from public view. And now one of the largest banks in the United States, headed by a Democrat and operating with government guarantees, has turned in the kind of headline-grabbing, casino-style style loss that drives voters crazy and that Obamaas financial reform bill was supposed to stop. Ben White in Politico .

JPMorgan Chase has been lobbying to make exactly the kind of trades that just lost the company billions of dollars. “Soon after lawmakers finished work on the nationas new financial regulatory law, a team of JPMorgan Chase lobbyists descended on Washington. Their goal was to obtain special breaks that would allow banks to make big bets in their portfolios, including some of the types of trading that led to the $2 billion loss now rocking the bank. Several visits over months by the bankas well-connected chief executive, Jamie Dimon, and his top aides were aimed at persuading regulators to create a loophole in the law, known as the Volcker Rule. The rule was designed by Congress to limit the very kind of proprietary trading that JPMorgan was seeking…The loophole is known as portfolio hedging, a strategy that essentially allows banks to view an investment portfolio as a whole and take actions to offset the risks of the entire portfolio. That contrasts with the traditional definition of hedging, which matches an individual security or trading position with an inversely related investment — so when one goes up, the other goes down.” Edward Wyatt in The New York Times.

The real response to JPMorgan Chase’s loss may come from global regulators, not the Volcker rule. “The size and scale of the surprise $2bn loss at JPMorgan Chase last week is likely to accelerate plans by global regulators to force banks to improve their trading risk models…While initial reactions to the JPMorgan loss last week focused on how it could reshape the US debate over implementing the ‘Volcker rule’ ban on proprietary trading, the misstep by one of the worldas largest banks could have far broader consequences. The Basel Committee on Banking Supervision, which sets global rules, has already sought a replacement for Value at Risk – the main measure of potential trading losses – and looked at additional capital requirements to cover potential damages that are not adequately measured by existing models. That project was seen as a long-term effort when it was announced two weeks ago, but it has now gained urgency and could be pushed through more quickly.” Brooke Masters and Tracy Alloway in The Financial Times.

CONFUSED? Here’s an explainer on JPMorgan Chase’s loss.

@davidmwessel: Barney Frank on JPM: Case that banks don’t need new rules to avoid repeat of ’08 crisis “at least $2 billion harder to make todaya (DJNS)

3) Republican state officials are dragging their feet on setting up exchanges. “In about two dozen states across the country, the insurance marketplaces at the heart of the 2010 health-care law remain in limbo, with Republican governors or lawmakers who oppose the statute refusing to act until the Supreme Court decides its constitutionality…In states with Democratic governors, such as New Hampshire and Minnesota, it is often Republican-dominated legislatures that are causing the hold-up. And in six states where Republicans hold both branches of government, including Kansas and South Dakota, state assemblies havenat even considered laws to establish the marketplaces. Though the battles primarily break along partisan lines, there have been at least a half-dozen exceptions. Last spring, the Republican governor of Nevada chose not to stand in the way of an exchange bill adopted by the majority Democratic assembly.” N.C. Aizenman in The Washington Post.

4) Congressional transportation bills won’t fill America’s infrastructure funding shortfall. “The nationas population is growing at a steady pace, yet infrastructure investments lag. The lifelines of commerce — roads, bridges, runways, ports — are showing their age, and in this era of fiscal austerity it may be a long time before they get rebuilt…The financing fiasco has been well-known for years — in fact, the last transportation bill, enacted in 2005, ordered up a blue-ribbon commission tasked with studying the financing problem and making recommendations for how to fix it. The National Surface Transportation Policy and Revenue Study Commissionas final report, issued in January 2008, a year before the last transportation bill was to expire, recommended that the country needs to be investing at least $225 billion annually from ‘all sources’ for the next 50 years in order to upgrade infrastructure to a state of good repair and make transportation advances. The Senateas current transportation bill, in comparison, would fund highways and transit at $109 billion over two years.” Kathryn Wolfe in Politico.

Top op-eds

1) BAKER AND HASSETT: We need a targeted response to long-term unemployment. “Policy makers must come together and recognize that this is an emergency, and fashion a comprehensive re-employment policy that addresses the specific needs of the long-term unemployed. A policy package that as a whole should appeal to the left and the right should spend money to help expand public and private training programs with proven track records; expand entrepreneurial opportunities by increasing access to small-business financing; reduce government hurdles to the formation of new businesses; and explore subsidies for private employers who hire the long-term unemployed. Those who hire for government jobs must do their share, too: managers who are filling open positions should be given explicit incentives to reconnect these lost workers. Every month of delay is a month in which our unemployed friends and neighbors drift further away.” Dean Baker and Kevin Hassett in The New York Times.

@davidfrum: “50 to 100% increase in death rates for older male workers in yrs immediately following a job loss”

2) YGLESIAS: America is headed towards default. “House Republicans voted to take money away from programs meant to help poor people and give it to the military instead. Thatas not my idea of wise policy, but thatas what was terrible about it. The problem is that the vote constitutes a collective Republican welching on the agreement that was reached last spring to raise the statutory debt ceiling and avoid national default. Yesterdayas vote doesnat undo the deal or cause any immediate problems, but by so speedily backing out of their agreement, the Republicans have done something much worse–made it impossible for anyone to negotiate with them in the future, because itas clear they cannot be trusted to keep the promises they made. If President Obama wins re-election, the debt-ceiling issue will have to be confronted again, but now in a Congress that has been poisoned by the Republicansa welching on the last agreement. The country, in other words, is set for an even more severe version of the crisis that crushed financial markets last summer.” Matthew Yglesias in Slate.

3) KRUGMAN: JPMorgan Chase’s loss proves the need for bank regulation. “Banks are special, because the risks they take are borne, in large part, by taxpayers and the economy as a whole. And what JPMorgan has just demonstrated is that even supposedly smart bankers must be sharply limited in the kinds of risk theyare allowed to take on. Why, exactly, are banks special? Because history tells us that banking is and always has been subject to occasional destructive ‘panics,’ which can wreak havoc with the economy as a whole…So what can be done? In the 1930s, after the mother of all banking panics, we arrived at a workable solution, involving both guarantees and oversight. On one side, the scope for panic was limited via government-backed deposit insurance; on the other, banks were subject to regulations intended to keep them from abusing the privileged status they derived from deposit insurance, which is in effect a government guarantee of their debts.” Paul Krugman in The New York Times.

@Austan_Goolsbee: #lettersyouwontsee: Dear Mr. Volcker, you were right all along. we’re now fixing things and won’t let it happen again. yours, wall St.

4) SLOAN: JPMorgan Chase doesn’t prove the need for the Volcker Rule. “The Volcker Rule, named for former Federal Reserve chairman Paul Volcker, is an example of the problem involved in regulating giant companies in a complex world. The principle sounds wonderful and simple: Donat let banks use federally insured deposits for risky trades. But implementing it is proving to be incredibly difficult, as realists, including me, predicted would happen. Once bank lawyers finish finding loopholes in the detailed provisions, whatever they prove to be, the rule will probably have little meaningful impact. So bash Morgan all you like for its trading losses, and feel free to snicker at the spectacle of Jamie Dimon losing his swagger and having to eat crow. But donat confuse Morganas mess-up with the supposed need for the Volcker Rule. The Volcker Rule would have symbolic impact, by appearing to rein in Wall Street. But it will prove to be more useful as a full-employment act for loophole specialists than for reining in the banks.” Allan Sloan in The Washington Post.

5) SNOW: Tax cuts on dividends and capital gains should stay. “Nine years ago this month Congress passed President George W. Bush’s Jobs and Growth Tax Relief Reconciliation Act. That bill’s lower rates on capital, as well as the continuity in tax policy it established, have helped make our economy far more resilient. The legislation’s centerpiece was a reduction in the taxation of dividends and capital gains to 15%. Unfortunately, the 2003 tax rates, including those on capital income, are due to expire at the end of the year. Capital warrants special tax treatment because of the central role it plays in generating economic growth and jobs. Capital is the very lifeblood of the market economy, the mainstay of innovation, and the foundation for future prosperity. As more of it is put to work today, labor output and wages will rise tomorrow. An appreciation of that critical relationship should guide how the tax system treats earnings from capital.” John Snow in The Wall Street Journal.

6) THALER: Beware of slippery slope arguments on healthcare. “One pernicious category of imaginary risks involves those created by users of the dreaded ‘slippery slope’ arguments. Such arguments are dangerous because they are popular, versatile and often convincing, yet completely fallacious. Worse, they are creeping into an arena that should be above this sort of thing: the Supreme Court, in its deliberations on health care reform…Justice Scalia is arguing that if the court lets Congress create a mandate to buy health insurance, nothing could stop Congress from passing laws requiring everyone to buy broccoli and to join a gym…Please stop! The very fact that a slippery slope is being cited as grounds for declaring the law unconstitutional — despite that ‘significant deference’ usually given to laws passed by Congress — tells you all that you need to know about the argumentas validity. Can anyone imagine Congress passing a broccoli mandate law, much less the court allowing it to take effect?” Richard Thaler in The New York Times.

Top long reads

Jeffrey Toobin on how John Roberts orchestrated Citizens United: “Citizens United is a distinctive product of the Roberts Court. The decision followed a lengthy and bitter behind-the-scenes struggle among the Justices that produced both secret unpublished opinions and a rare reargument of a case. The case, too, reflects the aggressive conservative judicial activism of the Roberts Court. It was once liberals who were associated with using the courts to overturn the work of the democratically elected branches of government, but the current Court has matched contempt for Congress with a disdain for many of the Courtas own precedents. When the Court announced its final ruling on Citizens United, on January 21, 2010, the vote was five to four and the majority opinion was written by Anthony Kennedy. Above all, though, the result represented a triumph for Chief Justice Roberts. Even without writing the opinion, Roberts, more than anyone, shaped what the Court did. As American politics assumes its new form in the post-Citizens United era, the credit or the blame goes mostly to him.”

Andrew Martin and Andrew Lehren on the skyrocketing cost of college: “With more than $1 trillion in student loans outstanding in this country, crippling debt is no longer confined to dropouts from for-profit colleges or graduate students who owe on many years of education, some of the overextended debtors in years past. Now nearly everyone pursuing a bacheloras degree is borrowing. As prices soar, a college degree statistically remains a good lifetime investment, but it often comes with an unprecedented financial burden. Ninety-four percent of students who earn a bacheloras degree borrow to pay for higher education — up from 45 percent in 1993, according to an analysis by The New York Times of the latest data from the Department of Education. This includes loans from the federal government, private lenders and relatives. For all borrowers, the average debt in 2011 was $23,300, with 10 percent owing more than $54,000 and 3 percent more than $100,000.”

’90s nostalgia interlude: Nine Inch Nails play “The Becoming” in studio..

Got tips, additions, or comments? E-mail me.

Still to come: Wholesale prices are down; rebates will be credited to the ACA; Secure Communities expands; the IEA doesn’t like Obama’s plans; and cats, in slow motion.

Economy

Europe’s woes could hit the U.S.. “During bouts of European turmoil in the past two years, U.S. financial markets regularly stumbled and growth ebbed due to fears of a euro-zone meltdown. But Europe muddled through and avoided calamity, and the effects on the U.S. economy weren’t all bad. U.S. exports to Europe rose, and many U.S. banks benefited as overseas competition fell away. Now, the troubles in the currency union–the threat of a Greek exit from the euro zone, rising borrowing costs in Spain and Italy, recessions in several European countries–are renewing fears of an escalating crisis that could deliver a more serious blow to the fragile U.S. recovery. U.S. companies are bracing for a hit. Networking giant Cisco Systems Inc. last week blamed worries about Europe, along with other uncertainty, for its cautious outlook. Watchmaker Fossil Inc. reported a slowdown in German sales on top of deeper pullbacks in Italy and Spain. Chemicals firm Celanese Corp. attributed its disappointing results to weakening European demand.” Sudeep Reddy in The Wall Street Journal.

Wholesale prices declined for the first time this year. “U.S. wholesale prices declined for the first time this year, suggesting a drop in energy costs is helping to keep inflation under control. The index of producer prices, which measures how much wholesalers and manufacturers pay for goods and materials, fell a seasonally adjusted 0.2% in April from a month earlier, the Labor Department said Friday. The decline, the first since December, was due entirely to cheaper prices for energy goods, including gasoline and utility gas…The report on producer prices suggests inflation is subdued, after a run-up in oil prices earlier this year pushed costs beyond the Federal Reserve’s annual inflation target of roughly 2%. Lower inflation could reassure Fed officials as they keep a key interest rate exceptionally low through late 2014 to stimulate the economy. Lower inflation also gives the Fed more room to act, perhaps through additional bond purchases, if economic growth falters.” Josh Mitchell in The Wall Street Journal.

@BobCusack: “Where are the jobs?” references (from both parties) in the Congressional Record between ’09-’12: 357. Between ’05-’08: 3.

Vintage bicycle manufacturing tutorial interlude: How a bicycle is made.

Health Care

Insurers will be required to credit premium rebates to Obamacare. “Health-insurance companies must tell customers who get a premium rebate this summer that the check is the result of the Obama administration’s health-care law, according to federal guidelines released Friday. The move is the latest sign the Obama administration is trying to draw attention to the law’s benefits before the fall elections, even though the law faces an uncertain future. The Supreme Court is expected to decide in June whether its central plank–a mandate that everyone carry insurance–violates the Constitution. Mitt Romney, the presumed Republican presidential nominee, has pledged to wipe out the law if elected. Under the 2010 legislation, insurers that don’t spend a specified amount of revenue on actual medical care–as opposed to administrative costs–must refund the difference to customers.” Louise Radnofsky in The Wall Street Journal.

Domestic Policy

The Senate cybersecurity bill is running into privacy concerns. “Thereas yet another hurdle for Sen. Joe Liebermanas cybersecurity bill: Democrats who say it doesnat go far enough to protect consumer privacy. With Senate Republicans standing firm against the measure, the friendly fire from Democrats means thereas only more work ahead as Lieberman and others scramble to cobble together 60 votes to move the bill. A handful of members, including Sens. Al Franken of Minnesota and Richard Blumenthal of Connecticut, are echoing the concerns of civil liberties groups, which are growing increasingly fearful that consumersa data could end up being passed around by companies and the government as security experts share with each other information about emerging cyberthreats. To them and others, the Senate measure as written would specify too few limitations on how data could be used and cover entities with too broad a protection from liability.” Tony Romm and Jennifer Martinez in Politico.

The Obama administration will expand the controversial Secure Communities program. “Obama administration officials have announced that a contentious fingerprinting program to identify illegal immigrants will be extended across Massachusetts and New York next week, expanding federal enforcement efforts despite opposition from the governors and immigrant groups in those states. In blunt e-mails sent Tuesday to officials and the police in the two states, Immigration and Customs Enforcement officials said the program, Secure Communities, would be activated ‘in all remaining jurisdictions’ this Tuesday…Last year, officials at the agency said they had determined that they did not require consent from states to start the program. Citing antiterrorism legislation that Congress passed in 2002, the officials canceled agreements they had signed in 40 states and said they would extend the program nationwide by 2013.” Julia Preston in The New York Times.

Minority contracts fell last year for the first time in a decade. “U.S. government contracts to black-and Hispanic-owned small businesses fell last year for the first time in a decade, declining at a sharper rate than awards to all companies. Contracts to the black-owned firms dropped 8 percent to $7.12 billion in the fiscal year that ended Sept. 30, compared with fiscal 2010. Awards to Hispanic-owned businesses decreased 7 percent to $7.89 billion, according to federal procurement data.Contracts to the two minority groups fell at a faster pace than all contracts, which dipped 1 percent as the U.S. government slowed spending to help reduce the federal deficit. The gap may reflect stiffer competition over a shrinking pool of revenue and the recessionas greater impact on black and Hispanic firms…The absence of these set-aside programs may help explain the dip in awards for some minority groups, said James McCullough, who leads the government contracts practice at Fried Frank Harris Shriver & Jacobson in Washington.” Danielle Ivory in The Washington Post.

Cuteness amplified interlude: Cats in slow motion.

Energy

Fracking is sparking a boom in sand mining. “Scouts armed with geological maps and elevations from Google Earth are knocking on doors in the upper Midwest in search of what seems too common to mine: sand. The sedimentary material is in high demand among U.S. oil and natural-gas producers, setting off a sand rush in Wisconsin, Minnesota and other Midwestern states. While adding jobs, the mining boom is prompting pushback from some local residents, who are surprised by the frenzy and leery of its impact on their communities. Sand mined in the Midwest is used in places such as North Dakota and Pennsylvania to tap oil and gas reserves. The U.S. producers’ demand for sand reached 28.7 million tons in 2011, up from six million tons in 2007, according to independent laboratory PropTester Inc. and consultancy Kelrik LLC…Sand, injected deep underground to prop open fractures in shale formations and allow oil and gas to flow out, is important in ‘fracking.’” Mark Peters and Isabel Ordonez in The Wall Street Journal.

Lawmakers are torn on how to use high-speed rail funds. “As roads become more crowded each year, transportation planners have been looking for a game-changer that can reduce congestion and efficiently move millions of people. Enter rail — a centuries-old mode that may be a shining savior to those hoping to push the United States into a new way of getting people around at high speeds. But it wonat work everywhere — a lot depends on simple geography. And lawmakers are torn between how to use limited funds: along the densely packed East Coast, which has a history of commuter rail, or out West, where California has ponied up billions of dollars to build a high-speed system, much of it from scratch. Amtrakas Acela service from Boston to Washington runs the fastest trains in the country, maxing out at 150 mph and increasing soon to 160 mph…Three thousand miles away, California is inching ever closer to its high-speed rail vision, having formally approved the initial Central Valley route.” Burgess Everett and Adam Snider in Politico.

The IEA has concerns about Obama’s plans to increase oversight of oil markets. “Barack Obamaas plans for strengthened supervision of the oil markets have come under fire from the International Energy Agency, which has warned they could lead to sharp swings in crude prices. The warning, contained in the agencyas monthly oil market report, came in response to moves by authorities in the US and Europe to crack down on what they see as excessive speculation in commodities markets using derivatives. The US presidentas proposal to give the Commodity Futures Trading Commission authority to direct exchanges to raise margin requirements to address increased price volatility or prevent excessive speculation or manipulation could have the opposite effect, the western countriesa oil watchdog said on Friday. The IEA said raising margin requirements in oil futures trading might increase price volatility and concentrate market share in the hands of large speculators while having no effect on price levels.” Guy Chazan in The Financial Times.

America is running out of helium. “Sure, Congress has plenty of crises to deal with: a weak economy, an expiring highway bill, the end-of-the-year ‘taxmageddon.’ But now thereas another one floating into view. The United States is running out of helium. Yes, helium. Thanks, in part, to a 1996 law that has forced the government to sell off its helium reserves at bargain-bin prices, the countryas stockpile of the relatively rare and nonrenewable gas could soon dwindle…Congress is slowly grasping the extent of the problem. At a sleepy Senate hearing Thursday morning, the Energy and Natural Resources Committee listened to an array of experts chat about the gas. The hearing was tied to a bill, sponsored by Sens. Jeff Bingaman (D-N.M.) and John Barrasso (R-Wyo.), that would change how the government sells helium from its Federal Helium Reserve (yes, this exists) in order to prevent shortages.” Brad Plumer in The Washington Post.

