On the opening day of debate over legislation that would rewrite the rules of the financial markets, Sen. Richard Shelby (R-Ala.) all but disavowed the bill, claiming it wouldn't fix anything—and would in fact hurt the US economy. Here's why that's shocking: Shelby, the top GOP negotiator on financial reform, has been working on the bill with his counterpart, Sen. Chris Dodd (D-Conn.), for more than three years. Dodd and Shelby have been engaged in grueling, closed-door negotiations for months.  No Republican has more invested in the bill than Shelby. 

Yet today on the Senate floor, Shelby pretty much eviscerated the measure, while a red-faced and anxious-looking Chris Dodd sat across the aisle from the Alabama senator. "This bill threatens our economy," Shelby said. He added that the bill would leave taxpayers on the hook for future bailouts; the derivatives provisions would impair the economy; a new consumer bureau would stifle consumer lending; and a proposed Office of Financial Research, which would gather financial data used to predict future financial crises, would pry into Americans' lives and violate their civil liberties.

After Shelby finished his opening remarks, Dodd replied tepidly, half-jokingly, "Other than what you just heard from my colleague in Alabama, he likes the bill." It's doubtful whether Dodd actually believes that; anyone who heard Shelby's remarks doesn't. Does this mean all those months of talks between Dodd and Shelby were for naught? Possibly. Are Democrats and Republicans back at square one on financial reform? Sure looks like it.

The massive oil spill off the coast of Louisiana may hit land as early as tomorrow. The spill is much worse than initially thought, and is prompting some discomfort in Washington for proponents of offshore drilling—including the Obama administration.

Rig operator BP and the Coast Guard yesterday tried some test burns, lighting fire to the slick to burn off the oil in hopes of preventing landfall. But the remains of the rig are hemorrhaging five times more oil than the original estimate—officials now believe it's leaking 5,000 barrels a day of crude into the Gulf every day. Others estimate that the spill may actually be 20 times larger than original estimates. An Interior Department official said Thursday that the spill could continue for up to 90 days, and Coast Guard Rear Adm. Sally Brice O'Hare said they are "prepared for the worst case."

The White House signaled that it is taking an all-hands-on-deck approach to the disaster. Department of Homeland Security Secretary Janet Napolitano will travel to the Gulf, while Interior Sec. Ken Salazar is at BP headquarters in Houston. The two announced earlier this week that they are undertaking a "full investigation." The Energy and Commerce Committee also announced an investigation this week.

The spill has fueled the already contentious debate about the role of offshore drilling in energy policy. Enviros and a number of coastal state legislators have protested the Obama administration's announcement last month that they are opening new areas to drilling as part of a comprehensive energy strategy. There's also a hot debate about what drilling measures will be included in the Senate climate and energy bill.

At a White House press conference on Thursday, White House energy and climate adviser Carol Browner acknowledged that, "Obviously this will become part of the debate."

"There were a lot of questions about opening the region’s waters even before this spill in the Gulf, because preliminary estimates were that the amount of oil and gas available off the East Coast didn't appear to be very large, unlike in the Gulf of Mexico," said Lincoln Pratson, a professor of energy and environment at Duke's Nicholas School of the Environment. "This reopens the issue: Is the risk worth the reward?"

A group of 10 coastal state Democrats threatened to vote against the Senate measure if it includes more drilling well before this latest catastrophe. Now New Jersey senators Frank Lautenberg and Robert Menendez are calling attention to the spill as evidence that their worries are well founded. "The bottom line is that when you drill for oil, there is always a risk," the senators said in a joint statement.

Dan Weiss, director of climate strategy at the Center for American Progress, agreed the spill will likely shape the debate over the Senate energy and climate bill. "This sad event demonstrates that the senators concerned about the impacts of offshore drilling have real concerns, not hypothetical ones," said Weiss.

Downgrading Europe

Greece, Portugal, and Spain all got downgraded by the ratings agencies this week. AP reports on the reaction:

The rating agencies that sort good investments from junk are once again injecting fear into financial markets. Only this time it's for warning investors about a possible threat — Europe's debt crisis — rather than for failing to see one coming.

....European Union officials weren't pleased by the negative ratings. ''Who is Standard & Poor's anyway?'' EU spokesman Amadeu Altafaj Tardio said Wednesday. He said the agency should better assess ''realities on the ground,'' such as financial rescue talks in Athens ''that are making rapid and solid progress.''

Color me unsympathetic. Tardio sounds like every CEO talking his book ever quoted in the Wall Street Journal. However, this does demonstrate one of the problems you'd have if you got rid of the ratings agencies and just had the SEC do the job instead. Rating the securities issued by U.S. banks is one thing, but can you imagine the United States government downgrading the sovereign debt of friendly countries? I can't. And if they did, can you imagine the reaction? I can. Oh yes, I surely can.

