2010 - %3, May

Top Ten Financial Reform Loopholes

| Tue May 4, 2010 11:08 AM EDT

Ezra Klein points us to a White House list of "The 10 Most Wanted Lobbyist Loopholes," and it's good reading. Here are my top four from the list:

5. Removing the Derivatives Trading Requirement to Protect Wall Street Profits.

6. Stretching the Derivatives “End-User” Exemption into a Hedge Fund Loophole.

7. Creating an “AIG Loophole.”

9. Letting Firms Make Loans Without Skin in the Game.

Why these four? Because they're all related to limiting leverage. #5 is related because clearinghouses would require collateral for derivatives trades. #6 because it keeps the clearing requirement robust. (Clearing is a subset of exchange trading, and I assume that it's the clearing requirement that the White House is really interested in here.) #7 because it would extend capital requirements to at least parts of the shadow banking sector. And #9 because it effectively limits leverage at both the consumer level and the mortgage originator level.

But the whole list is worth reading. Even in its current state the Senate bill is only OK, not great. Holding the lobbyists at bay is the minimum requirement for keeping it even that good.

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Rahm Emanuel Battles Fed Audit

| Tue May 4, 2010 10:24 AM EDT

Sen. Bernie Sanders (I-Vt.), the lead sponsor of a new rule to audit the Federal Reserve, is running up against some formidable opposition from nearly all sides. Most notably, Sanders told the Huffington Post that his provision, which has a good chance of winning 60 or more votes in the Senate, is opposed by the White House, and that chief of staff Rahm Emanuel has pushing back against the Fed audit. "I think momentum is with us," Sanders told HuffPo. "But I've gotta tell you, that on this amendment, you're taking on all of Wall Street, you're taking on the Fed, obviously, and unfortunately you seem to be taking on the White House, as well. And that's a tough group to beat."

The amendment would allow the Government Accountabililty Office (GAO) unprecedented access to the Fed's records, and would require the opaque, hybrid public-private institution to disclose who received the $2 trillion given out in loans by the Fed since the onset of the financial crisis. To one's surprise, Fed chairman Ben Bernanke and his acolytes have vehemently opposed the provision, saying it would taint the Fed's decision-making with politics and partisanship.

Sanders, though, appears to have considerable support amongst his colleagues in the Senate. A similar provision to audit the Fed, the Sanders-Webb-Bunning-Feingold Amendment, won 59 votes in April 2009, and eight of the "No"s on that 2009 vote have signed onto Sanders' current amendment. And considering that the House passed a similar amendment last year, and that right now Sanders' amendment has the support of 69 senators, it looks as if the white-haired Vermont independent might get his Fed audit after all. The amendment could come up for a vote as early as today.

What the Heck is BP Putting in the Gulf?

| Tue May 4, 2010 9:55 AM EDT

With the remains of the Deepwater Horizon rig still spewing hundreds of thousands of gallons of oil into the Gulf of Mexico every day, BP and federal response teams are scrambling for solutions. BP has bought up more than a third of the world's supply of dispersants, or chemical substances used to break up and sink oil to prevent it from hitting land. The problem is, we don't know what chemicals are in many of these dispersants or the impacts they may have on marine ecosystems.
Reports ProPublica:

On Thursday BP began using the chemical compounds to dissolve the crude oil, both on the surface and deep below, deploying an estimated 100,000 gallons. Dispersing the oil is considered one of the best ways to protect birds and keep the slick from making landfall. But the dispersants contain harmful toxins of their own and can concentrate leftover oil toxins in the water, where they can kill fish and migrate great distances.

The exact makeup of the dispersants is kept secret under competitive trade laws, but a worker safety sheet for one product, called Corexit, says it includes 2-butoxyethanol, a compound associated with headaches, vomiting and reproductive problems at high doses.