@mattyglesias: Helium Privatization Act is a classic example of inefficient pseudo-privatization gone horribly wrong

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.

He swept out the Senate hearing room surrounded by an entourage, causing a stir as his tall, looming figure passed through the crowd. Before he got in the elevator, one of his assistants handed him a copy of the remarks he just delivered: an admirer wanted an autograph.

aDoes this happen to you often?a he was asked by a reporter.

aAll the time,a he said, scribbling his signature.

George Clooney? Mark Ruffalo?

Nope. It was Paul Volcker, the 84-year-old former chairman of the Federal Reserve who still manages to leave veteran legislators a bit starstruck. Widely credited for ending the stagflation crisis of the 1970s, Volcker, the godfather of central banking, has resurfaced as Washington has been soliciting his advice about how to rein in Wall Street. JPMorganas $2 billion loss announced on Thursday has made the spotlight on Volcker even brighter.

Volcker, who served as Fed chairman during the Carter and Reagan administrations, didnat write the rule that bears his name. But he has since risen to defend the Volcker Rule, which prohibits government-backed banks from making certain kinds of speculative bets for their own benefit, rather than their clientsa. And he made clear on Capitol Hill this week why he believes such restrictions are necessary.

aIt is surely inappropriate that those activities be carried out by institutions benefiting from taxpayer support, current or potential,a he told the Senate Banking Committee on Wednesday afternoon.

That was the day before JPMorgan Chase owned up to its huge loss on a bad bet that looks, to many, like the kind of gamble that the Volcker Rule was meant to prevent when it was passed in 2010 as part of the Dodd-Frank overhaul.

Itas unclear whether the rule would have kept JPMorgan trader Bruno Iksil in the U.K. a nicknamed the aLondon Whalea a from taking such a high-risk bet. The bank essentially carried out a complicated hedge on a stack of corporate bonds, which the Volcker Rule, as currently drafted, would permit. The problem, however, is that JPMorganas bet seems to go above and beyond what a hedge is meant to do: Rather than simply buy insurance to protect the corporate bonds, Iksil reportedly bet as much as $100 billion that those firms would never default.

For a firm like JPMorgan, $2 billion is a drop in the bucket. The banking giant isnat expected to fail or need a bailout any time soon. But the big loss shows how Wall Street banks are still able to make risky bets for their own benefit. And JPMorganas embarrassment wonat necessarily stop the same from happening elsewhere, potentially increasing risk to the financial system. In fact, similar bets by JPMorganas chief investment office made the bank $5 billion in 2010. Other banks could decide that gambling with their money is still worth the that chance a and that they can do a better job than JPMorgan did at pulling it off.

Thatas why supporters of a strong Volcker Rule a which federal officials are still finalizing before the measureas July start date a are now clamoring for a more expansive regulation with fewer loopholes. And Volckeras own words before the Senate this week could strengthen their argument. If banks are still allowed to treat trading like a casino, yet are big enough to warrant government support if things go awry, theyare benefitting from the assumption that theyare Too Big To Fail a athat losses will be socialized, with the potential gains all private,a as Volcker explained.

After the financial meltdown, aunderstandably, the public feels aggrieved and wants serious reform,a Volcker said Wednesday. aThe Volcker Rule is part of this formula.a (I asked Volckeras office whether he had any thoughts about the JPMorgan debacle, but he wasnat available.)

What, then, is holding back regulators from implementing a strong, clear Volcker Rule? Volcker himself acknowledges that the draft of the rule, at 300 pages, has gotten bloated and complex partly because bank lobbyists are pushing for carve-outs.

aI could give you stories all day about lobbyists making things more complicated,a Volcker said as he left the hearing room. aThey may do it [because] they want to disrupt the whole process, but they … say, aWe want to make sure that this particular little operation we have a is it good or bad?aa

Volcker did say that he was aencourageda by the progress that regulators appear to be making on finalizing the rule that bears his name. And a perhaps more than do his acolytes on Capitol Hill a he believes that banks will comply.

aYou donat trust the banks?a he asked, as he left the Senate building. aI implicitly trust the banks.a

Confused about how, exactly, JPMorgan Chase managed to lose $2 billion? Heidi Moore of Marketplace has a nice, plain-English explainer that walks you step-by-step through the whole affair.

Of the big banks, JPMorgan Chase arguably came through the crisis best. And its CEO, Jamie Dimon, has been using the credibility built up during that period to fight the Volcker rule. aPaul Volcker by his own admission has said he doesnat understand capital markets,a Dimon told Fox Business earlier this year. aHe has proven that to me.a

And then, last night, JPMorgan Chase announced it had lost $2 billion on some very big, very dumb hedges. For proponents of stricter financial regulation, Dimon’s giant loss is a huge gift. The final version of the Volcker rule is scheduled to be released in the coming months. Dimon swears that these trades would have been compliant with the previous drafts of the Volcker rule. That will give regulators a strong incentive to make sure future trades like these aren’t.

Dimon, for his part, doesn’t see the relevance. aJust because weare stupid doesnat mean everybody else was,a he said on a Thursday conference call. aThere were huge moves in the marketplace but we made these positions more complex and they were badly monitored.a

But the point of the Volcker rule — and of financial regulation more generally — isn’t to punish banks for being evil. It’s to protect the rest of us from banks being stupid. And if the most prudent of the big banks can’t keep itself from being this stupid this soon after the financial crisis, then it’s pretty clear we’re going to need very strong rules to keep them from being stupid in the years to come, when the lessons of the financial crisis have faded more completely.

As Reuters’ Felix Salmon writes, “JP Morgan more or less invented risk management. If they canat do it, no bank can. And no sensible regulator can ever trust the banks to self-regulate.”

Wonkbook dashboard

RCP Obama vs. Romney: Obama +1.5%; 7-day change: Obama -2.1%.

RCP Obama approval: 47.4%; 7-day change: -.7%.

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Top stories

1) A massive bet gone wrong cost JP Morgan Chase at least $2 billion. “A massive trading bet boomeranged on J.P. Morgan Chase & Co., leaving the bank with at least $2 billion in trading losses and its chief executive, James Dimon, with a rare black eye following a long run as what some called the ‘King of Wall Street.’ The losses stemmed from wagers gone wrong in the bank’s Chief Investment Office, which manages risk for the New York company. The Wall Street Journal reported early last month that large positions taken in that office by a trader nicknamed ‘the London whale’ had roiled a sector of the debt markets. The bank, betting on a continued economic recovery with a complex web of trades tied to the values of corporate bonds, was hit hard when prices moved against it starting last month, causing losses in many of its derivatives positions. The losses occurred while J.P. Morgan tried to scale back that trade.” Dan Fitzpatrick, Gregory Zuckerman, and Liz Rappaport in The Wall Street Journal.

The loss is putting the spotlight on the Volcker Rule. “JPMorgan Chaseas $2 billion trading loss, which was disclosed on Thursday, could give supporters of tighter industry regulation a huge new piece of ammunition as they fight a last-ditch battle with the banks over new federal rules that may redefine how banks do business…The centerpiece of the new regulations, the so-called Volcker Rule, forbids banks from making bets with their own money, and a final version is expected to be issued by federal officials in the coming months. With the financial crisis fading from view, banks have successfully pushed for some exceptions that critics say will allow them to simply make proprietary trades under a different name, in this case for the purposes of hedging and market-making. The missteps by JPMorgan could highlight that murky line between proprietary trading and hedging. The bank unit responsible for losses takes positions to hedge activities in other parts of the bank.” Nelson Schwartz in The New York Times.

@lizzieohreally: Dimonfreude.

@BCAppelbaum: If losing $2 billion in your trading operations doesn’t violate the Volcker Rule, is it possible that we might need a broader rule?

@ezraklein: At this point in time, I feel comfortable predicting Jamie Dimon will not replace Tim Geithner as Secretary of the Treasury

2) The U.S. ran a monthly surplus for the first time since 2008. “The federal government posted a budget surplus in April as tax receipts rose, the first month that revenue has outpaced spending in more than three and a half years. The Treasury Department, in its latest monthly budget figures out Thursday, said the government ran a surplus of $59.12 billion during April, compared with a deficit of $40.39 billion a year earlier. Economists surveyed by Dow Jones Newswires had projected a $30.00 billion surplus. The federal government has historically run a budget surplus in April, when many Americans file their tax returns. Over the past 58 years, there have been 44 April surpluses, a Treasury official said. But from late 2008 up until two months ago, the government ran steady deficits amid weaker tax receipts and heavy spending following the financial crisis. The government last ran a monthly surplus in September 2008, the same month that Lehman Brothers Holdings Inc. filed for bankruptcy.” Jeffrey Sparshott in The Wall Street Journal.

@DaveedGR: Obviously, the April surplus is due to taxes coming in. Remarkable that there hasn’t been a surplus in any April since 2008…

3) Republicans may not offer a comprehensive replacement for Obamacare. “Republicans might not offer a comprehensive plan to replace President Obamaas healthcare law if the Supreme Court strikes it down this summer. House Republicans had said they would have a healthcare bill ready to go by the time of the ruling to present a clear alternative to the Democratsa Affordable Care Act. But now, with the high courtas ruling just weeks away, some conservatives are urging the party to abandon that strategy, fearing voters will recoil from another sweeping revamp of the healthcare system…Ditching a comprehensive proposal could also make it easier for Republicans to steer the publicas focus away from popular elements of the Affordable Care Act that are unlikely to make the cut in a GOP plan…But a piecemeal strategy on healthcare could present its own risks. Republicans campaigned in 2010 on ‘repealing and replacing’ Obamaas law, but have struggled to clearly articulate a healthcare platform of their own.” Sam Baker in The Hill.

4) Europe delayed a loan payment to Greece. “Euro-zone governments held back part of a big scheduled loan payment in a warning shot to Greece Wednesday, as outside pressure mounted on the country’s politicians to pull together a pro-euro coalition to take charge of the government. Greece’s euro-zone partners agreed to release only a!4.2 billion ($5.5 billion) in previously agreed financing, to be paid out Thursday, holding back a!1 billion at least until June. That would be paid only if Greece keeps to pledges it made to secure a bailout. With Athens in political turmoil after a fractured result in weekend elections, and a new vote likely by June, German politicians cautioned that further aid could be withdrawn if Greece abandons austerity targets–even if that pushes the country from the bloc…Thursday’s payment is needed for Greece to pay a!3.3 billion it owes the European Central Bank next week. The aid was agreed in March by euro-zone governments as part of Greece’s a!130 billion second bailout program.” Alkman Granitsas, Laurence Norman, and Matthew Dalton in The Wall Street Journal.

5) Almost 250,000 Americans will lose their unemployment insurance this weekend. “More than 230,000 jobless Americans will lose their unemployment insurance by this weekend as reductions in the federal program that provides extended benefits to the long-term unemployed take broader effect. The new round of reductions is hitting eight states this month, meaning that about 400,000 long-term unemployed Americans in 27 states will have been cut off of the federal governmentas extended unemployment benefits program this year, according to an analysis by the National Employment Law Project, which advocates for the unemployed. The cuts stem from a congressional agreement this year that will reduce the maximum duration of unemployment benefits from 99 weeks to 79 weeks as the nationas jobless rate declines. Most states provide 26 weeks of benefits, and the federal government provides the rest, partially through a complicated formula that requires jobless rates to be both high and increasing to reach the benefit limit.” Michael Fletcher in The Washington Post.

6) The House passed the GOP’s sequester replacement bill. “The House approved sweeping legislation on Thursday to cut $310 billion from the deficit over the next decade — much of it from programs for the poor — and shift some of that savings to the Pentagon to stave off automatic military spending cuts scheduled for next year. The legislation has no chance of passing the Senate or of becoming law. The White House issued a stern veto threat, saying the bill would ‘fail the test of fairness and shared responsibility.’ But the legislationas prescriptions and priorities could define the 2012 Congressional elections — and are likely to affect the race for the White House…The billas political sensitivity came through in the 218-to-199 vote. Democrats were united in their opposition. Sixteen Republicans sided with the Democrats, and one Republican voted present. ‘I voted my conscience, and I voted my district,’ said Representative Mike G. Fitzpatrick, a Republican from suburban Philadelphia, who voted no.” Jonathan Weisman in The New York Times.

Top op-eds

1) REICH: J.P. Morgan Chase makes the case for Glass-Steagall. “Ever since the start of the banking crisis in 2008, Dimon has been arguing that more government regulation of Wall Street is unnecessary. Last year he vehemently and loudly opposed the so-called Volcker rule, itself a watered-down version of the old Glass-Steagall Act that used to separate commercial from investment banking before it was repealed in 1999, saying it would unnecessarily impinge on derivative trading (the lucrative practice of making bets on bets) and hedging (using some bets to offset the risks of other bets)…What just happened at J.P. Morgan – along with its leaderas cavalier dismissal followed by lame reassurance – reveals how fragile and opaque the banking system continues to be, why Glass-Steagall must be resurrected, and why the Dallas Fedas recent recommendation that Wall Streetas giant banks be broken up should be heeded.” Robert Reich.

2) KRUGMAN: Talk of structural unemployment is an excuse for inaction. “So now weare in another depression, not as bad as the last one, but bad enough. And, once again, authoritative-sounding figures insist that our problems are ‘structural,’ that they canat be fixed quickly. We must focus on the long run, such people say, believing that they are being responsible. But the reality is that theyare being deeply irresponsible…So whatas with the obsessive push to declare our problems ‘structural’? And, yes, I mean obsessive. Economists have been debating this issue for several years, and the structuralistas wonat take no for an answer, no matter how much contrary evidence is presented. The answer, Iad suggest, lies in the way claims that our problems are deep and structural offer an excuse for not acting, for doing nothing to alleviate the plight of the unemployed…All this talk about structural unemployment isnat about facing up to our real problems; itas about avoiding them, and taking the easy, useless way out. And itas time for it to stop.” Paul Krugman in The New York Times.

3) ALTER: Obama and Romney offer differing views of capitalism. “A more useful distinction may be between venture capitalists and human capitalists. Romney came up as a private-equity investor. Like his party, he believes in his heart that the way forward for the U.S. is to slash taxes for the wealthy even further so that they have more venture capital to invest in businesses. Obama came up as a community organizer. Like his party, he believes in his heart that a great nation must invest in human capital through education, health care and infrastructure…Last week brought a classic example of the differing approaches. The tussle over doubling interest rates for student loans (scheduled for July 1) was a controversy ginned up for the Obama campaign, but it was also an acid test. Democrats wanted to pay for the lower rate with a modest business tax; Republicans responded with plans to scuttle the preventive health-care part of Obamacare, despite much evidence of its efficacy for both people and budgets. ” Jonathan Alter in Bloomberg.

4) CARPENTER AND KNEPPER: Occupational license reform would spur economic opportunity. “Since the 1950s, the number of U.S. workers needing an occupational license–effectively a government permission slip to work–has grown from one in 20 to nearly one in three, according to a 2010 study by Morris Kleiner (University of Minnesota) and Alan Krueger (Princeton). The burdens these licenses impose on would-be workers and entrepreneurs are substantial…The risk of a few bad haircuts seems worth a roll of the dice if the upside is more economic opportunities. But the truth is that consumers are capable of judging the quality of many services for themselves. If lawmakers in Michigan and elsewhere want to help more Americans find jobs, they should start by reducing or removing burdens that do little more than protect some people from competition by keeping others out of work.” Dick Carpenter and Lisa Knepper in The Wall Street Journal.

5) BAKOPOULOS: Greek voters didn’t have a chance to reject austerity without rejecting Europe. “Itas clear that Greeks — derided throughout the Continent as lazy and corrupt, hobbled by the bailout dealas austerity measures and humiliated by the troika (the European Central Bank, European Commission and International Monetary Fund) — have put their trust outside the mainstream…But an election usually asks: who, or what, are you for? Not this one. If voters were given any choice, it was this: either accept the austerity measures or be forced to leave the euro zone. A double bind, this either-or option is unable to give expression to the complexity of both yes to Europe and no to austerity. Just before the vote, the German finance minister issued a warning: If Greek voters did not elect a government that would abide by the terms of the deal, ‘then Greece will have to bear the consequences.’ But the consequences are unclear. Vote correctly, or else. Or else what?” Natalie Bakopoulos in The New York Times.

Top long reads

Binyamin Appelbaum profiles financial blogger Joe Weisenthal: “Weisenthal is often — perhaps more often than anyone else — the first person to describe new data on Twitter. And almost as quickly, he repeats the thought, with a new headline, on Business Insider. When the government reported that only 120,000 jobs were created in March, well below expectations, he quickly rewrote the draft of his tweet: ‘DISASTER: MARCH JOBS REPORT MISSES EXPECTATIONS AT 120K. (Analysts expected +205K)’ A search on Twitter suggests that this, at 8:30 on the dot, was the first line published on the subject. Weisenthal managed to post a complete sentence before one of his main rivals, a blogger whose handle is ZeroHedge, tweeted just this: ’120k.’…And then Weisenthal and his audience moved on to the next thing. Around 10 a.m., he posted a new article. The headline read, ‘FORGET THE JOBS REPORT: The Most Important Number of the Day Hasnat Even Come Out Yet.’”

James Bandler and Doris Burke investigate the struggles of HP: “Dr. Phil could fill a month’s worth of shows just examining HP’s board, whose dynamics have resembled those of rival junior high school cliques more than what is supposed to be a sage guiding force. At times, as we’ll see, HP directors have refused to be in the same room with one another and have accused each other of lying, leaking, and betrayal. Time and again they’ve failed in their choice of CEO — their most important task — selecting a new leader whose most salient trait is that he or she is the opposite of the last one. All of this has impeded the company from tackling the fundamental problem it faces: Simply put, Hewlett-Packard has lost its way. The company is in the midst of an existential crisis. It remains a behemoth, No. 10 on the Fortune 500, with $127 billion in sales last year and $7 billion in earnings. But the trajectory is ominous. Those profits, for example, were 19% lower in 2011 than in the previous year.”

’60s nostalgia interlude: Jimi Hendrix plays “Rock Me Baby” live at Monterey 67.

Got tips, additions, or comments? E-mail me.

Still to come: CEOs push for deficit reduction; an abortion rights leader is stepping down; low scores on a science exam; oil independence may not be a realistic goal; and bear cubs hop aboard the love train.

Economy

A rise in imports widened the trade deficit. “The U.S. trade deficit widened in March but other data Thursday reflected two conditions that could spur the economic recovery: strong American exports and falling oil prices. The March trade gap expanded 14.1% from February to $51.8 billion, the government said. Growing demand from consumers and businesses for goods and services from abroad, along with high oil prices that have since retreated, sent imports surging 5.2% to a record $238.6 billion. But exports also showed strength, rising at the fastest pace since last summer to set their own record. Despite Europe’s fiscal woes and Asia’s slower growth, the U.S. sent abroad $186.8 billion in goods and services in March, up 2.9% from February. Exports have climbed for the past four months, defying forecasts of slower growth due to the recession in the euro zone. U.S. manufacturers appear to have been helped by a historically weak dollar as well as subdued wage growth at home.” Josh Mitchell in The Wall Street Journal.