The ratings process, obviously, has big problems. But although putting ratings under the thumb of the U.S. government might solve one of those problems, it would also create a whole set of new ones. This remains a very difficult problem.

This, via ThinkProgress' Amanda Terkel and the Washington Post's Dave Weigel (who says "the Taliban win"), is pretty awesome. It appears to be a video of soldiers in Afghanistan recreating Lady Gaga's notorious "Telephone" music video. Watch:


The Pentagon released a new report on operations in Afghanistan yesterday, just a few weeks before their make-or-break offensive in Kandahar begins:

The new report offers a grim take on the likely difficulty of establishing lasting security, especially in southern Afghanistan, where the insurgency enjoys broad support. The conclusions raise the prospect that the insurgency in the south may never be completely vanquished, but instead must be contained to prevent it from threatening the government of President Hamid Karzai.

The report concludes that Afghan people support or are sympathetic to the insurgency in 92 of 121 districts identified by the U.S. military as key terrain for stabilizing the country. Popular support for Karzai's government is strong in only 29 of those districts, it concludes.

....The report also notes that insurgents' tactics are increasing in sophistication and the militants have also become more able to achieve broader strategic effects with successful attacks. The Taliban continue to use threats and targeted killings to intimidate the Afghan population.

At the same time, Taliban shadow governments, which can include courts and basic social services, have strengthened, undermining the authority of the Afghan government, according to the report.

Following the happy-talk optimism that marked most of the Bush years, Gen. Petraeus and the rest of the Pentagon have obviously decided that it's better to manage expectations than to raise them. And managing them they are. After reading this, I'll probably be happy if McChrystal emerges next fall and announces that he's confident we'll be out of Afghanistan by the time I qualify for Medicare.

Europe is in trouble. Global financial markets were in turmoil on Wednesday, propelled by fears that Greece could default on its debts—and that the problem could then spread to larger economies, including Spain's and Italy's. "We again find ourselves approaching the point when the financial sector will scream: rescue us all or face global economic collapse," warned Simon Johnson, the former chief economist of the International Monetary Fund. "The markets came close to a total meltdown on Wednesday," one senior banker told the Financial Times.

By Thursday morning, things still looked grim, despite a successful debt issue by the Italian government. Mohamed El-Erian, the CEO of PIMCO, the giant bond investment company, published an op-ed in the FT warning that a Greek default seems almost inevitable. "The Greek debt crisis has morphed into something that is potentially more sinister for Europe and the global economy," El-Erian wrote. Paul Krugman, the Nobel prize-winning economist, thinks a default is "all too easy to imagine," and worries about what could happen to Spain, Portugal, and Italy "if Greece is in effect forced out of the euro." Krugman, like Reuters financial blogger Felix Salmon, has decided to "go hide under the table."

Meanwhile, the projected cost of a Greek "bailout"—which many experts think won't work, anyway—has skyrocketed from €45 ($60 billion) to €120 ($159 billion). That would make it the largest "rescue" of a country ever. It would also begin to drain the cash of the International Monetary Fund, which received $750 billion in new funding from the world's 20 biggest economies just last year. That could hamper the IMF's ability to intervene if the Greek crisis spreads to Portugal, Ireland, or Spain, which has an economy five times the size of Greece's. Rep. Mark Kirk (R-Ill.), a onetime IMF employee who is running for President Barack Obama's old Senate seat in Illinois, has called for congressional hearings on the fund's ability to deal with Europe's problems.

Kirk is right to be worried. As Salmon points out, national debt crises are inextricably linked to banking crises. "The world has never seen an insolvent country with solvent banks, and Greece won’t be the first," Salmon argues. The banking system is interconnected and interdependent. If the debt crisis spreads, Spanish, Irish, and even Swiss and German banks could be in trouble. That could spell problems for the American financial system and the fragile economic recovery.

Crunch time for Europe is rapidly approaching. Greece has to pay bondholders some €8 billion ($10.6 billion) by May 19, and its credit rating, reduced to junk status on Tuesday, is too low to effectively borrow that kind of money from private lenders. So Greece's only hope is to reach a deal with the IMF soon. Another big test for the Eurozone will come next Thursday, when Spain hopes to sell around €3 billion ($4 billion) in bonds. If it has trouble auctioning them off, the crisis could come to a head. The Economist says the European Union (especially the big economies) have to act quickly and work with the IMF to reach a deal on the Greek debt as soon as possible. Will ASAP be soon enough?