The dispersed oil tends to collect on the seabed, and eventually ends up in the food chain through shellfish and other sea life. And both the dispersants and the oil can kill fish eggs. The ProPublica piece also quotes a 2005 National Academy of Sciences report that notes that there isn't really all that much knowledge about how oil and the dispersants affect local ecosystems:

"One of the most difficult decisions that oil spill responders and natural resource managers face during a spill is evaluating the trade-offs associated with dispersant use," said the Academy report, titled Oil Spill Dispersants, Efficacy and Effects. "There is insufficient understanding of the fate of dispersed oil in aquatic ecosystems."

My friend Tom Philpott summed up the situatuation quite well:

Let me get this straight. A huge oil company is pumping massive amounts of oil directly into public waters, imperiling the health of some of the globe's most productive fisheries -- as well as communities around the coast. To try to minimize the effects of the ongoing spill, the company starts dumping chemicals into that same public water. And not just a little -- a third of the global supply is on hand. And we don't have the right to know what those chemicals are? That's a scandal.

BP is dumping hundreds of thousands of gallons of this stuff into the water every day to try to contain the hundreds of thousands of gallons of oil its rig is currently hemorrhaging. But might we yet another disaster on hand thanks to the "solution"?

Obama's "Most Wanted" Finance Loopholes

| Tue May 4, 2010 9:34 AM EDT

The White House is targeting ten of what it has dubbed the "Most Wanted" lobbyist loopholes in the ongoing financial regulatory reform fight. Essentially these are the items big lobbying organizations, like the US Chamber of Commerce and the Financial Services Roundtable, are pushing hardest on in order to blunt the effects of new reforms. Here are the highlight from the "Most Wanted" list, penned by White House communications guru Dan Pfeiffer.

  1. Ok, Consumer Protection Rules are Fine...Just Don't Enforce Them. Lobbyists are pushing hard to amend the bill so that Attorneys General lose their enforcement authority. Why does that matter? Because the Bureau would only supervise larger market participants. Without state AG enforcement authority, the citizens of their states will have much less protection against illegal conduct. If you want to weaken consumer protections, that's one way to do it.

  2. Letting Non-Banks Play by a Weaker Set of Rules. We know this is coming, so keep an eye out: attempts to give car dealers that make car loans and other major providers of financial services a big exemption from the consumer protection rules. Now be aware: some people try to scare small businesses by saying that the consumer financial protection bureau will regulate main street businesses like orthodontists and florists. That is not true. But if a car dealer makes loans, or if a big department store sets up a financial services center, it’s doing what banks and credit unions do, and it should play by the same rules.

  3. Preventing States from Protecting Their Own Citizens. Under the current bill, the Bureau of Consumer Financial Protection would set minimum standards for the consumer finance market, but states would still be allowed to adopt additional protections. In other words, federal consumer protections would set a floor, not a ceiling. There’s likely to be a fight about that provision. Citing the doctrine of “preemption,” big banks will try to take away states’ ability to supplement federal consumer protections. Why is this a problem? Because state officials are often the first to learn of new abuses and new problems in the marketplace, and we should not get rid of that canary in the coal mine. Federal law can overrule or “preempt” state law when a state law would significantly interfere with national banks’ business of banking, but states should otherwise have the right to protect their citizens as they see fit.

  4. Preserving “Too Big to Fail” While Pretending to Kill It. The key to preventing future bailouts is to end the problem of “Too Big to Fail.” And the only way to do that is to make sure that we can shut down big financial firms in a swift, orderly way if they’re on the brink of failure. Of course, not everyone wants to see “Too Big to Fail” disappear, since it lets the biggest firms borrow money at lower cost and avoid the consequences of excessive risk-taking. But no one wants to be caught defending the status quo. So defenders of the status quo are using a sleight of hand: pushing to make the resolution process so unwieldy that it can never work. By proposing amendments that look tough but that make the resolution process unworkable, opponents of reform will try to save “Too Big to Fail” while pretending to kill it.