The House passed the first appropriations bill of the year. “The House on Thursday approved the first appropriations bill of the year, a measure that spends $51 billion on the Departments of Commerce and Justice, NASA and other related agencies. The spending bill, H.R. 5326, was approved in a 247-163 vote in which eight Republicans voted against it, reflecting opposition to the amount spent in the bill. But it also picked up the support of 23 Democrats…The bill is among the least controversial of the 12 annual appropriations bills but has little chance of becoming law on its own. The White House has said President Obama will veto any and all of the 12 bills until the House renounces the top-line spending level in the overall budget written by Rep. Paul Ryan (R-Wis.). The legislation cuts spending by about 3 percent compared to current levels, which Republicans said shows their ongoing commitment to trim spending. The GOP said spending by agencies covered by the bill has been cut by 20 percent over the last three budget cycles.” Pete Kasperowicz in The Hill.

CEOs are making a new push for a deficit deal. “Top business executives, many of whom sat on their hands during last year’s frantic debate about raising the federal debt ceiling, have begun mobilizing and plan to be more vocal in urging Congress to reach a bipartisan deficit-reduction deal by the end of the year. Executives have been meeting privately with lawmakers, urging them to start laying the groundwork now so they can reach an agreement after the November elections to avoid the large tax increases and heavy spending cuts scheduled to take effect in January. They worry those measures could tip the economy back into recession and create turmoil in financial markets, according to people who have attended some of the meetings. J.P. Morgan Chase & Co. chief executive James Dimon hosted a lunch for several dozen chief executives and two U.S. senators late last month, one of the latest in a series of private meetings aimed at drumming up support for a political agreement.” Damian Paletta in The Wall Street Journal.

Subsides are fueling gains in manufacturing. “As chairman and principal owner of Revere Copper Products, Mr. OaShaughnessy runs one of Americaas oldest manufacturing companies, started by Paul Revere himself, a fact that exerts considerable pressure. As he put it: ‘What kind of a message are you sending to the people of the country if you abandon America?’ But spend a day with him, and a more complex picture emerges. He wonders sometimes about the less patriotic alternative of relocating production to Asia or closing the factory entirely on the ground that Revereas profit margin here is too thin — less than $1 million on $450 million in annual revenue…What staves off those alternatives are labor concessions and a substantial government subsidy, something he and others in the United States say is increasingly important to fuel a nascent recovery in manufacturing…With such support, the key measure of manufacturingas presence in America is ticking upward.” Louis Uchitelle in The New York Times.

@jbarro: Just got woken up. I swear I was in the middle of a dream where I was arguing w/ a reporter about transfer taxes.

Engineering interlude: A real life Mario Kart.

Health Care

The leader of an influential abortion rights advocacy group will step down. “At the end of this year, Nancy Keenan will step down from her post as president of NARAL Pro-Choice America, the countryas oldest abortion-rights advocacy group. The 60-year-old Keenan said she is leaving out of concern for the future of the pro-choice movement — and thinks she could be holding it back.Nancy Keenan will retire as president of NARAL Pro-Choice America at the end of the year. In recent years, Keenan has worried about an ‘intensity gap’ on abortion rights among millennials, which the group considers to be the generation of Americans born between 1980 and 1991. While most young, antiabortion voters see abortion as a crucial political issue, NARALas own internal research does not find similar passion among abortion-rights supporters. If the pro-choice movement is to successfully defend abortion rights, Keenan contends, it needs more young people in leadership roles, including hers.” Sarah Kliff in The Washington Post.

An F.D.A. panel backed the preventive use of a H.I.V. drug. “A drug already used to treat H.I.V. infection should also be approved to prevent it, an advisory panel to the Food and Drug Administration said on Thursday. The recommendation is the first time that government advisers have advocated giving antiviral medicine to healthy people who might be exposed through sexual activity to the virus that causes AIDS. One panelist called approving the drug ‘an amazing opportunity to turn the tide on this epidemic.’ Studies have shown that people who take the medicine, Truvada, every day have a greatly reduced risk of infection. The F.D.A. usually accepts the advice of its advisory panels, which are made up of outside medical experts…Experts say better methods of prevention are needed because there are 50,000 new H.I.V. infections a year in the United States. Several speakers emphasized Thursday that that number had not budged in 15 to 20 years.” Denise Grady in The New York Times.

Domestic Policy

Scores remained low on a national science test. “U.S. eighth graders made modest gains on the latest national science exam, but more than two-thirds still lacked a solid grasp of science facts, according to figures released Thursday that renewed concerns American schools are inadequately preparing children for college and the workforce. The 2011 National Assessment of Educational Progress, an exam administered by the U.S. Department of Education, showed that 32% of students were proficient in science, compared with 30% the first time the new version of the science exam was administered, in 2009…Teachers and education-advocacy groups cite various possible causes for weak scores, including a lack of qualified science teachers, budget cutbacks and a narrowing of the curriculum prompted by the No Child Left Behind law. That 2002 U.S. statute caused schools to be evaluated solely on math and reading tests, which persuaded some to reduce science education.” Stephanie Banchero in The Wall Street Journal.

Congress is considering subsidizing the deductibles on crop insurance. “It’s a deal that most businesses would relish: Buy an insurance policy to cover losses or falling prices, and the government will foot most of the bill. Such an arrangement has been enjoyed for more than a decade by the farmers who grow crops such as corn and soybeans, and the companies that insure them. And it’s about to get even better. The farm bill now before Congress includes a provision — estimated to cost about $3 billion a year — that would help cover the losses farmers suffer before their crop insurance policies kick in. Those losses, termed deductibles, can run in the tens of thousands of dollars for a typical mid-size farm. Supporters say it’s a money saver because it would replace an existing subsidy costing $5 billion a year. That subsidy, known as direct payments, pays farmland owners a set amount regardless of whether they’ve planted crops on the land.” Kim Geiger in The Los Angles Times.

Adorable animals being adorable together interlude: All aboard the (bear cub) love train!

Energy

Oil independence may not be possible. “Over the past few years, the United States has experienced a boom in oil and gas production. And thatas led a few commentators to declare that the country is on the verge of ending its dependence on foreign energy and supply disruptions. Alas, thatas never fully possible…Even if the United States goes further and somehow manages to produce every last drop of the oil and gas it needs to run its economy, the country would still be vulnerable to events in the Middle East, tensions in Iran, strikes in Venezuela and other disruptions in the oil markets…. As the CBO explains, oil prices are set by the global oil market. ‘Disruptions in oil production in one country will cause the world oil market to readjust so that all countries and firms continue to receive oil at the new prevailing price.’ Even if the United States produced 100 percent of its own oil, the price would still go up if rising demand from China outstripped the ability of supplies to keep up.” Brad Plumer in The Washington Post.

@AndrewRestuccia: A lively version of “Chain of Fools” is playing before confernce call with Grover Norquist, Rep. Pompeo, Sen DeMint on energy tax credits

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.

For the President of the United States to endorse gay marriage is certainly, as Vice President Joe Biden would say, a big you-know-what deal. But what’s actually changed this morning?

In Slate, Emily Bazelon argues that President Obama’s position was actually trailing his administration’s legal strategy. They had long ago made the unusual choice to stop defending the Defense of Marriage Act in the courts. That is to say, they had stopped defending a law that pits the federal government against states that choose to to allow same-sex marriage. This largely predicted Obama’s evolution on the underlying policy issue — he personally supports gay marriage, but thinks that the actual decisions should be left up to the states.

Then, of course, there’s the political fallout. This is unpredictable, of course. And my guess is that it probably hurts Obama a bit more than it helps him. But overall, I think Jonathan Bernstein is right that it’s largely being overhyped by both sides.

“Yes,” he writes, “some marriage-equality advocates had talked about withholding support unless the president ‘evolved.’ But realistically, there was no way that political activists a people accustomed to the normal give-and-take of politics a were not going to appreciate the wide gulf between Obama and Mitt Romney on lesbian, gay, bisexual and transgender issues.” Similarly, “itas highly unlikely that anyone who, otherwise was fine voting for Obama despite disagreeing with him on ending ‘donat ask donat tell’ and each of the other measures he has supported and in many cases has enacted, would draw the line here.”

“And what of everyone else?” Asks Bernstein. “The millions of Americans, most likely a large majority, who donat really care very much? Theyare still not going to care very much.”

But there are many Americans for whom this will matter quite a lot. Many of them are young Americans who perhaps have only recently realized that they’re gay, and who live in places, or with families, they know will have trouble accepting that fact. To them, the president’s words are a signal that they can look forward to a future in which they will be accepted, and in which they can live in a way that makes them happy. His words are proof that it gets better. And that’s a big deal.

Wonkbook dashboard

RCP Obama vs. Romney: Obama +1.3%; 7-day change: Obama -1.8%

RCP Obama approval: 47.3%; 7-day change: Obama -.3%.

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Top stories

1) The polling on gay marriage has flipped. According to surveys included in the PollingReport.com database, an average of 50 percent of American adults support same-sex marriage rights while 45 percent oppose it, based on an average of nine surveys conducted in the past year. This is a reversal from earlier periods: support for same-sex marriage has been increasing, and opposition to it has been decreasing, at a relatively steady rate of perhaps two or three percentage points a year since 2004…In addition, there is no longer evidence of an aenthusiasm gapa with respect to same-sex marriage: an NBC News/Wall Street Journal poll in March found that 32 percent of Americans said they strongly favored same-sex marriage, while 31 percent strongly opposed it. Nate Silver in the New York Times.

2) The president’s personal position is catching up with his administration’s legal strategy. Obamaas Justice Department withdrew more than a year ago from defending the Defense of Marriage Actas definition of marriage as ‘a legal union between one man and one woman.’ Attorney General Eric Holder started backing away from DOMA in suits brought by same-sex couples in Connecticut, Vermont, and New Hampshire. The idea in these cases is that in states that recognize same-sex marriage, the federal government should follow state law and stop denying the economic benefits of marriageaestate tax deductions, Social Security benefits, pensions, and the likeato married gay couples….As Mother Jonesa Adam Serwer points out, Obama caught up to his administrationas legal position today without going beyond it. He said ‘at a certain point I’ve just concluded that for me personally it is important for me to go ahead and affirm that I think same-sex couples should be able to get married,’ and he also said he thinks the states should decide the question of legalization for themselves. Emily Bazelon in Slate.

3) The Bundesbank may accept higher inflation. “The Bundesbank, the most hawkish of central banks, has signalled it would accept higher inflation in Germany as part of an economic rebalancing in the eurozone that would boost the international competitiveness of countries worst-hit by the regionas debt crisis. A future German inflation rate above the eurozone average could be part of a natural adjustment process as crisis-hit countries pulled themselves out of recession, the Bundesbank argued in evidence to German parliamentarians submitted on Wednesday…The Bundesbank has for some time seen European Central Bank policy as too loose for Germany. The willingness to contemplate higher domestic inflation in public comments points to a new-found flexibility in German thinking…Despite the Bundesbankas conciliatory stance on inflation, German policy makers have been among the toughest in insisting that Greece sticks to its agreed reform programme underpinning its bailout in the aftermath of Sundayas Greek election.” Ralph Atkins in The Financial Times.

4) Banks are throwing their weight behind Obama’s Fed nominees. “President Barack Obama’s two nominees to the Federal Reserve Board have received support from the financial-services industry, including Goldman Sachs Group Inc. and J.P. Morgan Chase & Co. Sen. David Vitter (R., La.) has effectively blocked Senate confirmation of the nominees, Harvard University economics professor Jeremy Stein and former private-equity executive Jerome Powell. Wall Street firms have been quietly pressing Mr. Vitter to drop his objections, an aide to the senator said. Senate leaders aren’t expected to bring the nominees to the floor for debate, a potentially lengthy process unlikely to be welcomed by either party in an election year. The Senate generally confirms nominees through the faster process of unanimous consent. Unless Mr. Vitter changes his mind, the two Fed nominations are unlikely to advance.” Kristina Peterson in The Wall Street Journal.

5) The House will vote today on a plan to cut health-care spending rather than defense. “The House is expected to vote Thursday on a Republican plan that would spare the Pentagon from the deep across-the-board spending cuts envisioned as part of last summeras debt-ceiling agreement, reviving what has been an emotional debate in Washington about the best ways to reduce the federal budget deficit. With a series of troubling end-of-year deadlines looming, Republicans are proposing to replace the first round of $110 billion in reductions, which are set to take effect in January. The cuts are a first-year down payment on $1.2 trillion in reductions spread over 10 years, which were to be split evenly between the military and domestic programs. To forestall the defense hit, the GOP proposal would cut funding for food stamps, eliminate key pieces of the federal health-care law and slash funding designed to help the government better monitor the financial sector.” Rosalind Helderman in The Washington Post.

@MichaelGrabell: The Sequester Replacement Reconciliation Act is probably the hottest name for a bill I’ve ever seen.

@ChadPergram: Ryan on bill to change sequester: The supercmte didn’t do its job. We’re doing what the supercmte was supposed to do: prioritize spending.

6) The FDIC will outline its plan to take down failing banks. “When the next crisis brings a major financial firm to its knees, U.S. regulators will seize the parent company but allow its units around the globe to keep operating while the mess is cleaned up, according to a planned announcement Thursday from the Federal Deposit Insurance Corp. The equity stakeholders of the large bank or other financial firm will be wiped out, and bondholders will face losses as their holdings are swapped for equity in a new entity, as a part of the FDIC’s plan. Nearly four years after the massive government bailouts of the financial crisis, regulators are looking to chip away at the tacit understanding that the government will step in to save top financial institutions seen as vital to the economy or banking system. As part of that effort, acting FDIC Chairman Martin Gruenberg will outline the agency’s strategy in a speech in Chicago Thursday, his first public remarks on the dismantlement plans for banks.” Victoria McGrane in The Wall Street Journal.

7) The CFPB will propose tighter mortgage lending regulations. “The Consumer Financial Protection Bureau said it planned to propose tighter mortgage lending regulations that would limit the ability of banks and mortgage brokers to charge certain transaction fees, possibly ending one of the most abusive costs levied on consumers when they buy a house. Bureau officials said that the rules, which were released Wednesday ahead of formal introduction this summer, would ban mortgage companies from charging origination fees that vary with the amount of the loan…The consumer bureau also said it would require that lenders offer a reduced interest rate when a consumer opted to pay upfront discount points and would require lenders to offer a loan option without points. During the financial crisis, some lenders charged the points without lowering the interest rate. Changing that rule, the bureau believes, will make it easier for consumers to weigh offers from multiple lenders.” Edward Wyatt in The New York Times.

Top op-eds

1) KLEIN: Polarization is largely attributable to Republicans. “Look no further than Senator Richard Lugaras concession statement Tuesday night, which showed, in its wan effort to make the two parties sound equivalently extreme, just how much further the Republican Party has gone…Whether the Republican Party is ‘the problem’ is a subjective judgment. Perhaps you loathe taxes and, in the face of all available evidence, consider global warming a hoax. In that case, the Republican Party is doing exactly what it should be doing. But there is simply no denying that the Republican Party has gone much further right than the Democratic Party has gone left, and that, from policy pledges to primary challenges, it has done much more to discourage its members from compromising than the Democratic Party has. So if you think polarization is the main problem in Washington today, then Mann and Ornstein are right: Your beef is largely with the Republicans.” Ezra Klein in Bloomberg.

2) HANSEN: If tar sands drilling continues it’s game over for the climate. “Global warming isnat a prediction. It is happening. That is why I was so troubled to read a recent interview with President Obama in Rolling Stone in which he said that Canada would exploit the oil in its vast tar sands reserves ‘regardless of what we do.’ If Canada proceeds, and we do nothing, it will be game over for the climate. Canadaas tar sands, deposits of sand saturated with bitumen, contain twice the amount of carbon dioxide emitted by global oil use in our entire history. If we were to fully exploit this new oil source, and continue to burn our conventional oil, gas and coal supplies, concentrations of carbon dioxide in the atmosphere eventually would reach levels higher than in the Pliocene era, more than 2.5 million years ago, when sea level was at least 50 feet higher than it is now. That level of heat-trapping gases would assure that the disintegration of the ice sheets would accelerate out of control…Civilization would be at risk.” James Hansen in The New York Times.

3) YGLESIAS: It shouldn’t be so hard for foreign visitors to come to the U.S. “For a depressed economy, exports function as a magic elixir. Demand–and with it jobs–appears from outside, generating new income that cycles through the economy, This is why President Obama, as part of his recovery strategy, has set a goal of doubling exports over five years. Talk of exports normally conjures up images of factories and container ships, but many of Americaas exports are services. The nationas biggest service export is in some sense not an export at all–itas travel and tourism, an industry begging for respect on National Travel and Tourism Week…As far as the national balance sheet goes, tourism functions exactly like an export. Foreigners come here and spend money, leaving extra funds in American hands, with which we can purchase oil and Chinese toys. Itas an export realm in which the United States has very strong fundamentals.” Matthew Yglesias in Slate.

4) SALMON: Principal reductions can benefit everybody. “Principal reduction in mortgage modifications has to become the rule rather than the exception. The reason the governmentas efforts to fix the mortgage market have failed so miserably is that those efforts have centered on interest payments, not the total amount owed. A sluggish housing market will act as an economic drag for as long as millions of homeowners owe vastly more than their house is worth. If done right, these policies can be implemented in a positive-sum way, making everybody — including the banks doing the write-downs — better off. For instance, the government could impose higher capital standards on banks that insist on marking underwater defaulted mortgages at par, and give the banks an incentive to write down principal that way, while making the whole banking system safer at the same time…If we donat want the United States to continue to suffocate under the weight of far too much debt, we have to start making serious efforts to bring our debt burden down.” Felix Salmon in Reuters.

5) WILL: The medical device tax will mean fewer life-extending inventions. “Congress, ravenous for revenue to fund Obamacare, included in the legislation a 2.3 percent tax on gross revenue — which generally amounts to about a 15 percent tax on most manufacturersa profits — from U.S. sales of medical devices beginning in 2013. This will be piled on top of the 35 percent federal corporate tax, and state and local taxes. The 2.3 percent tax will be a $20 billion blow to an industry that employs more than 400,000, and $20 billion is almost double the industryas annual investment in research and development. An axiom of scarcity is understood by people not warped by working for the federal government, which can print money when it wearies of borrowing it. The axiom is: A unit of something — time, energy, money — spent on this cannot be spent on that. So the 2.3 percent tax, unless repealed, will mean not only fewer jobs but also fewer pain-reducing and life-extending inventions…which have reduced health-care costs.” George Will in The Washington Post.

Top long reads

Marcus Walker examines the failings of Europe’s bailout of Greece: “Two years after Europe bailed Greece out to protect the euro, the rescue has become a debacle that threatens to unravel the common currency. After Greece’s May 6 elections left pro-bailout parties too weakened to govern the country, more elections are likely in June, with no guarantee a stable government will emerge. By next month, Athens must identify a!11.5 billion, or $15 billion, in fresh spending cuts or face suspension of the international loans it needs to pay pensions and run schools. If it doesn’t get the money, it would eventually have to print its own. Greece’s growing turmoil is the culmination of a radical austerity experiment and botched economic overhaul that have pushed the nation to the brink of social and political breakdown. The story of the ill-fated bailout suggests that forcing deep austerity on individual member states won’t save the euro and may worsen its crisis.”