Luntz's Latest

Frank Luntz, coming off his bravura performance trying to stop financial reform by labelling it a "bailout fund" regardless of what's actually in the bill, is back for an encore. In the latest display of the rhetorical pretzel bending for which he's famous, he explains why financial reform is a sham:

The Democrats supporting the current legislation have assured an anxious electorate that whatever funds are used to create whatever regulatory scheme created will come from the banks, not the taxpayers. Let me emphasize that so that even casual readers will catch it: the Democrats promise that you won't pay for their legislation, banks will.


Since when have corporations ever paid taxes, fees or penalties? Employees end up paying in the form of lower salaries and benefits. Customers end up paying in the form of higher costs.

And in this case, every account holder will be forced to pay higher fees on their checking account and savings account. That's you, my friendly reader. Can you say "checkbook tax"? I can, and I think lots of candidates will be saying it come November.

Yeah, I think Frank can say "checkbook tax." I also think he can write it, post it, put it on billboards, and tap it out in Morse code. But he might have bitten off more than he can chew this time. Tax incidence theory does indeed suggest that taxes on corporations are partly passed through to consumers, but Republicans have never had any notable success convincing Joe Sixpack of this, despite almost endless efforts to do so.

Still, forewarned is forearmed. At least we know which particular brand of sophistry is likely to sweep like a firestorm through Fox/Rush/Drudge land over the next few days. Keep your eyes peeled.

It's not like I count on Uzbekistan for all my rosy human rights stories or anything, but secret compulsory government sterilization of poor people is pretty bad:

According to human rights groups, tens of thousands of young women...have been sterilised without their consent in the authoritarian former Soviet state of Uzbekistan.

Uzbek sources say the measure was ordered by Islam Karimov, the president, who has ruled with an iron fist for 20 years. The policy is aimed at keeping down the country’s poor population — with 28m people, it is Central Asia’s most densely populated state.

Activists say mass sterilisation began in 2003, but was eased after two years following an outcry. It is said to have restarted in February this year, when the health ministry ordered doctors to recommend sterilisation as an “effective contraceptive”. Critics claim every doctor was told to persuade “at least two women” a month to have the procedure. Doctors who failed faced reprisals and fines.

I think MoJo copy editor Adam Weinstein summed it up pretty well in the email he sent bringing this story to my attention. But I'm not going to reproduce his commentary here, because it was basically just a string of alarmed swear words.

Senators have yet to see a full draft of the climate and energy legislation that Sens. John Kerry (D-Mass.), Lindsey Graham (R-SC) and Joe Lieberman (I-Conn.) were slated to roll out this week, before Graham threatened to ditch the effort over a disagreement with Democratic leadership over their legislative agenda. And even though Kerry and Lieberman sent some details of the bill to the Environmental Protection Agency (EPA) yesterday for analysis, the agency hasn't seen a full draft, either.

According to the EPA, the senators submitted a "description of their draft bill" for economic modeling. The agency confirmed in a statement to Mother Jones the senators "have not sent EPA any actual legislative text." The agency is determining whether it has enough information about the bill to produce an analysis of its economic and environmental impacts.

Environmental advocates say that the EPA can begin modeling without the full text as long as it has the key details in hand, like the year a carbon cap would be put in place, how much of the economy would be covered, and an upper and lower restriction on the price of pollution permits. And if there are changes to those details, it would be fairly easy to tweak the agency's computer models accordingly and produce a new evaluation, they say.

The modeling is expected to take five to eight weeks, which means that even if the senators do roll out their bill sometime soon, it wouldn't go to the floor until the first week of June at the earliest.

Here's the full statement from the EPA:

Staffs of Senators Kerry, Graham, and Lieberman today sent EPA a description of their draft bill, and they asked EPA to start the economic computer modeling effort. EPA's modelers are now examining the description to determine whether it contains all of the information that EPA needs in order to run its models. Once EPA starts the effort, it will take between 6 and 8 weeks to generate a modeling report. The offices have not sent EPA any actual legislative text.

Recent research suggests that web users are pretty catholic in their news reading habits. Conservatives read liberal sites and liberals read conservative sites.  Slate wants to check this theory out, so they produced an applet that tells you just how isolated you are, news-wise:

Here's how it works: When you click on the "Profile Me" button, we will check which news sites you've visited recently. Then, using the same Web site rankings Gentzkow and Shapiro used in their research, we'll tell you how "isolated" you are....We do not save the information, just your overall score, which will be used solely to compare you to other Web surfers and possibly, if enough of you try it out, other Slate readers.

My score is on the right: I clock in at +14, which means I visit more conservative sites than liberal ones. What an open-minded fellow I am!

Except for one thing: the vast majority of my reading is done via RSS — and most of it is liberal blogs. What's more, when I head off to Drudge or Michelle Malkin, it's mostly in hopes of finding something I can mock, not because I'm really interested in what they have to say.

Still, Slate says I'm officially open minded. Hooray for me!