These are all important points from Pfeiffer, and all provisions or rules still in play as the financial reform debate hits full stride this week. Some of them we've already covered here at MoJo, with our "Five Fights to Watch" a few weeks ago. This week, the deluge of amendments to the financial reform bill will begin, as will votes on those amendments. Some of those amendments will seek to bolster the bill, like Sen. Byron Dorgan's (D-ND) which would give a new financial oversight council the power to break up overly big banks. Other amendments, likely from the Republican camp, will seek to pare down the council's too-big-to-fail oversight power and the independence of the proposed consumer agency. All in all, it'll be a bruiser of a week on the path toward rewriting the rules of our financial system.

 

We're Still at War: Photo of the Day for May 4, 2010

Tue May 4, 2010 8:59 AM EDT

Sgt. Alex Pryzbylowski of Salem, Ore., and of 3rd Platoon, Apache Company, 1st Battalion, 23rd Infantry Regiment, 3rd Stryker Brigade Combat Team, 2nd Infantry Division, pictured right, points out something of interest to Sgt. Adam Beach, a native of Lake of Ozarks, Mo., also of 3rd Platoon, during Operation Apache Blanket in Mahudiya, Iraq, on April 23. Photo via the US Army.

BP's Slick Greenwashing

| Tue May 4, 2010 8:30 AM EDT

For the last decade, BP has been busily engaged in a multi-million-dollar greenwashing campaign. Changing its name from British Petroleum to BP, the company adopted a new slogan, “Beyond Petroleum,” and began a “rebranding” effort to depict itself as a public-spirited, environmentally sensitive, green energy enterprise, the very model of 21st century corporate responsibility.

It’s going to take more than a name change and a clever ad campaign to erase the image of oil spreading across the Gulf Coast from BP’s offshore rig, and dead wildlife washing up onto beaches. Even as the company magnanimously agreed to cover the costs of cleaning up the mammoth spill, BP on Monday was still insisting that it wasn’t at fault for the accident that caused it—instead blaming the offshore drilling contractor that operated the rig. So much for corporate accountability.

Before the Deepwater Horizon disaster, BP’s green image was nothing more than a scam. While making miniscule investments in things like solar power, biofuels, and carbon fuel cells that backed its PR claims, BP continued to work relentlessly to expand its oil and gas operations. In the last decade, as the world’s second largest producer of fossil fuels, the company drilled (and spilled) vast quantities of oil and gas on Alaska’s North Slope and in the North Sea. It positioned itself to rip up Canada’s tar sands to extract its dirty oil, and grabbed a 50 percent interest in Iraq’s rich Rumaila oil field. BP boasted the highest number of explosions and other accidents at its US refineries (several of them deadly), and made the Multinational Monitor’s 10 Worst Companies lists in 2000 and 2005, based on its environmental and human rights record.

BP clearly believed that green was in the eye of the beholder. The company’s move toward green marketing began in 1997, when it quit the industry’s climate change denial group, the Global Climate Coalition, and acknowledged a possible link between global warming and the use of fossil fuels. By 2000, the vertically integrated multinational—which explores, extracts, transports, refines, and sell fuels through its myriad gas stations–had bought up Amoco, Arco, and Burmah Castrol. It united them under the BP brand with a feel-good flowering sun logo, and hired the advertising firm of Ogilvy & Mathers to launch a $200 million rebranding campaign.

As Ogilvy executive John Seifert described it in 2002, then BP CEO John Browne—or, to use his full title, Lord Browne of Madingley–"came to me with a dream proposal. He said, 'I want this company to be a force for good in this world. Build that image and I will hold the company accountable to it.'" The problem, Seifert said, was, "No other industry is more loathed and distrusted by the public than the energy industry, and yet no other industry is more critical to modern survival. The reality is that no matter how much consumers resent energy companies, they still drive their cars and leave on the lights and turn the other cheek.” His solution was a campaign that "bridges the us/them barrier, that brings the consumer into the debate so that we can address the problem together."