Susan Headden on the search for better standardized tests: “Critics of testing habitually protest its cost, implying that the millions spent on assessment would be better put toward smaller class sizes, expanded library hours, or the restoration of art and gym. But despite testingas huge and growing role in education, the U.S. now devotes less than a quarter of a percent of per-pupil spending to assessments. Thatas less than the cost of buying each of Americaas students a new textbook. The American education system is at a major crossroads, one that few Americans are aware of. The new assessments–the product of a huge investment of time, knowledge, and talent–are only two years away from being put in place, and theyare desperately needed. Itas too early to know whether they will work as advertised, and even if they do, the danger is that states will quickly revert to their old habits of doing assessment on the cheap. But if we do this right, we could finally provide educators like Caryn Voskuil with one of the tools they need most: a test worth teaching to.”

Robert Rothman on the Common Core and its effect on innovation: “In some ways, the American elementary and secondary education system is undergoing a transition similar to what the American rail system underwent around the time of the Civil War. For decades, each state has set its own expectations for what students should know and be able to do at each grade level. These standards might reflect the tradition of local control of education, but they have made it difficult for students to move from state to state; students transferring from fourth grade in, say, Indiana, might face a different set of expectations when they arrive in fifth grade in Illinois. And, by fragmenting the educational marketplace, these varied standards have impeded the kinds of innovations that might otherwise come with economies of scale–in testing, textbooks, and teacher education.”

British post-punk interlude: Django Django plays “Default” live on Later with Jools Holland.

Got tips, additions, or comments? E-mail me.

Still to come: The Fed approved Chinese banks; primary care doctors will be getting more for Medicaid patients; the F.T.C. and the White House want online privacy legislation; it’s a good time to be a solar installer; and a super-medley of songs from Super Mario Bros. 3.

Economy

Europe may be open to relaxing Greece’s payment deadlines. “As another day passed with Greece no closer to a working government, European officials suggested Wednesday that they had a new tool in their mission to keep the shared euro currency with all its partners: time. A ticking watch may be the most powerful bargaining chip Europe has against the possibility that anti-bailout voices in Greece will push it off the euro. Every day that ends without new European bailout money for Greece to pay its bills heightens the pressure on its leaders to comply with the austerity measures that come as a condition of the $171 billion rescue package. But German officials signaled Wednesday that they may be willing to relax some of the nationas payment deadlines if a pro-bailout government comes to power…They may even be willing to consider reducing the interest payments on Greeceas emergency loans, sweetening the deal without abandoning any of the fundamental overhauls they say Greece needs to get its economy on track.” Michael Birnbaum in The Washington Post.

@TonyFratto: I used to believe Greece couldn’t exit the euro. Now I think it’s only a matter of timing.

@esoltas: Likelihood of Eurozone exit soars on @Intrade — 69% by yearend 2014, 54% by 2013, 35% by 2012. http://pic.twitter.com/ES1kbQqF

Fannie Mae won’t need additional taxpayer aid for the first time since the bailout. “Fannie Mae, the government-backed mortgage financier, said on Wednesday that it made a profit in the first quarter and that it did not need additional bailout money — a first since the federal government took it over in fall 2008. A slowdown in the decline of home prices and in the number of homes entering serious delinquency allowed the company to eke out a profit after paying its dividend to the Treasury. Fannie Mae also said losses on its portfolio of home mortgages had probably peaked and that it expected better profits in the future, another sign that the worst might be over for the battered American housing market. The company reported quarterly net income of $2.7 billion, up from a $6.5 billion loss in the first quarter of 2011. Fannie has received about $116 billion from the Treasury over the last three and a half years and paid back about $23 billion in dividends.” Annie Lowrey in The New York Times.

Export-Import Bank reauthorization is headed towards the Senate. “Ending months of haggling, the House voted Wednesday to extend the Export Import Bankas charter through September 2014 and raise its loan exposure cap to $140 billion — a 40 percent increase. The bill must still pass the Senate but the lopsided 330-93 House margin makes it harder for conservatives to obstruct. Republicans split 147-93 for the measure, and Democrats, whose party controls the Senate, were unanimous in their support…Wednesdayas vote caps a remarkable odyssey is which all of modern Washingtonas politics seemed to descend with a thud on the once obscure enclave of overseas financing for U.S. manufacturers. Pushed to the brink, the bank is only weeks away now from seeing its charter expire at the end of May, by which point it will have also exhausted its $100 billion cap and be unable to take on further transactions in the pipeline.” David Rogers in Politico.

@TPCarney: 93 GOP votes against the Export-Import Bank, as compared to 50 Nays in 2002: Evolution!

@Amy_NJ: Overheard in a Capitol elevator: “Another day in the United States Senate. I couldn’t be more excited.”

The Fed approved the U.S. expansion plans of Chinese state banks. “Giant banks owned by the Chinese government are coming to the U.S. The Federal Reserve on Wednesday approved plans by three state-backed Chinese banks to expand in the U.S., including the first acquisition of a U.S. retail-banking network by a state-owned Chinese lender. The approval is a landmark step for U.S. banking regulators. Chinese banks long have sought access to the U.S. banking system in order to provide financing to Chinese companies operating overseas and to do business with foreign investors looking for exposure to the Chinese currency, the yuan. But they have been stymied in previous attempts by assorted delays and rejections…The Federal Reserve effectively is giving its seal of approval to China’s bank-regulatory system, a big step for U.S. regulators given their past concerns about the adequacy of Chinese supervision of banks.” Jon Hilsenrath, Robin Sidel, and Lingling Wei in The Wall Street Journal.

Compilation interlude: People say “you just don’t get it, do you?” a lot in films.

Health Care

A new regulation will boost Medicaid payments for primary care doctors. “Primary care doctors could get a pay raise next year for treating Medicaid patients, under a rule announced by the Obama administration Wednesday. The proposed regulation implements a two-year pay increase included in the 2010 health-care law. The increase, effective in 2013 and 2014, brings primary care fees for Medicaid, which covers indigent patients, in line with those for Medicare, which insures the elderly and some disabled patients. Although Medicaid is jointly funded by states and the federal government, the pay boost would be covered entirely with federal dollars totaling more than $11 billion over the two years it would be in effect…Administration officials also noted that the law has already increased Medicare payments to primary care doctors — awarding more than 150,000 physicians almost $560 million in additional compensation in 2011.” N.C. Aizenman in The Washington Post.

Some lawmakers want a permanent ‘doc fix.’ “Reps. Allyson Schwartz (D-Pa.) and Joe Heck (R-Nev.) introduced a bill Wednesday to reform how Medicare pays healthcare providers and to avoid a cut to reimbursement rates on Jan. 1. The bipartisan measure would repeal Medicare’s current reimbursement formula and replace it with a new system of payment models. It would also give doctors small boosts in payment rates for four years. Money for the changes would coming from war savings from troop withdrawals in Iraq and Afghanistan — a move Republicans have opposed in the past as a ‘Ponzi scheme.’…The proposal instructs the Centers for Medicare and Medicaid Services to create new payment model options aimed at giving providers more flexibility based on specialty, region or type of practice. Doctors who treat Medicare patients are scheduled to see a 30 percent cut to their reimbursements on Jan. 1, 2013, if Congress does not step in.” Elise Viebeck in The Hill.

Domestic Policy

The FTC and the White House are urging Congress to pass online privacy legislation. “The Obama administration and the nationas chief privacy regulator pressed Congress on Wednesday to enact online privacy legislation…Jon Leibowitz, chairman of the Federal Trade Commission, which enforces limited Internet privacy laws, and Cameron F. Kerry, general counsel for the Commerce Department, said at a hearing of the Senate commerce committee that writing new laws and giving the F.T.C. the power to enforce them with civil penalties would promote Internet commerce by increasing the trust that Americans put in online transactions. Currently, the F.T.C. monitors whether Internet companies that have privacy policies keep their promises to consumers about when and where they will share personal information. But the commission lacks the authority to assess penalties for most transgressions, and it has little authority over how companies operate when they have no written privacy rules.” Edward Wyatt in The New York Times.

Game music interlude: Meine Meinung play a super-medley of songs from the Super Mario Bros. 3 soundtrack.

Energy

Consumer resistance to ‘smart meters’ is slowing a grid upgrade. “A growing consumer backlash against new wireless digital technology for measuring power usage is slowing U.S. utilitiesa $29 billion effort to upgrade their networks. States including California, Maine and Vermont have responded to customer concerns about higher bills and safety by offering them the option of keeping their conventional devices for an extra charge. The fee may discourage drop-outs from the ‘smart-meter’ program, in which household usage data is transmitted over radio waves to local utilities such as PG&E Corp. (PCG), Central Maine Power Co. and Central Vermont Public Service Corp. (CV), which can use the information to charge higher rates during times of peak demand…The meters are key to the ‘smart grid’ being rolled out nationwide to increase delivery flexibility. Investment by utilities in the new grid has totaled $15.4 billion through the first quarter of 2012 and is projected to increase by another $13.4 billion through 2015.” Mark Chediak in Bloomberg.

Solar installers are thriving. “Jay Nuzzi, a New Jersey state trooper, had put off installing solar panels on his home here for years, deterred by the $70,000 it could cost. Then on a trip to Home Depot, he stumbled across a booth for Roof Diagnostics, which offered him a solar system at a price he couldnat refuse: free. Mr. Nuzzi had to sign a 20-year contract to buy electricity generated by the roof panels, which he would not own. But the rates were well below what he was paying to the local utility…Similar deals are being struck with tens of thousands of homeowners and businesses across the country. Installers, often working through big-box chains like Home Depot or Loweas, are taking advantage of hefty tax breaks, creative financing techniques and a glut of cheap, Chinese-made panels to make solar power accessible to the mass market for the first time. The number of residential and commercial installations more than doubled over the last two years to 213,957, according to Greentech Media, a research firm.” Diane Cardwell in The New York Times.

@AndrewRestuccia: Dingell quotes from “Oliver Twist” at hearing on electric reliability #youdontseethateveryday

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.

Are you sitting down? Because you’re not going to believe this. The Senate actually got something done yesterday. Something big! They confirmed both Jeremy Stein and Jerome Powell to the Federal Reserve’s Board of Governors. That means, for the first time since 2006, there are no vacancies on the Fed’s Board.

Stein, a Harvard economics professor, was confirmed 70-24. Powell, a banker who served in George H.W. Bush’s Treasury Department, was confirmed 74-21. Neither seems evidently more qualified than Nobel laureate Peter Diamond, who Republicans filibustered last year. But the Obama administration’s ‘Noah’s Ark’ strategy — nominate one Republican and one Democrat — worked. Furthermore, the predicted collapse of the confirmation process after Obama recess appointed Richard Cordray to the Consumer Financial Protection Bureau hasn’t happened. So that’s another piece of good news.

The next question is whether Stein and Powell will exert any influence on the Fed, and if so, in what direction. That remains to be seen. Right now, the Federal Reserve seems in the unusual position of admitting that it has missed terribly on its mandate to maintain full employment, swearing that there is more it can do if need be, and yet not doing anything more. Given events in Europe, though, they may not be able to resist escalating for very much longer.

Wonkbook dashboard:

According to Tim Geithner, we won’t hit the debt ceiling until a few months into 2013. By that time, either the Bush tax cuts will have already expired and the automatic spending cuts will have already begun or the parties will have come to some big fiscal deal and the debt ceiling will have been raised along the way.

I laid out some of the possible scenarios along these lines yesterday. But one thing I didn’t mention as clearly as I should have: In the no-deal scenario, our deficit problem is pretty much solved by the time we hit the debt ceiling.

According to the Committee for a Responsible Federal Budget, if there’s no deal on anything in the new year, the scheduled tax increases and spending cuts “would reduce ten-year deficits by over $6.8 trillion relative to realistic current policy projections a enough to put the debt on a sharp downward path but in an extremely disruptive and unwise manner.”

The Congressional Budget Office agrees. They’ve sketched the no-deal scenario out in their “current law” baseline. Public debt falls from 75.8 percent in 2013 to 61.3 percent in 2022. That’s as fast as Paul Ryan says it will fall under his budget.

For all sorts of reasons, simply doing nothing isn’t a desirable way to reduce deficits. It would probably throw us back into recession in the first half of next year, for instance. But it would be very odd for Republicans, in those circumstances, to refuse to raise the debt ceiling because America’s budgets are on an unsustainable path. The country would, at that very moment, be in the midst of the sharpest bout of deficit reduction in its history.

Wonkbook dashboard:

“We shouldnat dread the debt limit,” said Speaker John Boehner at the Peter G. Peterson Fiscal Summit. “We should welcome it. Itas an action-forcing event in a town that has become infamous for inaction.”

These comments have been the occasion for much wailing and gnashing of teeth, as if anyone, anywhere, believed that the Republicans’ 2011 debt-ceiling antics were some sort of one-off. But Boehner was clear on Tuesday. “I will again insist on my simple principle of cuts and reforms greater than the debt limit increase,” he said.

Of course he will. For one thing, it worked well for him in 2011. Republicans got more than $900 billion in immediate spending cuts, as well as $1.2 trillion in triggered spending cuts — though they don’t much like the $500 billion or so of those cuts scheduled to fall on the Pentagon. They also drove President Obama’s approval ratings beneath 40 percent. And while I’m not one who thinks Republicans intentionally tank the economy to undermine Obama, there’s little doubt that the effect of the debt-ceiling debacle was to set back the recovery, brightening Republican prospects and darkening Democratic ones. The fact is that it’s easier to be sanguine about economic showdowns when you’re not the ones in charge.

For another, it’s Boehner’s only option in 2012. The Democrats, for once, have nothing but fiscal leverage. They’ve got the expiration of the Bush tax cuts, which all Republicans would hate and many Democrats would welcome. They’ve got the aforementioned spending trigger, which Republicans really have begun to fear for its cuts to defense spending. They can do nothing — or, more likely, offer Republicans a deal they can’t accept — and the resulting paralysis will swing fiscal policy far, far, far to the left. Threatening to default on the national debt is Boehner’s only piece of counter-leverage.

So of course Boehner will try and use the debt ceiling as leverage again. And again. And again. It’s pretty clear that, at this point, there’s no going back to the time when debt-ceiling increases came smoothly. If I were the market, I’d take the fact that the leader of one of the two parties has publicly said that he “welcomes” debt-ceiling showdowns as evidence that the United States is almost certain to default on its debt — if only temporarily — within the next decade or so.

The question is what, aside from complain, Democrats and the business community will do to stop him. Somehow, the debt ceiling needs to be taken off the table once and for all, either because Republicans forced a default in a way that they were blamed for the consequences and scared into never doing it again or because the president successfully pulled off one of the more creative maneuvers suggested during last year’s showdown (Bill Clinton, for instance, argued that Obama should invoke the Fourteenth Amendment — which says “the validity of the public debt of the United States … shall not be questioned” — to raise the debt ceiling unilaterally).

Wonkbook dashboard

RCP Obama vs. Romney: Obama +1.8%; 7-day change: Obama +1.6%.

RCP Obama approval: 48.0%; 7-day change: +0.7%.

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Top stories

1) Boehner threatened another debt-mageddon “Washington braced Tuesday for a replay of last summeras tense battle over the burgeoning national debt as House Speaker John A. Boehner threatened again to block an increase in the federal debt ceiling without significant new cuts in spending. Treasury Secretary Timothy F. Geithner and other senior Democrats quickly blasted the Ohio Republican, arguing that his ultimatum could put the nationas credit rating — and the broader economy — at risk early next year, when the debt is expected to hit its $16.4 trillion limit.” Lori Montgomery in The Washington Post.

@damianpaletta: Boehner’s debt ceiling “line in the sand” is very similar to what he said last year; Definitely got the attention of White House and D’s

@ObsoleteDogma: Shorter Boehner: Regulatory uncertainty is bad. But default uncertainty is good.

INTERVIEW: Sen. Tom Coburn on defusing the debt bomb.

READ: Mitt Romneyas remarks on the debt.

@MichaelSLinden: As a fiscal policy analyst, I’d like to thank Mitt Romney for offering no specifics whatsoever so I can go home at a normal time tonight.

2) Greece failed to form a new government, triggering new elections. “The threat of a full economic collapse in Greece escalated Tuesday after warring political factions here failed to forge a new government, triggering fresh elections and heightening chances that this rudderless Mediterranean nation could be forced to abandon the euro…A nation in danger of running out of cash to operate the government, and where fearful residents in recent days have been rapidly withdrawing more of their savings from Greek banks, faces uncertain new elections next month. Opinion surveys have shown that Syriza, a party that wants to break the terms of Greeceas bailout deal and that came in a surprise second in the last vote, is polling in first place…European finance ministers — whose taxpayers have largely funded the bailout for Greece — were quick to push back Tuesday. Given the potential shock waves if Greece is forced to leave the euro zone, there have been suggestions in recent days that European officials might show more lenience with Athens.” Anthony Faiola in The Washington Post.

Surging bank withdrawals in Greece sparked fears of a bank run. “Greek depositors withdrew a!700 million ($898 million) from the country’s banks on Monday, fueling fears of a bank run amid the growing political disarray. With deposits falling, Greek banks become even more dependent on the European Central Bank to meet their funding needs, exposing the central bank to potentially huge losses if Greece leaves the euro area. Greek President Karolos Papoulias told the country’s political leaders that bank withdrawals plus buy orders received by Greek banks for German bunds totaled some a!800 million on Monday, a transcript of his comments said. A central bank official confirmed the figures…Monday’s deposit withdrawal far outpaced Greek banks’ steady decline in deposits since the start of the country’s debt crisis in 2009, as depositors withdraw cash and transfer funds overseas.” Brian Blackstone and David Enrich in The Wall Street Journal.

@grossdm: So, Greece is seeking to solves its economic problems through QE — quantitative electioneering

3) The Senate will vote on several GOP budget proposals today. “The Senate on Wednesday will hold six hours of debate and votes on four different Republican budget resolutions, in an apparent attempt to demonstrate that they will not be supported in the Democratic-led Senate. A fifth budget measure up for a vote, from Senate Budget Committee ranking member Jeff Sessions (R-Ala.), is based on President Obama’s budget and is seen as an attempt to embarrass the White House. But Senate Budget Committee Chairman Kent Conrad (D-N.D.) said Tuesday that debate and votes on the GOP proposals would show there is little appetite for these plans. He also said it would give the country a chance to understand that last year’s Budget Control Act already sets spending caps for Congress. Democrats have been under fire for failing to pass any budget resolution…One of the four GOP budget resolutions to be debated Wednesday is H.Con.Res. 112, the budget resolution approved by the House in March.” Pete Kasperowicz in The Hill.

4) The Justice Department started a criminal probe into JPMorgan Chase’s loss. “The Justice Department has initiated a criminal probe into the $2 billion trading loss at JPMorgan Chase, a law enforcement representative familiar with the situation said Tuesday. The inquiry is at a very early stage, said the person, who spoke on the condition of anonymity because the matter is private. Many details about the loss at JPMorgan are murky, so it is unclear what laws, if any, may have been violated. But the attention from federal officials indicates that regulatory pressure is rising on JPMorgan, and its chief executive Jamie Dimon, to explain what exactly led to the bankas multi-billion dollar misstep. That, in turn, has rekindled questions about whether government regulators are equipped to monitor banks making risky, complex trades…Dean Boyd, a Justice spokesman, declined to comment.” Jia Lynn Yang and Sari Horwitz in The Washington Post.

Too big to fail banks have gotten bigger. “JPMorgan Chaseas $2 billion blunder is throwing the spotlight on an awkward truth for President Barack Obamaas promise to end the era of big bank bailouts: The same institutions that were deemed ‘too big to fail’ before the financial collapse are even bigger now. Efforts to manage the size of such institutions were at the heart of the Dodd-Frank financial law passed in July 2010. But nearly two years later, many of the lawas regulations remain in limbo, as federal agencies muddle through long rule-making processes against stiff industry opposition…All the while, the countryas biggest financial institutions continue to grow. The five largest, which controlled $6.1 trillion in assets before the collapse, by the end of 2011 had assets worth $8.5 trillion — equal to more than half of U.S. economic output, according to Federal Reserve data.” Patrick Reis in Politico.

@BCAppelbaum: This whole JPM story underscores one reason we don’t have effective financial regulation: Our public officials don’t understand finance.

Top op-eds

1) PORTER: It’s time for the euro to come to an end. “Social upheaval across the euro area suggests that it may be time to call it quits and try to work out an orderly process to re-establish national currencies throughout the bloc. Europe would be in much better shape if the euro didnat exist and each member country had its own currency. Monetary union has shackled together nations with vastly different economies, depriving them of an independent monetary policy that can help them through rough times. The interest rate and exchange rate that serve Germany also have to serve Spain, though that country has more than four times Germanyas joblessness. The main problem is that while leaders eagerly embraced the monetary bond, they rejected its necessary complement: a central budget that would transfer money from successful regions to underperforming ones, as the United States government sends tax dollars collected in Massachusetts to pay for unemployment benefits in Nevada.” Eduardo Porter in The New York Times.

2) FROST: The FDIC shouldn’t protect investment banks. “I suggest that we divide the two functions into separately owned, managed and regulated entities. That’s the only way we can ensure that their riskier businesses don’t undermine the insured deposits that are the foundation of a stable and healthy economy. Taxpayer safety-net programs, such as the Federal Deposit Insurance Corporation (FDIC), should be available only to banks in business to provide insured deposits. Financial institutions that provide primarily investment, hedging and speculative services don’t deserve protection either by the FDIC’s explicit guarantees or by an implicit understanding that taxpayers will bail them out because there is no other alternative. Indeed, this kind of protection is a perversion of capitalism and can distort its good outcomes…We need a real and impregnable firewall that keeps one part of the banking system–and the economy–from being consumed when the other goes into flames.” Tom Frost in The Wall Street Journal.

3) ROSEN: Competitive bidding can hurt patients. “On the face of it, competitive bidding sounds like a very good idea. If one supplier can provide power wheelchairs or oxygen masks for 30 percent less than another, itas hard to argue for contracting with the more expensive supplier, especially at a time when everyone is looking for ways to save money. A one-year experiment with expanded competitive bidding that was recently conducted by Medicare yielded cost savings of 42 percent, without reducing the quality of care, and was hailed as a great success. But as a doctor working with patients on the ground, I have doubts about that quality-of-care measure, and I worry that those savings obscure a potentially serious problem…If competitive bidding is predicated on supplying equipment at the lowest possible price, something has to give. And more likely than not, that something will be patient care.” Dennis Rosen in The New York Times.

4) ORSZAG: Want good news on jobs? Look to big businesses. “Big business, we keep being told, has been so hampered by regulatory uncertainty over the past few years, it has been reluctant to hire workers. So it is surprising to read the results of a little-known survey from the Bureau of Labor Statistics: Very large businesses, it turns out, have been expanding their domestic workforces relatively rapidly. If, since January 2011, businesses of all sizes had hired at the same rate as those with 5,000 or more employees, we would have almost 4 million more jobs today…The JOLTS data highlight the importance of exploring how the continuing deleveraging process and resultant sluggish growth in demand is affecting smaller businesses in particular. With the percentage of working Americans stuck at a depressed level, we sure could use those extra 2 million to 4 million jobs.” Peter Orszag in Bloomberg.

5) ALEXANDER: Washington should take over Medicaid and let states handle education. “Staring down steep tuition hikes, students at the University of California have taken to carrying picket signs. As far as I can tell, though, none has demanded that President Barack Obama accept a Grand Swap that could protect their education while saving them money. Allow me to explain. When I was governor of Tennessee in the early 1980s, I traveled to meet with President Ronald Reagan in the Oval Office and offer that Grand Swap: Medicaid for K-12 education. The federal government would take over 100% of Medicaid, the federal health-care program mainly for low-income Americans, and states would assume all responsibility for the nation’s 100,000 public schools…If we had made that swap…states would have about $92 billion a year in extra funds, as they’d keep the $149 billion they’re now spending on Medicaid and give back to Washington the $57 billion that the federal government spends per year on schools.” Lamar Alexander in The Wall Street Journal.

Cover interlude: Screaming Females play Sheryl Crow’s “If It Makes You Happy” for the AV Club.

Got tips, additions, or comments? E-mail me.

Still to come: Free trade with Colombia is in effect; Catholic bishops are close to suing over birth control; backlash against tests is growing; energy independence is within reach; and a puppies’-eye view of life.

Economy

The Senate will vote on two Fed nominees on Thursday. “Senate Majority Leader Harry Reid (D-Nev.) today set up a procedural vote for Thursday on two nominees to join the Federal Reserve whose nominations have stalled because of opposition from Sen. David Vitter (R-La.)…Vitter blocked attempts in March to quickly confirm Harvard University economics professor Jeremy Stein, a Democratic nominee, and former private-equity executive Jerome Powell, a Republican nominee…Asked whether he was confident that he would have the 60 votes to invoke cloture on the nominations, Reid said, ‘Well I sure hope so, weave been waiting months and months.’…Senate Minority Leader Mitch McConnell (R-Ky.) said he believes there is bipartisan support for the nominees…Without the two nominees in place, the Federal Reserve Board will remain short-handed as it attempts to support the economic recovery” Humberto Sanchez in Roll Call.

The dip in gas prices eased inflation. “The recent slide in gasoline prices in the U.S. has pushed the nation’s annual rate of inflation to its lowest level in more than a year, easing some economic strains on consumers. The consumer price index, which measures what Americans pay for everything from breakfast cereal to doctor visits, was unchanged from March to April, ending three months of increases, the Labor Department said Tuesday. A 2.6% drop in the gasoline-price index helped offset rising costs for many other items. Overall prices are now running 2.3% higher than a year ago, the smallest increase since February 2011…The inflation figures have mixed implications for the recovery. Lower gasoline and utility costs are keeping a lid on household expenses, effectively boosting Americans’ spending money. However, prices are climbing broadly, most notably for food, but also medical care, rents, autos and airfares.” Josh Mitchell in The Wall Street Journal.

States are using foreclosure prevention funds to plug budget gaps. “Hundreds of millions of dollars meant to provide a little relief to the nationas struggling homeowners is being diverted to plug state budget gaps. In a budget proposed this week, California joined more than a dozen states that want to help close gaping shortfalls using money paid by the nationas biggest banks and earmarked for foreclosure prevention, investigations of financial fraud and blunting the ill effects of the housing crisis. California was awarded more than $400 million from the banks, and Gov. Jerry Brown has proposed using the bulk of that sum to pay the stateas debts. The money was part of a national settlement valued at $25 billion and negotiated with five big banks over abuses in their mortgage and foreclosure processes…As part of the settlement, the banks agreed to pay the states $2.5 billion, money intended to help homeowners and mitigate the effects of the foreclosure surge.” Shaila Dewan in The New York Times.

House Republicans are planning a vote on a ‘fast track’ proposal for tax reform. “Speaker John Boehner said in a speech Tuesday that House Republicans would try to attach a timeline to fast-track a broad tax overhaul to a vote extending the George W. Bush-era tax rates before the November elections…’Our bill to stop the New Yearas Day tax increase will also establish an expedited process by which Congress would enact real tax reform in 2013,’ Boehner (R-Ohio) said in remarks to a fiscal summit in Washington. ‘This process would look something like how we handle Trade Promotion Authority, where you put in place a timeline for both houses to act.’…GOP aides said that, even though Boehner specifically discussed Trade Promotion Authority on Tuesday, House Republicans are looking at a variety of expedited processes that have been used in the past, and have yet to settle on just one.” Russell Berman and Bernie Becker in The Hill.

@grossdm: Memo to Boehner, the markets, etc.: the House passing legislation won’t be sufficient to avert tax increases. They’ll have to make a deal

The euro zone narrowly missed recession. “The euro-zone economy narrowly escaped recession in the latest quarter thanks to a surprising rebound in Germany, which offset deepening downturns in Spain and Italy. Although the region avoided two straight quarterly drops in gross domestic product, the common benchmark for recession, the figures nonetheless reflect a deepening divide between Germany and the rest of the euro zone that complicates the bloc’s efforts to stem its debt crisis…Euro-zone GDP was unchanged from the previous quarter, said Eurostat, the European Union’s statistics agency. In annualized terms, GDP rose 0.1% from the fourth quarter, according to calculations by J.P. Morgan Chase. Economists had expected an annualized contraction of around 1%. GDP fell at a 1.2% rate in the fourth quarter…European stock markets rose initially on the figures, which eased fears that the debt crisis may trigger an economic free fall.” Brian Blackstone in The Washington Post.

Export-Import Bank reauthorization cleared the Senate by a wide margin. “On a broad bipartisan vote of 78 to 20, the Senate voted Tuesday to extend the life of the U.S. Export-Import Bank and expand its authority to make loans to U.S. exporters. In the ‘Schoolhouse Rock’ version of how Capitol Hill works, this is what Congress does all the time — passes legislation. But it made for big news on this Capitol Hill, where protracted partisan warfare has meant that lately the story has more often been about votes forced by one party or the other to indignantly demonstrate the otheras opposition…Tuesdayas bill was the rarest of breeds: a lasting compromise on an issue of substance. It renewed the charter of what is commonly referred to as the Ex-Im bank for three years and will over that time raise the cap on the total financing the bank can guarantee from $100 billion to $140 billion.” Rosalind Helderman in The Washington Post.

The U.S.-Colombia free trade agreement took effect. “A free-trade agreement between the U.S. and Colombia took effect Tuesday after years of negotiations and despite strong opposition from U.S. labor organizations, which are worried about jobs being sent abroad and union-busting violence in Colombia. The first products shipped tariff-free were crates of Colombian roses and other flowers that landed Tuesday morning at Miami’s airport…President Barack Obama signed the free-trade agreement with Colombia in October, days after Congress gave its final approval following heated debates. The deal was originally negotiated by the Bush administration, but President Obama reworked the deal to satisfy Democrats. The U.S. exported $14 billion of goods to Colombia last year, everything from cars to consumer electronics to food, and exports are expected to rise by more than $1.1 billion as a direct result of the pact, according to the International Trade Commission.” Dan Molinski in The Wall Street Journal.

Adorable children singing interlude: Two girls cover Gotye’s “Somebody That I Used To Know” from the back seat of the car.

Health Care

Catholic bishops are threatening to sue over the birth control mandate. “The Catholic Church’s U.S. hierarchy warned Tuesday that without quick action by Congress, it will sue the Obama administration for mandating that insurance plans provide birth control to women without a co-pay. ‘[F]orcing individual and institutional stakeholders to sponsor and subsidize an otherwise widely available product over their religious and moral objections serves no legitimate, let alone compelling, government interest,’ lawyers for the U.S. Conference of Catholic Bishops wrote in a letter to federal regulators. Several small Catholic universities have already filed suit over the policy…The bishops’ notice came in 20 pages of comments submitted to the Department of Health and Human Services (HHS) on a forthcoming rule to accommodate certain religious organizations, such as Catholic hospitals, that were not exempted from the original mandate.” Elise Viebeck in The Hill.

Obamacare will expand healthcare options for immigrants. “The Obama administrationas drive to cut down on Americaas uninsured is about to get multilingual. Come 2014, when core provisions of the Affordable Care Act kick in, millions of legal immigrants will have new options for gaining health coverage. And like U.S. citizens, most will be subject to the individual mandate, under which they will be required to get coverage to avoid a penalty. The national health law explicitly excludes illegal immigrants — a politically explosive topic — and bans them from the new state insurance exchanges, even if they use their own money. They will make up a big chunk of the remaining uninsured population. But advocates say states have good reasons to reach out and get uninsured legal residents covered — especially as the federal government picks up most of the tab…In 2014…legal immigrants will be able to shop for health coverage through the new state insurance exchanges.” Kyle Cheney in Politico.

Domestic Policy

The backlash against standardized testing is growing. “The increasing role of standardized testing in U.S. classrooms is triggering pockets of rebellion across the country from school officials, teachers and parents who say the system is stifling teaching and learning. In Texas, some 400 local school boards–more than one-third of the state’s total–have adopted a resolution this year asking lawmakers to scale back testing. In Everett, Wash., more than 500 children skipped state exams in protest earlier this month…The efforts are a response to the spread of mandatory testing in the past decade. Proponents say the exams are needed to ensure students are learning and teachers’ effectiveness is measured. Critics say schools are spending disproportionate time and resources on the tests at the expense of more-creative learning. They also contend the results weigh too heavily in decisions on student advancement, teacher pay and the fate of schools judged to have failed.” Stephanie Banchero in The Wall Street Journal.

The NLRB suspended implementation of its union elections rule. “The National Labor Relations Board (NLRB) suspended implementation on Tuesday of a rule that would speed up union elections. On Monday, U.S. District Judge James Boasberg struck down the regulation. In his ruling, the judge said the labor board only had two members vote on the final rule in December 2011 when it needed three members to form a quorum. In the wake of the court decision, the agency is temporarily suspending the rule’s implementation, which went into effect on April 30. Further, Lafe Solomon, the NLRB’s acting general counsel, withdrew guidance he sent to the labor board’s regional offices and told those offices to follow the old union election rule instead. The agency is still considering its response to the court ruling…’We continue to believe that the amendments represent a significant improvement in our process and serve the public interest by eliminating unnecessary litigation,’ said NLRB Chairman Mark Pearce.” Kevin Bogardus in The Hill.

Dog’s-eye view interlude: Life from on top of puppies.

Energy

Energy independence is no pipe dream. “Every president since Richard Nixon has called for the U.S. to wean itself from needing oil from unstable or unsavory countries. The nation’s new-found energy riches are likely to bring that ambition closer to reality in the next two decades, according to many forecasters. It’s no pipe dream. The U.S. is already the world’s fastest-growing oil and natural gas producer. Counting the output from Canada and Mexico, North America is ‘the new Middle East,’ Citigroup analysts declare in a recent report. The U.S. Energy Information Agency says U.S. oil imports will drop 20% by 2025. Oil giant BP projects the U.S. will get 94% of its energy domestically by 2030, up from 77% now, as oil imports fall by half…Most enticing, a team of analysts and economists at Citigroup argues that the U.S., or at least North America, can achieve energy independence by 2020.” Tim Mullaney in USA Today.

@umairh: So consider how our political institutions are paralyzed by a financial crisis. Now think about energy, water, etc crises. Sweet!

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.

Don’t think of gay marriage as a cultural issue. Don’t think of it even as an equality issue. Don’t even think of it as a political issue. Think of it, just for a moment, as an economic issue.

In the traditional view of marriage, write economists Betsey Stevenson and Justin Wolfers, “the joining of husband and wife yields a more productive firm, because it allows one spouse to specialize in earning income from working in the market, while the other specializes in the domestic sphere. The division of labor allows for greater productivity, just as it does in the workplace. The different skills required for these separate roles provide an economic rationale for the advice your grandmother may have offered, that ‘opposites attract.’” Romantic, right?

But in recent decades, the marriage-as-firm view has crumbled — and not just because social mores have changed. “Washing machines, dishwashers and microwave ovens have reduced the value to the family ‘firm’ of employing a domestic specialist,” say Stevenson and Wolfers, who are, themselves, married. “Cheap clothes can be imported from China, rather than sewn at home. Healthy meals can be purchased from the freezer at Trader Joeas. Whatas more, legal and social changes have broken down many of the barriers keeping women out of the labor market…All these developments have increased the opportunity cost of having a spouse stay home, because that spouse now has greater value in the marketplace.”

One possibility was that, as the traditional economic case for marriage fell apart, marriage itself would decline as an institution. But that didn’t happen. Rather, we developed a new kind of marriage. “Modern partnerships are based upon ‘consumption complementarities’ — the joy of sharing things and experiences — rather than the production-based gains that motivated traditional marriage,” continue Stevenson and Wolfers. “Consistent with this, co- parenting has replaced the separate roles of nurturer and disciplinarian. We have called this new model of sharing lives ‘hedonic marriage.’ These are marriages of equality in which the rule aopposites attracta no longer applies in the same way, because couples with more similar interests and values can derive greater benefits. So likes are now more likely to marry each other.”

And it’s into this institution that gay couples are being admitted, because the nature of this institution doesn’t provide a good argument for their exclusion.

Gay couples couldn’t credibly promise to provide each other with the separate and specialized skills — separate for reasons of legal discrimination, and social beliefs about what men and women could do — that were the basis of the older conception of marriage. But gay couples can certainly share the joy of things and experiences, they can certainly improve each other’s lives, they can certainly co-parent, they can certainly bring increased economic stability to a household by combining two incomes — they can do all the things that form the basis of what Stevenson and Wolfers call “hedonic marriages.”

In other words, one story here is that our attitudes have changed towards homosexuality, and that’s certainly true. But another is that our attitudes have changed towards marriage — even heterosexual marriage — in ways that opened the institution for gays. And that’s true, too.

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Top stories

1) Greece’s coalition talks remain deadlocked. “Greeceas president is set to resume coalition talks on Tuesday with the countryas political leaders in another attempt to avoid a fresh general election after a meeting on Monday evening ended without agreement. Antonis Samaras and Evangelos Venizelos, the conservative and socialist leaders, and Fotis Kouvelis, head of a leftwing splinter group, held a fruitless one-hour discussion on how to escape the crisis but agreed to meet again, along with other party heads. President Karolos Papoulias has another 48 hours to persuade politicians to join a national unity government according to the constitution or face having to call another election…Alexis Tsipras, the leader of Syriza, the radical leftwing coalition that rejects the terms of Greeceas international bailout, refused to participate in Mondayas talks. ‘Weare not going to join in selective meetings of political leaders … The circle of contacts provided for by the constitution has been completed,’ he said.” Kerin Hope and Peter Spiegel in The Financial Times.

The standoff is raising worries of a European economic crisis. “Political deadlock in Greece rattled world markets Monday, reviving fears that the fractious Mediterranean country could spurn an international bailout, abandon the common European currency and risk a fresh round of world economic turmoil. European stock indexes fell, with Greeceas market now at a 20-year low, while the euro currency continued a recent decline against the dollar. U.S. stocks also fell. Coming only days before the leaders of the worldas Group of Eight industrialized nations meet at Camp David, the standoff in Greece over its political direction has thrust Europeas troubles to the top of the agenda. A downturn in Europe could stagger a fragile recovery in the United States and undermine growth around the world. Fighting a new downturn would be a challenge for the major economies, many of which have not fully stabilized since the last big economic crisis.” Howard Schneider and Anthony Faiola in The Washington Post.