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Back to Petroleum

| Mon May 3, 2010 9:38 PM EDT

Over at Foreign Policy, I write about what the Gulf of Mexico spill means for BP's decade-old greenwashing campaign:

A decade ago, the company then known as British Petroleum launched a multimillion dollar advertising campaign to rebrand itself as the greenest of oil giants. Since then, it has gone only by the initials "BP" and has popularized a new slogan: "Beyond Petroleum." The campaign launched with a $200 million public relations and advertising budget and a new logo featuring the now-ubiquitous green-and-yellow sunburst. Ten years later, the company still spends big on advertising, dropping $76 million on radio and TV ads touting its image in the United States just last year.
The campaign has paid off for the company. A customer survey in 2007 found that BP had by far the most environmentally friendly image of any major oil company. That year, the "Beyond Petroleum" campaign also won the Gold Award from the American Marketing Association. The company reported that between 2000 and 2007, its brand awareness jumped from 4 percent to 67 percent and sales rose steadily.
But those hundreds of millions of dollars worth of green branding can't fortify the company against the environmental and public relations catastrophe unfolding in the Gulf of Mexico. At least 210,000 gallons of crude are hemorrhaging into the Gulf each day after the April 20 explosion and subsequent collapse of BP's Deepwater Horizon rig 50 miles off the Louisiana coast, a blast that killed 11 workers and injured 17 others. In a worst-case scenario for the spill, it could gush up to 6 million gallons per day. The spill is already well on its way to eclipsing the 1989 Exxon Valdez disaster, which dumped 10.8 million gallons into Alaska's Prince William Sound and stands as the worst environmental disaster in U.S. history.

Continue reading over at Foreign Policy.

Can NASA Outsource Space Travel?

| Mon May 3, 2010 6:47 PM EDT

I had dinner with some friends the other night, and one of the guys who showed up was Rand Simberg, an aerospace engineer who writes frequently about NASA and space flight in general. As it happens, Rand and I disagree about the value of a manned space program, and since he's a conservative, we disagree about nearly everything else as well. But it turns out there's at least one thing we agree about: Barack Obama's plan for space exploration is both pretty conservative and pretty good.

At least, I thought we agreed. But then I read Charles Homans' piece about the space program in the latest issue of the Washington Monthly. Here's how he describes it:

Under the budget released by the Obama administration in February, NASA was to get out of the business of human spaceflight altogether, at least for the near future — no more space shuttle or rockets, no capsules or moon-landing apparatus. In their place, NASA would oversee something very different: a $6 billion, five-year contract for a handful of private companies to ferry American astronauts to and from the International Space Station — to operate a fleet of space taxis, more or less. Human spaceflight, the province of national identity and aspiration since Yuri Gagarin first hurtled into orbit, was going to be outsourced.

....The idea in a nutshell is this: if NASA helps commercial companies get their rockets onto the launch pad, and those companies find a market for their services beyond NASA, the agency’s human spaceflight program will finally be free of its expensive obligations to maintain its rudimentary orbit-oriented activities....With the money it saves, NASA can redouble its research and development efforts to acquire the technology it needs to push the boundaries of exploration once again.

And here's Rand:

I find the current debate over President Obama’s new space policy mind-bendingly ironic. We have a radical president bent on socializing and nationalizing everything from the auto industry to hospitals, but when he comes up with a policy that actually harnesses free enterprise, we hear from conservatives nothing but complaints.

....If we can finally get on with the business of letting private industry take on the (literally) mundane task of getting people only 200 miles above and let NASA focus on new technologies, there is plenty of time over the next few years to decide exactly where to go from there....The important thing is that we had to euthanize NASA’s expensive, unneeded new rockets and move on to the more critical development of opening up space. We’re now on a path to do so, assuming that Obama’s plan survives Congress.

Sounds good! Unfortunately, the Homans piece goes on to take a pretty gimlet-eyed view of whether the private-enterprise version of hauling people and cargo into earth orbit is actually likely to succeed. The genius of private enterprise, of course, is that it might, and it might do so in ways that nobody can predict. That's why I support it: I'm not thrilled at the idea of spending massive amounts of taxpayer money on manned space flight, but I am willing to spend moderate amounts of taxpayer money on seed money to help the private sector do it.