FAQ: Why is Greece in such trouble? And can it be fixed?

@ezraklein: “Syriza” is a rather evil-sounding name for a political party. Pretty sure it means Hydra in Greek.

2) Senate leaders reached a deal to move the Export-Import Bank bill forward. “Legislation to extend the Export-Import Bankas charter advanced in the Senate Monday evening after agreement was reached on addressing tea party demands to reopen a bipartisan deal approved only days ago by the House. Five GOP amendments will be permitted Tuesday — some re-litigating specific agreements reached by House leaders. But in each case, a supermajority of 60 votes would be required, leaving Senate Majority Leader Harry Reid (D-Nev.) hopeful that the House package will survive intact and go quickly to President Barack Obama for his signature this week…Mondayas agreement, as announced by Reid, came only minutes before a scheduled procedural vote in which he would have needed 60 votes himself to move on to the bill. By coming to terms on the amendments, Reid avoided that challenge, but as part of the same deal, he will need 60 votes for passage of the bill.” David Rogers in Politico.

3) JPMorgan Chase’s loss has the banking industry scared. “A Congressional committee announced plans on Monday to hold a hearing on the financial regulatory overhaul that will look at the JPMorgan loss. Wall Streetas representatives, fearing that the entire banking industry might pay for JPMorganas sins, are trying to contain the fallout in Washington, people close to the matter said…JPMorgan, however, is stepping away from another public panel on the Volcker Rule. The Commodity Futures Trading Commission, one of the regulators writing the Volcker Rule, will host a public roundtable this month about the new regulation and has invited JPMorgan to speak. Last week, JPMorgan suggested that one of its top Volcker Rule experts would attend. But then the bank said that this person had a scheduling conflict. Rather than dispatch another executive to Washington, the banks recommended an employee at another bank..” Ben Protess and Ed Wyatt in The New York Times.

The fiasco claimed its first casualty. “JPMorgan Chase on Monday announced the abrupt retirement of the executive who oversaw the unit that lost $2 billion trading exotic securities, the latest twist in a story that has exposed the gulf between how Wall Street views itself and how the public sees the financial sector. To the bank, its actions — which included appointing an executive to investigate what went wrong — were an example of how it could take the initiative in cleaning up its own shop. But to many lawmakers and analysts, the question remains how a bank with a sterling reputation could get into such trouble two years after Congress passed laws to prevent dangerous financial gambling…On Monday, the bank announced that Chief Investment Officer Ina Drew, who oversaw the London unit, would leave the firm, which she has served for 30 years…The bank also announced that Mike Cavanagh, a top executive, would lead a team of officials to investigate the losses.” Zachary Goldfarb and Steven Mufson in The Washington Post.

FAQ: What happened at JP Morgan? And should you care?

@lizzieohreally: Carl Levin just waved highlighted parts of Dodd-Frank at me. Which was awesome.

@SuzyKhimm: Part of Obama’s problem in selling Dodd-Frank: many new regs aren’t written yet, much less implemented. Similar to Obamacare conundrum.

4) Businesses are bracing for taxmageddon. “Defense contractors have slowed hiring. Tax advisers are warning firms not to count on favorite breaks. And hospitals are scouring their books for ways to cut costs. Across the U.S. economy, anxiety is rising about the potential for widespread disruptions after the November election, when a lame-duck Congress will have barely two months to resolve a grinding standoff over taxes and spending. The halls of the U.S. Capitol are already teeming with people warning of disaster if lawmakers fail to defuse a New Yearas budget bomb scheduled to raise taxes for every American taxpayer and slash spending at the Pentagon and most other federal agencies…The uncertainty is already prompting some firms to take action. Many more say they will be forced to contemplate layoffs and other cost-cutting measures long before the end of the year unless the Republican House and the Democratic Senate come up with an alternative path to tame deficits.” Lori Montgomery and Rosalind Helderman in The Washington Post.

5) The House GOP may link tax cut extensions with a tax reform vote this summer. “House GOP leadership is considering linking a short-term extension of the expiring Bush-era tax cuts to an overhaul of the tax system this summer, aiming to give its party a campaign talking point and to pressure Senate Democrats to act. While the details of the plan are very much up in the air, one option being considered is passing a bill extending the 2001 and 2003 tax rates for one year along with a resolution affirming GOP principles for tax reform. The measures could also include some form of fast-track authority, much like the power granted to the Joint Committee on Deficit Reduction, to expedite floor consideration of a tax reform plan in 2013, when the Bush-era tax cuts would again expire…Boehner is expected to address this and other financial issues at a speech before the Peter G. Peterson Foundation Fiscal Summit today.” Daniel Newhauser and John Stanton in Roll Call.

Top op-eds

1) KLEIN: The filibuster may be unconstitutional. “According to Best Lawyers — ‘the oldest and most respected peer-review publication in the legal profession’ — Emmet Bondurant ‘is the go-to lawyer when a business person just canat afford to lose a lawsuit.’ He was its 2010 Lawyer of the Year for Antitrust and Bet-the-Company Litigation. But now, heas bitten off something even bigger: bet-the-country litigation. Bondurant thinks the filibuster is unconstitutional. And, alongside Common Cause, where he serves on the board of directors, heas suing to have the Supreme Court abolish it…At the core of Bondurantas argument is a very simple claim: This isnat what the Founders intended. The historical record is clear on that fact. The framers debated requiring a supermajority in Congress to pass anything. But they rejected that idea.” Ezra Klein in The Washington Post.

2) SALAM: The U.S. economy shouldn’t follow China’s model. “Americans have always looked abroad for inspiration. Alexander Hamilton drew on the experience of Britain and France to shape the economic institutions of the early republic. In the early 19th century, Henry Clay championed tariffs, a national bank, and internal improvements in an effort to match Britainas economic might. As the 19th century gave way to the 20th, Germany emerged as an industrial colossus, and American intellectuals had a new model. During the 1950s, at least some Americans, mainly but not exclusively on the political left, saw the breakneck modernization of the Soviet Union as a clear indication that the old-fashioned market economy was on its last legs…But the belief that we had much to learn from the Soviets was both dangerous and stupid. And much the same can be said for the current enthusiasm over Chinaas economic model.” Reihan Salam in National Review.

3) BERWICK: Cheaper healthcare can mean better healthcare. “Reducing costs wonat just rescue health care; it will also help rescue our schools, our roads, our museums, our wages, and the competitiveness of our corporations…The route is simple: improve care. In a study in the Journal of the American Medical Association, my colleague Andy Hackbarth and I estimated the amount of pure waste in American health care — overtreatment that helps no patient at all (like treating viral infections with antibiotics), errors and injuries from unsafe care, failures in coordination (such as sending people home from hospitals without supports), needless administrative complexity, failures of price competition, and fraud. The lowest estimate of total waste in these six categories was 21 percent of health care costs; the highest was 47 percent; and the midpoint was 34 percent. When we are wasting $1 in of every $3, it makes no sense to say we cannot afford to make health care a human right without rationing. Donat cut care. Cut waste.” Donald Berwick in The Boston Globe.

4) SCHMITT: Link worker pay to corporate taxes to fight inequality. “The tax code can be part of the solution. The first step is to end the preferential treatment of income from capital gains, which economists like Princetonas Alan Blinder have shown to have no lasting effect on total investment or the economy. But we can and should go further, actively using the corporate tax code to create a real incentive to pay CEOs less, and workers more, by linking the head honchoas compensation to both employee salaries and tax rates. Hereas how the idea could work. The current corporate tax rate is a flat 35 percent. In an equity-based corporate tax system, companies with a pay ratio at the historic norm of 40:1, or even up to 60:1, would pay the existing rate and be able to deduct executive pay. But companies that pay their top executives more than 60 times the average worker (including employees in overseas subsidiaries) would pay a higher rate, 40 percent, and those with extreme pay differentials, 80:1 or higher, would pay 45 percent.” Mark Schmitt in GOOD.

5) STEVENSON AND WOLFERS: An economic mode of marriage equality. For our grandparentsa generation, marriage was about separate roles, separate spheres and specialization. Gary Becker, an economist at the University of Chicago, won the Nobel Prize partly for describing the family as an economic institution — a bit like a small firm that employs people with different skills to produce both income and a well-run household. In Beckeras view, the joining of husband and wife yields a more productive firm, because it allows one spouse to specialize in earning income from working in the market, while the other specializes in the domestic sphere. The division of labor allows for greater productivity, just as it does in the workplace…Modern marriage offers different benefits. Today, we search for a soul mate rather than a good homemaker or provider. We are more likely to regard marriage as a forum for shared experiences and passions. Viewed through an economic frame, modern partnerships are based upon ‘consumption complementarities’ — the joy of sharing things and experiences — rather than the production-based gains that motivated traditional marriage. Consistent with this, co- parenting has replaced the separate roles of nurturer and disciplinarian.” Betsey Stevenson and Justin Wolfers at Bloomberg View.

Anti-folk interlude: Kimya Dawson plays “I like Giants” live.

Got tips, additions, or comments? E-mail me.

Still to come: A fall in commodities prices sparks worries of deflation; a turf war over primary care; colleges begin to confront costs; regulators worry about solar flares; and a harbor seal pup explores the water for the first time.

Economy

New data suggests the eurozone has returned to recession. “Industrial production in the 17 countries that use the euro fell unexpectedly in March, leaving little doubt the region contracted for a second straight quarter in the first three months of the year and returned to recession, data by Eurostat showed Monday. The European Union’s statistical agency will publish the first estimate of first-quarter gross domestic product Tuesday. Economists are forecasting a 0.2% quarterly decline, according to a Dow Jones Newswires poll. Industrial production fell 0.3% on the month in March and by 2.2% on the year. The latter was the steepest drop since a 3.7% decline in December 2009, while the monthly decline was because of a sharp 8.5% decrease in energy production as the weather in March was warmer than usual for the time of year, a Eurostat statistician said…The data were weaker than expected. Economists had forecast a 0.5% monthly increase and a 1.2% year-on-year fall.” Ilona Billington in The Wall Street Journal.

Commodities prices fell to a new yearly low. “The prices of key commodities fell to their lowest level of the year on Monday, dragged down by worries about Europeas debt crisis and the possibility of a slowdown in China, the worldas second-largest economy. An emerging concern among some economists and investors is that the declining prices of materials such as gold and crude oil could be an early signal of deflation — a decline of prices that is economically corrosive because it makes it more difficult for businesses to make a profit. The downturn in prices is reflected in broad measures of commodity prices. The Standard & Pooras GSCI, an index tracking prices for crude oil, gold, copper and several other commodities, has dropped more than 6 percent this month so far. Even the price of gold, which usually rises when investors have concerns about the economy, has fallen.” Jia Lynn Yang in The Washington Post.

Smile for the camera interlude: Videos of people who think they are posing for a picture.

Health Care

Romney and Obama differ sharply on Medicare. “President Obama and Mitt Romney agree on one thing about Medicare: the differences between them are huge…Mr. Romney, who would limit the governmentas current open-ended financial commitment to Medicare, contends that Mr. Obama has no workable plan to prevent Medicare from going bankrupt. Under the Romney proposal, the government would contribute a fixed amount of money on behalf of each beneficiary, and future beneficiaries could use the money to buy private insurance or to help pay for traditional Medicare…Mr. Obama assails the Romney proposal for the same reason he denounced a similar plan devised by Representative Paul D. Ryan, Republican of Wisconsin and chairman of the House Budget Committee: the government contribution, he says, would not keep up with the rising cost of health care, so Medicare beneficiaries — older Americans and people with disabilities — would have to pay more of the cost.” Robert Pear in The New York Times.

A primary care turf war is heating up. “Nurse practitioners are rolling out a campaign this week to explain what, exactly, nurse practitioners do — and why patients should trust them with their medical needs…The AANP will follow up on the public relations blitz with state-level lobbying efforts, looking to pass bills that will expand the range of medical procedures that their membership can perform…All states have ‘scope of practice’ laws, which regulate what medical procedures each profession can, and cannot, perform, given their level of education…In 16 states, nurse practitioners can practice without the supervision of another professional such as a doctor. Other states, however, require a physician to sign off on a nurse practitioneras prescriptions, for example, or diagnostic tests. As the health insurance expansion looms, expanding those rules to other states has become a crucial priority for nurse practitioners.” Sarah Kliff in The Washington Post.

A senator is floating a plan to make HIV drugs cheaper. “Why do American patients pay tens of thousands of dollars each year for HIV drugs that cost just hundreds in Africa? Drugmakers wave their patent rights in developing countries as part of the Presidentas Emergency Fund for AIDS Relief. But the higher cost of brand-name drugs in the United States makes it difficult for many HIV patients to stay on drug regimens that can cost as much as $30,000 a year. Thatas the challenge a Senate subcommittee will explore on Tuesday at a hearing on how to narrow the gap. Itas mainly a vehicle one proposed solution — a proposal by Sen. Bernie Sanders (I-Vt.) that would award prize money rather than grant patent rights to manufacturers that develop new HIV drugs, allowing the medication to go straight to the generic market. But the hearing will also look at the root causes of a dilemma that has had some HIV patients and drugmakers at odds for years.” J. Lester Feder in Politico.

@petersuderman: This new issue of Health Affairs looks so, so awesome. All coverage expansion all the time!

Domestic Policy

Broadcasters are pushing back on recent FCC moves. “TV broadcasters look at the Federal Communications Commissionas recent drive to move them off frequencies and put their political advertising rates on the Internet and draw one conclusion: The FCC has it in for television. And broadcasters are fighting back by publicly airing that charge in the midst of the ongoing policy debate on freeing up airwaves for wireless broadband…For decades, televisionas use of the airwaves was virtually unchallenged. Under Chairman Julius Genachowski, the FCC has focused on fostering mobile broadband as the essential communications platform of the future. As broadcasters see it, television has become a much less important medium to the agency…In the wrangling over spectrum, broadcasters see the wireless industry — which is clamoring for access to more airwaves to satisfy the exploding amount of broadband data traffic — as their main foe. As the wireless industry sees it, the best use of finite spectrum resources is mobile broadband.” Brooks Boliek in Politico.

A federal judge struck down a NLRB rule on union elections. “A federal judge ruled Monday that a contentious union election rule proposed by the National Labor Relations Board (NLRB) is ‘invalid.’ In an 18-page memorandum opinion, U.S. District Judge James Boasberg struck the regulation down, saying the labor board only had two members when it voted on the final rule in December 2011. Boasberg said the agency needed at least three members to have a quorum for action on the rule…Two NLRB members — Chairman Mark Pearce and then-Member Craig Becker, both Democrats — participated in adopting the rule. The labor boardas third member at the time, Republican Brian Hayes, did not participate…The judge said the decision by the U.S. District Court for the District of Columbia ‘may seem unduly technical,’ but cited a 2010 Supreme Court ruling that the NLRB needs a quorum of three members to issue regulations and make rulings. Boasberg said his ruling was not made on the merits of the union election rule and noted the NLRB could vote again to pass it.” Kevin Bogardus in The Hill.

@AlecMacGillis: Dems’ failure to pass labor law reform in ’09-’10 haunts once again–a judge just threw out NLRB’s incremental new rule to ease organizing.

Colleges are beginning to confront costs. “College presidents across the country are confronting the same realization, trying to manage their institutions with fewer state dollars without sacrificing quality or all-important academic rankings. Tuition increases had been a relatively easy fix but now — with the balance of student debt topping $1 trillion and an increasing number of borrowers struggling to pay — some administrators acknowledge that they cannot keep putting the financial onus on students and their families. Increasingly, they are looking for other ways to pay for education, stepping up private fund-raising, privatizing services, cutting staff, eliminating departments — even saving millions of dollars by standardizing things like expense forms…The problems arenat confined to public colleges. Administrators at some nonprofit private institutions said they too had come to realize they could not keep raising tuition and fees.” Andrew Martin in The New York Times.

Adorable animals exploring the world interlude: The firsts of a harbor seal pup.

Energy

A transmission line for offshore wind is moving forward. “A pioneering proposal to build a wind power transmission line on the ocean floor from southern Virginia to northern New Jersey cleared a hurdle on Monday when the Interior Department opened the way for the projectas sponsors to start work on an environmental impact statement. The Bureau of Ocean Energy Management, part of the Interior Department, said that no competitor had emerged for the right-of-way for the proposed transmission line, known as the Atlantic Wind Connection, allowing the bureau to issue a ‘determination of no competitive interest.’ By linking wind farms 15 to 20 miles off the coast, the backbone would greatly reduce the number of individual radial lines needed to bring the energy to shore…Construction of the full project would take about 10 years, according to the company. The right-of-way corridor, including branches to reach the shore at intermediate points, would run about 790 miles, the Interior Department said.” Matthew Wald in The New York Times.

Regulators are considering options to protect the grid from solar flares. “With a peak in the cycle of solar flares approaching, U.S. electricity regulators are weighing their options for protecting the nation’s grid from the sun’s eruptions–including new equipment standards and retrofits–while keeping a lid on the cost. They are studying the impact of historic sunstorms as far back as 1859 to see if the system needs an upgrade, and encountering a clash of views on how serious the threat is and what should be done about it…The sun is expected to hit a peak eruption period in 2013, and while superstorms don’t always occur in peak periods, some warn of a disaster. John Kappenman, a consultant and former power engineer who has spent decades researching the storms, says the modern power grid isn’t hardened for the worst nature has to offer. He says an extreme storm could cause blackouts lasting weeks or months, leaving major cities temporarily uninhabitable and taking a massive economic toll.” Ryan Tracy in The Wall Street Journal.

Highway crashes are the leading cause of fatalities for oil and gas workers. “Over the past decade, more than 300 oil and gas workers like Mr. Roth were killed in highway crashes, the largest cause of fatalities in the industry. Many of these deaths were due in part to oil field exemptions from highway safety rules that allow truckers to work longer hours than drivers in most other industries, according to safety and health experts. Many oil field truckers say that while these exemptions help them earn more money, they are routinely used to pressure workers into driving after shifts that are 20 hours or longer…Last year, the National Transportation Safety Board said it ‘strongly opposed’ the oil field exemptions because they raise the risk of crashes. This threat will grow substantially in coming years, safety advocates warn. According to federal officials, more than 200,000 new oil and gas wells will be drilled nationwide over the next decade.” Ian Urbina in The New York Times.

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.

Elizabeth Warren, who is running for Senate in Massachusetts, thinks JP Morgan Chase CEO Jamie Dimon should resign his seat on the New York Federal Reserve. Beating up on Dimon is, of course, a popular position among politicians right now, but Warren has special credibility on this point: She chaired the congressional oversight panel on TARP from 2008 to 2010, and led the Consumer Financial Protection Bureau from 2010 to 2011. We spoke by phone Monday afternoon. A lightly edited transcript follows.

Ezra Klein: So JP Morgan lost $2 billion. Theyare not asking for a bailout. Theyare not threatening to capsize either themselves or anyone else in the system. And so they say, and itas not an entirely unfair question, why is this Elizabeth Warrenas business, or the U.S. Congressas business? Isnat making bad investment decisions legal?

Elizabeth Warren: That is what Jamie Dimon has said. He says itas stupid and sloppy but weall fix it. So stay away. But what if the next loss is $20 billion or $200 billion? Is he saying JP Morgan should be entitled to continue to take these bets right up until the day it lands in the taxpayers lap again?

Banks are different than other kinds of companies. We learned that in 2008. They run the risk of bringing down our jobs, our pensions, our economy. The basic deal we made with them is they get to operate banks a the things that take savings and investments and checking accounts and get a federal guarantee a in return for submitting to substantial oversight to make sure their activities are safe.

EK: That gets us to the Volcker rule, which is what would keep banks that get that guarantee from gambling with customer money and a federal backstop. But at this point, I donat think very many people a even people who follow this stuff quite closely a have a very specific sense of what the difference between a good and bad Volcker rule is. So how do you think about that?

EW: Iam going to reframe it slightly: Who profits from the complexity of the Volcker rule? Itas the largest financial institutions. No financial institutions want a simple Volcker rule. They want layers and layers of complexity because itas in complexity that there are loopholes. Thatas where itas possible to back up regulators who are not quite certain about the ground they stand on. And itas a larger problem with our regulatory structure: Complexity favors those who can hire armies of lobbyists and lawyers. The big push I made at the Consumer Financial Protection Bureau was simple rules. Simple mortgage documents. Simple credit card agreements. Because complexity creates too many opportunities for an army of lawyers to turn the rules upside down.

EK: I agree that complexity is where lobbyists and lawyers work their dark magic. But when I talk to people in the industry about this, they say that simple rules sound great, but theyare not really possible. Itas hard to distinguish a hedge from a bet, or a speculative trade from a legitimate one. The world is complex, and thatas why regulators and politicians who donat like Wall Street and donat like being browbeaten by lobbyists end up allowing complex rules, too.

EW: Hereas another way to look at what you just described: Thatas the strongest argument for a modern Glass-Steagall. Glass-Steagall said in effect that hedge funds should be separated from commercial banking. If a big institution wants to go out and play in the market, thatas fine. But it doesnat get the backup of the federal government. If itas too complicated to implement the Volcker rule, do you say we give up and let the largest financial institutions do what they want? Or do you say maybe thatas the reason we need a modern Glass-Steagall?

EK: Do you support a modernized Glass-Steagall law?

EW: Yeah! Iave talked with Sen. Maria Cantwell from Washington State. Sheas been working on that, and I think the debate should be on the table.

EK: What about breaking up the big banks?

EW: Youare approaching risk from two different directions. One is the risk of the activity. Thatas the Volcker rule. The other direction is to say risk is an assumption of size. Community banks shouldnat have to deal with complex regulatory oversight, but the largest institutions should be subject to far more aggressive oversight and have to pay more for the protections they receive from the American taxpayer. Then shareholders may decide to invest in institutions that are not so large.

EK: One of the scarier aftereffects of the crisis is that the biggest banks have become much bigger, right? JP Morgan Chase, if I remember correctly, now has more than $2 trillion in assets, where before the crisis, it was well beneath that.

EW: I was just talking about this this morning. One of the things I remember is when we were writing the reports trying to put some accountability into the system in 2008 we kept talking about how there was too much concentration in the banking industry. I remember this! I was on television talking about it. I talked to reporters about it. And now thereas more concentration than there was then. We moved in exactly the wrong direction.

EK: And the thing that worries me about that, at least when applied to this crisis, is that if you think about the appetite for risk being a contributor to bubbles and blowups, weare not even five years out from Lehman. Regulators are looking over everyoneas shoulder. Youad expect the appetite for risk to be very low right now. And even in this atmosphere, JP Morgan managed to blow up billions of dollars in insanely complex derivatives.

EW: And when Jamie Dimon is holding himself out as the hero of the day for having been the worldas most prudent banker. All of that is going on at the same time. The moment of once-burned, twice-shy, passed quickly! The bankers have been ready to get right back into playing with matches and firecrackers and every other combustible thing they can find. Thatas why I think this is really about the system, not Dimon. If JP Morgan has to admit to taking on risks that would cause a $2 billion loss, whatas happening at the other financial institutions, the ones that havenat held themselves out as models of prudence? No one knows because there is no effective oversight.

EK: Can Dodd-Frank work if itas effectively implemented?

EW: I think Dodd-Frank is a strong bill that moves in the right direction. But the market keeps changing. The practices keep changing. The idea that weall pass one law and then declare that problem is solved, weall be back again in 50 years, just doesnat work anymore. We had a double problem here: Both deregulation and the failure to adapt to new financial conditions and products and practices. Thatas what permitted risk to multiply in the system until it nearly brought the economy to its knees.

What was the trade?

As Michael Hiltzik of the Los Angeles Times writes, we donat need to get too technical here. aLeaving aside the sophistication of the transactions themselves, JPMorganas trader, a London-based derivatives expert whose portfolio was so outsized he became known in the markets as the London Whale, essentially bet that corporate debt was becoming less risky as corporations were getting stronger — in trading parlance, he was long corporate debt. But he did so in a way that even a tiny hiccup in the index he was trading could be exploited by rival traders. And thatas what happened.a If you want to get technical, however, FT Alphaville has you covered.

How did they make this mistake?

No one really knows yet. Matt Levine, the editor of Dealbreaker, thinks they simply messed up the math that was governing the trade. aThis looks like the CIOas trading desk modelling the actual [profits and loss] and risks of the trade wildly wrong. That seems to me like the simplest way to lose a billion dollars without noticing it. You can see that in Jamieas ajust acause weare stupid doesnat mean everybody else wasa: this was not driven by the market moving against them (though it seems to have), it was driven by them getting the math wrong.a

How much did JP Morgan lose on it?

We donat know. We probably wonat know for awhile. The number $2 billion is floating around. But it could easily be closer to $5 billion when all is said and done. The key here is that the trade isnat over. JP Morgan Chase is still trying to get out of its positions. How quickly they do that, and where the market moves between now and then, will decide the extent of their total losses.

Will JP Morgan need a bailout?

No. Itas hard to believe, but $2 billion, or even $5 billion, just isnat that much money to the bank. In 2011, JP Morganas profits were $19 billion in 2011. And CEO Jamie Dimon called that amildly disappointinga at the time.

So does this matter at all?

Yes.

Why?

For one thing, JP Morgan was known as the best manager of risk on Wall Street. Thatas largely because they made it through the financial crisis mostly unscathed. But it turns out that even the best manager of risk isnat very good. This trade, in fact, looks a lot like the financial crisis: They bet on something unlikely as if it was impossible. Thatas what all those banks did when they made bets on the belief that the housing market never goes down everywhere all at once. Itas a reminder that this is a kind of mistake that even agooda banks make. And remember — JP Morgan made this mistake less than four years after the fall of Lehman Brothers, so this came at a time when the lessons of the crisis are fresh in everyoneas mind, and when regulators are watching closely.

So thatas it? The national media is engaged in a collective attack of post-traumatic stress because the only bank it kinda-sorta trusted did something dumb?

No. Thereas a political dimension here, too. JP Morgan has used its sterling reputation to fight the Volcker rule. Thatas the regulation that says that banks that take commercial loans and get federal insurance to protect those loans — banks that you might open a checking account with, like JP Morgan — canat make speculative bets on their own behalf. If youare going to be a bank, then you canat play at the casino.

The problem is that itas very hard to say when a bank is betting on its own behalf and when its betting on its clientsa behalf. JP Morgan says that this trade was a ahedgea: It was there to reduce risk, not make money. But given how exquisitely it blew up in JP Morganas face, now regulators are going to make sure that the Volcker rule would stop trades like this one from happening. Otherwise, theyall get the blame next time. That means a much tighter Volcker rule — which in turn means JP Morgan (and other banks) wonat make as much money in the coming years. Thatas part of why all their stocks are tumbling. JP Morgan, for instance, lost $14.5 billion on Friday.

And the government may not stop with the Volcker rule. The SEC has opened an investigation. And remember: this is an election year. If a few congressmen band together to propose some much more stringent regulations on the banks, thereas some chance that they could sail through as both parties try to show theyare tougher on the banks.

What else could they do?

Lots. If you look hard enough, you can find many, many regulatory changes that were left out of Dodd-Frank.

For instance, Eliot Spitzer points out that Jamie Dimon, the CEO of JP Morgan Chase, asits on the board of the New York Federal Reserve Bankathe very organization that is supposed to oversee his bankas financial practices, the organization that is supposed to issue all sorts of regulations that control what his bank can do, the very organization he has been lobbying to relax the rules about the bets he wants to make…The Fed conflict is so obvious that it defies any possible rationalization or explanation. For a decade, the New York Fed has failed to pick up on any of the significant Wall Street threats: excess leverage, subprime fraud, dangerous concentration in atoo big to faila entities. Maybe the reason is that the board is controlled by the very voices that have been at the root of the failure. There has been not the slightest voice of protest from the boardayet it is a public organization!a

Canat Wall Street just lean on Congress to stop them?

Possibly. But remember that the most aggressive and effective of Wall Streetas defenders was…Jamie Dimon. And his argument was always that the financial crisis was, in large part, a case of many banks being stupid. But JP Morgan had been smart. And was it really fair to punish JP Morgan for the mistakes of Washington Mutual.

But as Noam Scheiber writes, JP Morganas bad trade just annihilated that argument. aWe now have ironclad proofaas if we really needed itathat everyone is capable of disastrous stupidity. But thatas the one thing Dimon canat admit, since it would require him to support intrusive regulations. Stupidity, in Dimonas mind, is always isolated and explainable, not systemic and unavoidable…[but] almost every mitigating circumstance he cited actually strengthens the case for reform. Dimon made clear that the loss wasnat the work of a rogue trader: The position was completely authorized, he suggested, just poorly executed and weakly monitored. One shudders to think what might have happened at a less scrupulously-managed bankaof which there are manyawhen the losses could have escaped detection much longer. a

What are you more worried about? JP Morgan or Greece.

Oh, Greece. A thousand times Greece. This JP Morgan thing is bad for JP Morgan. Whatas going on in Europe might be bad for the global economy. Or, to put it another way, JP Morganas losses are something you might be angry about, or smug about, but theyare not something you should be worried about. This isnat a second financial crisis or anything.

I have more questions, and you havenat answered them.

Leave them in comments. Iall try and update this post as appropriate.

On Saturday, at 9:17am, Henry Blodget, the editor of Business Insider, asked the question that was on everyone’s mind: “So, when is JP Morgan going to fire the incompetent fools who just lost $2 billion and trashed the firm’s reputation?”

The answer, according to the Wall Street Journal, is…soon. The paper reports that the botched trade is “likely to result this week in the departure of three of the highest ranking executives with direct ties to the investments.”

Over at Seeking Alpha, Gene Kirsch tried to put Hedgegate into a broader context. “JPMorgan losses are reported to be actually $800 million in Q2 with the potential for legal and other losses up to $4.2 billion over a longer period of time, possibly exceeding one year,” he wrote. “The banking unit of JPMorgan Chase alone made $12.4 billion last year. The holding company has over $2.26 trillion in assets and is the largest U.S. bank and 8th largest in the world. The holding company made $29.9 billion in operating income and just over $20 billion in net income for 2011. So, this initial loss of $800M represents approximately 4% of its total net profit for all of 2011, less than 2.7% of its operating income.”

The firm, in other words, can manage it. Though as Brad DeLong was quick to point out, tallying the direct losses misses the episode’s larger impact on the firm’s value. “The revelation that JPMC did not have control over its derivatives book–even though accompanied by promises of multiple firings and deep reforms–destroyed 1/7 of JPMCs franchise value.” Turns out the market doesn’t much like it when what’s reputed to be the safest bank on Wall Street turns out to be incompetent.

Jared Bernstein draws out the larger lesson nicely, and so I’ll quote him at some length. “The fundamental truth here is the one known since Adam (Smith, that is) and amplified by the great financial economist Hy Minsky: humans underprice risk. Their proclivity to do so increases as the business cycle progresses and confidence takes over (remember, JPas bet was unwound by the fact that the economy wasnat as strong as they thought). The advent of a global derivatives market with notional trades in the trillions greatly amplifies the risks.”

“The fact that humans like Jamie Dimonahe who presided over JPas self-proclaimed ‘fortress balance sheet’ahe who inveighed against financial reform as imposing unnecessary oversight on such skilled risk managers as he and his staffafall prey to this fundamental truth only underscores the lesson of this episode in financial hubris.”

“And that is this: financial markets are inherently unstable. They will neither self-correct nor self-regulate. Their instability poses a threat to markets and economies and people across the globe. Therefore, they need to be regulated. Thatas not to say that anyone knows the best way to do this yet in order to balance the necessity of oversight with the dynamics of the markets. We donat know where to set the speed limits. It must be an iterative process. But we do know they need to be set, and JPas loss should be taken as a warning that our tendency is to set them too low.”

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Top stories

1) Euro zone leaders are seriously discussing a Greek exit. “Eurozone central bankers have talked publicly for the first time of managing a possible Greek exit from Europeas monetary union as stalemate in Athens talks on a coalition government raises the prospect that Greece will renege on the terms of its international bailout. The comments by members of the European Central Bankas governing council indicate that the risk of eurozone fragmentation is being taken increasingly seriously by the regionas policymakers. They mark a significant shift at the ECB, which has previously argued that European treaties do not allow for an exit and that a break-up would cause incalculable economic damage.” Ralph Atkins in the FT.

Greece is headed towards new elections. “Greece appears headed to new parliamentary elections next month, further delaying its efforts to meet international demands to overhaul its economy, after leaders of the countryas major political parties declared little hope Sunday for a last-ditch effort to form a coalition government…Greek President Karolos Papoulias met with politicians Sunday in an effort to construct a unity government that could guide the country through the bailout program, and he planned to continue discussions Monday. But with top leaders expressing little hope for compromise after a week of efforts, it appeared likely that Papoulias would be forced to call new elections, most likely for June 10 or 17. Hopes for compromise have rested on Alexis Tsipras, the leader of the anti-bailout Coalition of the Radical Left Party, also called Syriza…But Tsipras has refused to go along with the pro-business New Democracy party, which won 19 percent of the May 6 vote, and the Socialists, who won 13 percent.” Michael Birnbaum in The Washington Post.

KRUGMAN: “weare talking about months, not years, for this to play out.”

@TheStalwart: Weird. As @renovatio_news points out, #quediceKrugman (What Krugman Says) is trending in Spain. http://twitpic.com/9ktvbo

2) Wall Street looks the same to voters. The giant $2 billion trading loss at JPMorgan Chase highlights a central problem in President Barack Obamaas case for a second term: Four years after the financial crisis nearly brought the nation to its knees, very little appears to have changed. No high-profile bank executives are in jail. Special multi-agency task forces to go after financial fraud and mortgage market abuses appeared in State of the Union addresses, only to issue a few news releases and mostly vanish from public view. And now one of the largest banks in the United States, headed by a Democrat and operating with government guarantees, has turned in the kind of headline-grabbing, casino-style style loss that drives voters crazy and that Obamaas financial reform bill was supposed to stop. Ben White in Politico .

JPMorgan Chase has been lobbying to make exactly the kind of trades that just lost the company billions of dollars. “Soon after lawmakers finished work on the nationas new financial regulatory law, a team of JPMorgan Chase lobbyists descended on Washington. Their goal was to obtain special breaks that would allow banks to make big bets in their portfolios, including some of the types of trading that led to the $2 billion loss now rocking the bank. Several visits over months by the bankas well-connected chief executive, Jamie Dimon, and his top aides were aimed at persuading regulators to create a loophole in the law, known as the Volcker Rule. The rule was designed by Congress to limit the very kind of proprietary trading that JPMorgan was seeking…The loophole is known as portfolio hedging, a strategy that essentially allows banks to view an investment portfolio as a whole and take actions to offset the risks of the entire portfolio. That contrasts with the traditional definition of hedging, which matches an individual security or trading position with an inversely related investment — so when one goes up, the other goes down.” Edward Wyatt in The New York Times.

The real response to JPMorgan Chase’s loss may come from global regulators, not the Volcker rule. “The size and scale of the surprise $2bn loss at JPMorgan Chase last week is likely to accelerate plans by global regulators to force banks to improve their trading risk models…While initial reactions to the JPMorgan loss last week focused on how it could reshape the US debate over implementing the ‘Volcker rule’ ban on proprietary trading, the misstep by one of the worldas largest banks could have far broader consequences. The Basel Committee on Banking Supervision, which sets global rules, has already sought a replacement for Value at Risk – the main measure of potential trading losses – and looked at additional capital requirements to cover potential damages that are not adequately measured by existing models. That project was seen as a long-term effort when it was announced two weeks ago, but it has now gained urgency and could be pushed through more quickly.” Brooke Masters and Tracy Alloway in The Financial Times.

CONFUSED? Here’s an explainer on JPMorgan Chase’s loss.

@davidmwessel: Barney Frank on JPM: Case that banks don’t need new rules to avoid repeat of ’08 crisis “at least $2 billion harder to make todaya (DJNS)

3) Republican state officials are dragging their feet on setting up exchanges. “In about two dozen states across the country, the insurance marketplaces at the heart of the 2010 health-care law remain in limbo, with Republican governors or lawmakers who oppose the statute refusing to act until the Supreme Court decides its constitutionality…In states with Democratic governors, such as New Hampshire and Minnesota, it is often Republican-dominated legislatures that are causing the hold-up. And in six states where Republicans hold both branches of government, including Kansas and South Dakota, state assemblies havenat even considered laws to establish the marketplaces. Though the battles primarily break along partisan lines, there have been at least a half-dozen exceptions. Last spring, the Republican governor of Nevada chose not to stand in the way of an exchange bill adopted by the majority Democratic assembly.” N.C. Aizenman in The Washington Post.

4) Congressional transportation bills won’t fill America’s infrastructure funding shortfall. “The nationas population is growing at a steady pace, yet infrastructure investments lag. The lifelines of commerce — roads, bridges, runways, ports — are showing their age, and in this era of fiscal austerity it may be a long time before they get rebuilt…The financing fiasco has been well-known for years — in fact, the last transportation bill, enacted in 2005, ordered up a blue-ribbon commission tasked with studying the financing problem and making recommendations for how to fix it. The National Surface Transportation Policy and Revenue Study Commissionas final report, issued in January 2008, a year before the last transportation bill was to expire, recommended that the country needs to be investing at least $225 billion annually from ‘all sources’ for the next 50 years in order to upgrade infrastructure to a state of good repair and make transportation advances. The Senateas current transportation bill, in comparison, would fund highways and transit at $109 billion over two years.” Kathryn Wolfe in Politico.

Top op-eds

1) BAKER AND HASSETT: We need a targeted response to long-term unemployment. “Policy makers must come together and recognize that this is an emergency, and fashion a comprehensive re-employment policy that addresses the specific needs of the long-term unemployed. A policy package that as a whole should appeal to the left and the right should spend money to help expand public and private training programs with proven track records; expand entrepreneurial opportunities by increasing access to small-business financing; reduce government hurdles to the formation of new businesses; and explore subsidies for private employers who hire the long-term unemployed. Those who hire for government jobs must do their share, too: managers who are filling open positions should be given explicit incentives to reconnect these lost workers. Every month of delay is a month in which our unemployed friends and neighbors drift further away.” Dean Baker and Kevin Hassett in The New York Times.