But will it work? Homans, frankly, doesn't provide much hope that it will: the market, he says, is just too small, consisting mostly of space station ferrying and unmanned satellite launches. And not only is that market small, but it's not growing either. Space tourism is another possibility, but launching people into orbit is no $200,000 lark that any Wall Street tycoon can afford. The Russians charge $20 million a pop for this, and that price would have to come way down before there was much of a demand for this kind of excursion.

There's more — including a grim description of what happened when the Pentagon tried to outsource its satellite launch capability under Bill Clinton — and none of it is very hopeful sounding. I think I may be about to retreat back to my original position: NASA should fund unmanned exploration but get out of manned space flight entirely. Let's hope private industry proves me wrong.

Greens Call on Senate to Take Drilling "Off the Table"

| Mon May 3, 2010 5:48 PM EDT

More than 70 state-based and national environmental groups called on the Senate Monday to keep any expansion of offshore oil and gas drilling out of energy and climate legislation. In light of the unfolding environmental catastrophe in the Gulf of Mexico, the groups write, more drilling "should be off the table":

Expanding exploration and drilling into previously protected and remote areas is unacceptable when it is clear that we are not capable of responding to oil spills in a timely manner. The Senate faces a choice between leading America forward in a new clean energy economy or holding America back by preserving the failed energy policies of the past.

The letter—signed by the Sierra Club, Natural Resources Defense Council, League of Conservation Voters, Friends of the Earth, and Environment America, among others—marks a shift in the stance of some green groups, which were initially willing to accept limited drilling as part of a broader climate and energy legislation. Language in the bill (a draft of which was supposed to be introduced last week before it got caught up in political wrangling) concerning drilling was a contentious issue even before the scale of the Gulf disaster became clear. But the spill has prompted even more outrage among environmentalits, pushing groups that were orginally open to drilling concessions to outight opposition. 

Notably absent from the letter were several major enviro groups, including the Environmental Defense Fund and the National Wildlife Federation. EDF spokesman Tony Kreindler said the group is focusing on how to handle the immeadiate crisis at hand in the Gulf. The group is calling for "full scale intervention and emergency response, funding to restore wetlands, funding for fisherman and livelihoods, and passage of the clean energy and climate bill so we can start to get ourselves off oil."

Joe Mendelson, director of global warming policy at the National Wildlife Federation, warned not to read to much into the fact that his group didn't sign on in support. "I wouldn't take our absence as a lack of comprehension or sympathy with that position," he said. "We don't know where the bill is at this point," he continued, noting that it's likely that the provisions that deal with offshore drilling and leasing "probably have to change to reflect the situation now."

With the spill still getting worse, the politics of drilling and how they will play into the Senate climate debate will only get more interesting in the coming weeks.

Starving the Beast

| Mon May 3, 2010 4:12 PM EDT

Conservative Steve Chapman summarizes recent research showing that cutting taxes does not, in fact, "starve the beast." That is, it doesn't motivate the public to demand lower federal spending as deficits rise. In fact, it does just the opposite:

Forced to pay for everything they get, right away, Americans would undoubtedly choose to make do with less. But given the opportunity to party now and pay later — or never, if the tab can be billed to the next generation — they find no compelling reason to do without.

Think of it this way. If you want people to consume more of something, you reduce the price. If you want them to consume less, you raise the price. For most of the last 30 years, federal programs have been on sale, and they've found lots of buyers.

True enough. The Republican Party has basically taught Americans that deficits don't matter. We can have all the government services we want and there's no need to pay for them. Under the circumstances, who wouldn't want more government services?

Of course, over the past decade conservatives have amped up the game, and they might eventually win it. Here's how: First, slash taxes dramatically. Then increase spending explosively. Finally, destroy the economy, thus forcing a truly gargantuan increase in the federal deficit that wrecks the creditworthiness of the federal government. Eventually, whether anyone likes it or not, that's going to rein in spending.

Of course, it will only do so after spending has already gotten far higher than conservatives ever imagined — and higher taxes will be part of the endgame too. And America will basically be a banana republic. But it will constrain spending. And when it does, the GOP can finally claim victory!