@davidfrum: “50 to 100% increase in death rates for older male workers in yrs immediately following a job loss”

2) YGLESIAS: America is headed towards default. “House Republicans voted to take money away from programs meant to help poor people and give it to the military instead. Thatas not my idea of wise policy, but thatas what was terrible about it. The problem is that the vote constitutes a collective Republican welching on the agreement that was reached last spring to raise the statutory debt ceiling and avoid national default. Yesterdayas vote doesnat undo the deal or cause any immediate problems, but by so speedily backing out of their agreement, the Republicans have done something much worse–made it impossible for anyone to negotiate with them in the future, because itas clear they cannot be trusted to keep the promises they made. If President Obama wins re-election, the debt-ceiling issue will have to be confronted again, but now in a Congress that has been poisoned by the Republicansa welching on the last agreement. The country, in other words, is set for an even more severe version of the crisis that crushed financial markets last summer.” Matthew Yglesias in Slate.

3) KRUGMAN: JPMorgan Chase’s loss proves the need for bank regulation. “Banks are special, because the risks they take are borne, in large part, by taxpayers and the economy as a whole. And what JPMorgan has just demonstrated is that even supposedly smart bankers must be sharply limited in the kinds of risk theyare allowed to take on. Why, exactly, are banks special? Because history tells us that banking is and always has been subject to occasional destructive ‘panics,’ which can wreak havoc with the economy as a whole…So what can be done? In the 1930s, after the mother of all banking panics, we arrived at a workable solution, involving both guarantees and oversight. On one side, the scope for panic was limited via government-backed deposit insurance; on the other, banks were subject to regulations intended to keep them from abusing the privileged status they derived from deposit insurance, which is in effect a government guarantee of their debts.” Paul Krugman in The New York Times.

@Austan_Goolsbee: #lettersyouwontsee: Dear Mr. Volcker, you were right all along. we’re now fixing things and won’t let it happen again. yours, wall St.

4) SLOAN: JPMorgan Chase doesn’t prove the need for the Volcker Rule. “The Volcker Rule, named for former Federal Reserve chairman Paul Volcker, is an example of the problem involved in regulating giant companies in a complex world. The principle sounds wonderful and simple: Donat let banks use federally insured deposits for risky trades. But implementing it is proving to be incredibly difficult, as realists, including me, predicted would happen. Once bank lawyers finish finding loopholes in the detailed provisions, whatever they prove to be, the rule will probably have little meaningful impact. So bash Morgan all you like for its trading losses, and feel free to snicker at the spectacle of Jamie Dimon losing his swagger and having to eat crow. But donat confuse Morganas mess-up with the supposed need for the Volcker Rule. The Volcker Rule would have symbolic impact, by appearing to rein in Wall Street. But it will prove to be more useful as a full-employment act for loophole specialists than for reining in the banks.” Allan Sloan in The Washington Post.

5) SNOW: Tax cuts on dividends and capital gains should stay. “Nine years ago this month Congress passed President George W. Bush’s Jobs and Growth Tax Relief Reconciliation Act. That bill’s lower rates on capital, as well as the continuity in tax policy it established, have helped make our economy far more resilient. The legislation’s centerpiece was a reduction in the taxation of dividends and capital gains to 15%. Unfortunately, the 2003 tax rates, including those on capital income, are due to expire at the end of the year. Capital warrants special tax treatment because of the central role it plays in generating economic growth and jobs. Capital is the very lifeblood of the market economy, the mainstay of innovation, and the foundation for future prosperity. As more of it is put to work today, labor output and wages will rise tomorrow. An appreciation of that critical relationship should guide how the tax system treats earnings from capital.” John Snow in The Wall Street Journal.

6) THALER: Beware of slippery slope arguments on healthcare. “One pernicious category of imaginary risks involves those created by users of the dreaded ‘slippery slope’ arguments. Such arguments are dangerous because they are popular, versatile and often convincing, yet completely fallacious. Worse, they are creeping into an arena that should be above this sort of thing: the Supreme Court, in its deliberations on health care reform…Justice Scalia is arguing that if the court lets Congress create a mandate to buy health insurance, nothing could stop Congress from passing laws requiring everyone to buy broccoli and to join a gym…Please stop! The very fact that a slippery slope is being cited as grounds for declaring the law unconstitutional — despite that ‘significant deference’ usually given to laws passed by Congress — tells you all that you need to know about the argumentas validity. Can anyone imagine Congress passing a broccoli mandate law, much less the court allowing it to take effect?” Richard Thaler in The New York Times.

Top long reads

Jeffrey Toobin on how John Roberts orchestrated Citizens United: “Citizens United is a distinctive product of the Roberts Court. The decision followed a lengthy and bitter behind-the-scenes struggle among the Justices that produced both secret unpublished opinions and a rare reargument of a case. The case, too, reflects the aggressive conservative judicial activism of the Roberts Court. It was once liberals who were associated with using the courts to overturn the work of the democratically elected branches of government, but the current Court has matched contempt for Congress with a disdain for many of the Courtas own precedents. When the Court announced its final ruling on Citizens United, on January 21, 2010, the vote was five to four and the majority opinion was written by Anthony Kennedy. Above all, though, the result represented a triumph for Chief Justice Roberts. Even without writing the opinion, Roberts, more than anyone, shaped what the Court did. As American politics assumes its new form in the post-Citizens United era, the credit or the blame goes mostly to him.”

Andrew Martin and Andrew Lehren on the skyrocketing cost of college: “With more than $1 trillion in student loans outstanding in this country, crippling debt is no longer confined to dropouts from for-profit colleges or graduate students who owe on many years of education, some of the overextended debtors in years past. Now nearly everyone pursuing a bacheloras degree is borrowing. As prices soar, a college degree statistically remains a good lifetime investment, but it often comes with an unprecedented financial burden. Ninety-four percent of students who earn a bacheloras degree borrow to pay for higher education — up from 45 percent in 1993, according to an analysis by The New York Times of the latest data from the Department of Education. This includes loans from the federal government, private lenders and relatives. For all borrowers, the average debt in 2011 was $23,300, with 10 percent owing more than $54,000 and 3 percent more than $100,000.”

’90s nostalgia interlude: Nine Inch Nails play “The Becoming” in studio..

Got tips, additions, or comments? E-mail me.

Still to come: Wholesale prices are down; rebates will be credited to the ACA; Secure Communities expands; the IEA doesn’t like Obama’s plans; and cats, in slow motion.

Economy

Europe’s woes could hit the U.S.. “During bouts of European turmoil in the past two years, U.S. financial markets regularly stumbled and growth ebbed due to fears of a euro-zone meltdown. But Europe muddled through and avoided calamity, and the effects on the U.S. economy weren’t all bad. U.S. exports to Europe rose, and many U.S. banks benefited as overseas competition fell away. Now, the troubles in the currency union–the threat of a Greek exit from the euro zone, rising borrowing costs in Spain and Italy, recessions in several European countries–are renewing fears of an escalating crisis that could deliver a more serious blow to the fragile U.S. recovery. U.S. companies are bracing for a hit. Networking giant Cisco Systems Inc. last week blamed worries about Europe, along with other uncertainty, for its cautious outlook. Watchmaker Fossil Inc. reported a slowdown in German sales on top of deeper pullbacks in Italy and Spain. Chemicals firm Celanese Corp. attributed its disappointing results to weakening European demand.” Sudeep Reddy in The Wall Street Journal.

Wholesale prices declined for the first time this year. “U.S. wholesale prices declined for the first time this year, suggesting a drop in energy costs is helping to keep inflation under control. The index of producer prices, which measures how much wholesalers and manufacturers pay for goods and materials, fell a seasonally adjusted 0.2% in April from a month earlier, the Labor Department said Friday. The decline, the first since December, was due entirely to cheaper prices for energy goods, including gasoline and utility gas…The report on producer prices suggests inflation is subdued, after a run-up in oil prices earlier this year pushed costs beyond the Federal Reserve’s annual inflation target of roughly 2%. Lower inflation could reassure Fed officials as they keep a key interest rate exceptionally low through late 2014 to stimulate the economy. Lower inflation also gives the Fed more room to act, perhaps through additional bond purchases, if economic growth falters.” Josh Mitchell in The Wall Street Journal.

@BobCusack: “Where are the jobs?” references (from both parties) in the Congressional Record between ’09-’12: 357. Between ’05-’08: 3.

Vintage bicycle manufacturing tutorial interlude: How a bicycle is made.

Health Care

Insurers will be required to credit premium rebates to Obamacare. “Health-insurance companies must tell customers who get a premium rebate this summer that the check is the result of the Obama administration’s health-care law, according to federal guidelines released Friday. The move is the latest sign the Obama administration is trying to draw attention to the law’s benefits before the fall elections, even though the law faces an uncertain future. The Supreme Court is expected to decide in June whether its central plank–a mandate that everyone carry insurance–violates the Constitution. Mitt Romney, the presumed Republican presidential nominee, has pledged to wipe out the law if elected. Under the 2010 legislation, insurers that don’t spend a specified amount of revenue on actual medical care–as opposed to administrative costs–must refund the difference to customers.” Louise Radnofsky in The Wall Street Journal.

Domestic Policy

The Senate cybersecurity bill is running into privacy concerns. “Thereas yet another hurdle for Sen. Joe Liebermanas cybersecurity bill: Democrats who say it doesnat go far enough to protect consumer privacy. With Senate Republicans standing firm against the measure, the friendly fire from Democrats means thereas only more work ahead as Lieberman and others scramble to cobble together 60 votes to move the bill. A handful of members, including Sens. Al Franken of Minnesota and Richard Blumenthal of Connecticut, are echoing the concerns of civil liberties groups, which are growing increasingly fearful that consumersa data could end up being passed around by companies and the government as security experts share with each other information about emerging cyberthreats. To them and others, the Senate measure as written would specify too few limitations on how data could be used and cover entities with too broad a protection from liability.” Tony Romm and Jennifer Martinez in Politico.

The Obama administration will expand the controversial Secure Communities program. “Obama administration officials have announced that a contentious fingerprinting program to identify illegal immigrants will be extended across Massachusetts and New York next week, expanding federal enforcement efforts despite opposition from the governors and immigrant groups in those states. In blunt e-mails sent Tuesday to officials and the police in the two states, Immigration and Customs Enforcement officials said the program, Secure Communities, would be activated ‘in all remaining jurisdictions’ this Tuesday…Last year, officials at the agency said they had determined that they did not require consent from states to start the program. Citing antiterrorism legislation that Congress passed in 2002, the officials canceled agreements they had signed in 40 states and said they would extend the program nationwide by 2013.” Julia Preston in The New York Times.

Minority contracts fell last year for the first time in a decade. “U.S. government contracts to black-and Hispanic-owned small businesses fell last year for the first time in a decade, declining at a sharper rate than awards to all companies. Contracts to the black-owned firms dropped 8 percent to $7.12 billion in the fiscal year that ended Sept. 30, compared with fiscal 2010. Awards to Hispanic-owned businesses decreased 7 percent to $7.89 billion, according to federal procurement data.Contracts to the two minority groups fell at a faster pace than all contracts, which dipped 1 percent as the U.S. government slowed spending to help reduce the federal deficit. The gap may reflect stiffer competition over a shrinking pool of revenue and the recessionas greater impact on black and Hispanic firms…The absence of these set-aside programs may help explain the dip in awards for some minority groups, said James McCullough, who leads the government contracts practice at Fried Frank Harris Shriver & Jacobson in Washington.” Danielle Ivory in The Washington Post.

Cuteness amplified interlude: Cats in slow motion.

Energy

Fracking is sparking a boom in sand mining. “Scouts armed with geological maps and elevations from Google Earth are knocking on doors in the upper Midwest in search of what seems too common to mine: sand. The sedimentary material is in high demand among U.S. oil and natural-gas producers, setting off a sand rush in Wisconsin, Minnesota and other Midwestern states. While adding jobs, the mining boom is prompting pushback from some local residents, who are surprised by the frenzy and leery of its impact on their communities. Sand mined in the Midwest is used in places such as North Dakota and Pennsylvania to tap oil and gas reserves. The U.S. producers’ demand for sand reached 28.7 million tons in 2011, up from six million tons in 2007, according to independent laboratory PropTester Inc. and consultancy Kelrik LLC…Sand, injected deep underground to prop open fractures in shale formations and allow oil and gas to flow out, is important in ‘fracking.’” Mark Peters and Isabel Ordonez in The Wall Street Journal.

Lawmakers are torn on how to use high-speed rail funds. “As roads become more crowded each year, transportation planners have been looking for a game-changer that can reduce congestion and efficiently move millions of people. Enter rail — a centuries-old mode that may be a shining savior to those hoping to push the United States into a new way of getting people around at high speeds. But it wonat work everywhere — a lot depends on simple geography. And lawmakers are torn between how to use limited funds: along the densely packed East Coast, which has a history of commuter rail, or out West, where California has ponied up billions of dollars to build a high-speed system, much of it from scratch. Amtrakas Acela service from Boston to Washington runs the fastest trains in the country, maxing out at 150 mph and increasing soon to 160 mph…Three thousand miles away, California is inching ever closer to its high-speed rail vision, having formally approved the initial Central Valley route.” Burgess Everett and Adam Snider in Politico.

The IEA has concerns about Obama’s plans to increase oversight of oil markets. “Barack Obamaas plans for strengthened supervision of the oil markets have come under fire from the International Energy Agency, which has warned they could lead to sharp swings in crude prices. The warning, contained in the agencyas monthly oil market report, came in response to moves by authorities in the US and Europe to crack down on what they see as excessive speculation in commodities markets using derivatives. The US presidentas proposal to give the Commodity Futures Trading Commission authority to direct exchanges to raise margin requirements to address increased price volatility or prevent excessive speculation or manipulation could have the opposite effect, the western countriesa oil watchdog said on Friday. The IEA said raising margin requirements in oil futures trading might increase price volatility and concentrate market share in the hands of large speculators while having no effect on price levels.” Guy Chazan in The Financial Times.

America is running out of helium. “Sure, Congress has plenty of crises to deal with: a weak economy, an expiring highway bill, the end-of-the-year ‘taxmageddon.’ But now thereas another one floating into view. The United States is running out of helium. Yes, helium. Thanks, in part, to a 1996 law that has forced the government to sell off its helium reserves at bargain-bin prices, the countryas stockpile of the relatively rare and nonrenewable gas could soon dwindle…Congress is slowly grasping the extent of the problem. At a sleepy Senate hearing Thursday morning, the Energy and Natural Resources Committee listened to an array of experts chat about the gas. The hearing was tied to a bill, sponsored by Sens. Jeff Bingaman (D-N.M.) and John Barrasso (R-Wyo.), that would change how the government sells helium from its Federal Helium Reserve (yes, this exists) in order to prevent shortages.” Brad Plumer in The Washington Post.

@mattyglesias: Helium Privatization Act is a classic example of inefficient pseudo-privatization gone horribly wrong

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.

He swept out the Senate hearing room surrounded by an entourage, causing a stir as his tall, looming figure passed through the crowd. Before he got in the elevator, one of his assistants handed him a copy of the remarks he just delivered: an admirer wanted an autograph.

aDoes this happen to you often?a he was asked by a reporter.

aAll the time,a he said, scribbling his signature.

George Clooney? Mark Ruffalo?

Nope. It was Paul Volcker, the 84-year-old former chairman of the Federal Reserve who still manages to leave veteran legislators a bit starstruck. Widely credited for ending the stagflation crisis of the 1970s, Volcker, the godfather of central banking, has resurfaced as Washington has been soliciting his advice about how to rein in Wall Street. JPMorganas $2 billion loss announced on Thursday has made the spotlight on Volcker even brighter.

Volcker, who served as Fed chairman during the Carter and Reagan administrations, didnat write the rule that bears his name. But he has since risen to defend the Volcker Rule, which prohibits government-backed banks from making certain kinds of speculative bets for their own benefit, rather than their clientsa. And he made clear on Capitol Hill this week why he believes such restrictions are necessary.

aIt is surely inappropriate that those activities be carried out by institutions benefiting from taxpayer support, current or potential,a he told the Senate Banking Committee on Wednesday afternoon.

That was the day before JPMorgan Chase owned up to its huge loss on a bad bet that looks, to many, like the kind of gamble that the Volcker Rule was meant to prevent when it was passed in 2010 as part of the Dodd-Frank overhaul.

Itas unclear whether the rule would have kept JPMorgan trader Bruno Iksil in the U.K. a nicknamed the aLondon Whalea a from taking such a high-risk bet. The bank essentially carried out a complicated hedge on a stack of corporate bonds, which the Volcker Rule, as currently drafted, would permit. The problem, however, is that JPMorganas bet seems to go above and beyond what a hedge is meant to do: Rather than simply buy insurance to protect the corporate bonds, Iksil reportedly bet as much as $100 billion that those firms would never default.

For a firm like JPMorgan, $2 billion is a drop in the bucket. The banking giant isnat expected to fail or need a bailout any time soon. But the big loss shows how Wall Street banks are still able to make risky bets for their own benefit. And JPMorganas embarrassment wonat necessarily stop the same from happening elsewhere, potentially increasing risk to the financial system. In fact, similar bets by JPMorganas chief investment office made the bank $5 billion in 2010. Other banks could decide that gambling with their money is still worth the that chance a and that they can do a better job than JPMorgan did at pulling it off.

Thatas why supporters of a strong Volcker Rule a which federal officials are still finalizing before the measureas July start date a are now clamoring for a more expansive regulation with fewer loopholes. And Volckeras own words before the Senate this week could strengthen their argument. If banks are still allowed to treat trading like a casino, yet are big enough to warrant government support if things go awry, theyare benefitting from the assumption that theyare Too Big To Fail a athat losses will be socialized, with the potential gains all private,a as Volcker explained.

After the financial meltdown, aunderstandably, the public feels aggrieved and wants serious reform,a Volcker said Wednesday. aThe Volcker Rule is part of this formula.a (I asked Volckeras office whether he had any thoughts about the JPMorgan debacle, but he wasnat available.)

What, then, is holding back regulators from implementing a strong, clear Volcker Rule? Volcker himself acknowledges that the draft of the rule, at 300 pages, has gotten bloated and complex partly because bank lobbyists are pushing for carve-outs.

aI could give you stories all day about lobbyists making things more complicated,a Volcker said as he left the hearing room. aThey may do it [because] they want to disrupt the whole process, but they … say, aWe want to make sure that this particular little operation we have a is it good or bad?aa

Volcker did say that he was aencourageda by the progress that regulators appear to be making on finalizing the rule that bears his name. And a perhaps more than do his acolytes on Capitol Hill a he believes that banks will comply.

aYou donat trust the banks?a he asked, as he left the Senate building. aI implicitly trust the banks.a

Confused about how, exactly, JPMorgan Chase managed to lose $2 billion? Heidi Moore of Marketplace has a nice, plain-English explainer that walks you step-by-step through the whole affair.

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