2010 - %3, July

Are the Bankers Winning Again?

| Tue Jul. 27, 2010 12:31 PM EDT

Here is Barbara Matthews, managing director of BCM International Regulatory Analytics LLC in Washington, on the latest draft of the Basel III accords for bank safety:

Even though we see a lot of concessions, there are also limits to the concessions. So this isn’t fully caving in.

Whew! I was worried there for a minute. But at least we're not fully caving in.

Early reports suggest that the final draft accord — agreed to by everyone except Germany so far — largely caved in on its definition of capital, which will allow banks a lot more leeway to skirt the new rules. It also, as expected, allows a long transition period before the new rules take effect. In return, it mandates a minimum leverage ratio. This would be great news except that the new minimum is 3%, or 33:1, and as the New York Times reports, "the requirement is expected to have little effect on U.S. institutions, which already meet the 3 percent standard easily." And remember that this was Tim Geithner's reason for opposing leverage ratios in the financial reform bill: he thought it was better handled by the Basel process. That's not looking like such a great bet right now.

And how about the "net stable funding ratio," which you recall has to do with preventing bank runs in the shadow sector. Basically, it would require financial institutions to rely less on overnight and other short-term funding, which can dry up quickly when markets panic, and more on longer term funding. It's a great idea, but the draft agreement punts: "The Committee remains committed to the introduction of the NSFR as a longer term structural complement to the LCR. Nevertheless, the initial NSFR calibration as set out in the December 2009 proposal needs to be modified....A number of adjustments are under consideration." I think we can safely expect this entire subject to be slowly forgotten.

Basel III appears to be better than Basel II and better than the status quo. But not by much. Here's most of what you need to know: Bloomberg reports that Frederick Cannon, chief equity strategist at New York-based Keefe, Bruyette & Woods, thinks the latest changes should please banks. And the New York Times confirms this: "The announcement helped banking shares move higher in Europe on Tuesday. Analysts said there was relief that the measures were not as punishing as they might have been." And if banks are happy, that's really not good news.

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Taking Big Banks at Their Word

| Tue Jul. 27, 2010 12:29 PM EDT

Noam Scheiber of The New Republic chips in Tuesday with the latest on Elizabeth Warren, the bailout watchdog and irrepressible thorn in Treasury Secretary Tim Geithner's side, and her potential nomination to run the new Consumer Financial Protection Bureau. Remember, this bureau was her idea, first proposed in 2007. And while she should be a shoo-in for the role, Warren's potential nomination has grown into a minor controversy and a cause celebre among progressive groups. Scheiber's story quotes a whole bunch of anonymous sources, does some back-of-the-envelope math, sizes up the GOPers who could back Warren, and arrives at the not-so-revelatory conclusion that "it wouldn't be surprising to see Warren nominated—and then quickly approved in an anticlimatic vote."

What grinds me about Scheiber's article, other than the reliance on anonymous sources, is this paragraph, about midway through the piece:

But, for the moment, what’s interesting is the banks’ silence. Three industry officials I spoke with took care to assure me that their organizations aren’t actively opposing Warren. One defied me to find someone in the industry who was. Another reflected that, from the banks' perspective, Warren might actually be preferable to Michael Barr, an assistant Treasury Secretary who is also a leading candidate for the position. [emphasis mine]

Noam must not read Mother Jones. Too bad. Last week, I reported that the industry is indeed lobbying against Warren's nomination. During a fly-in last week hosted by the American Bankers Association, one of the largest banking industry trade groups in the US, a number of presidents and CEOs of state bankers associations told me—on the record—that they used the visit as a chance to meet with their delegations and lobby against Warren's nomination. The presidents of the Iowa and Oklahoma Bankers Associations both told me they lobbied their delegations against Warren. A third banking association chief, George Beattie, the president and CEO of the Nebraska Bankers Association, told me he's had "a number of conversations" with Sen. Ben Nelson (R-Neb.) to express his opposition to Warren running the consumer protection bureau.

You might think the views of these three banking chiefs are outliers, but Beattie added this when I asked him about the national-level ABA's views on Warren: "With my colleagues at the ABA, these views about her would be shared." (The ABA did not return my requests for comment about Warren and Beattie's remarks when I reported last week's story.)

So, back to Noam. I wouldn't be so keen to take at face value what "three industry officials" say, as he's done in today's story. A quick Google search would've proved all three of them wrong.

Would the ADA Pass Today?

| Tue Jul. 27, 2010 11:45 AM EDT

A few days ago I expressed some doubts that the Truth in Lending Act, which passed easily in 1968, could pass today. Sure, it was the right thing to do, but it also imposed a bunch of regulations on businesses that cost them money. Today, that cost would probably be viewed as far more important than the benefits to consumers, and a bill like TLA would either be watered down into mush or never seriously taken up in the first place. We just don't believe in regulating businesses any longer solely because we think we have the right to tell them how consumers ought to be treated. Even lots of liberals — including me, some of the time — have succumbed to this attitude.

Paul Tomasky, on the 20th anniversary of the passage of the Americans with Disabilities Act, listens to Rand Paul fulminating against the ADA because it's not "fair to the business owner" and wonders if the ADA could pass either:

Paul is more extreme than your average Republican, but it does make one wonder whether today's Republican Party would have supported the ADA. In 1990, it passed the Senate 76-8 and passed the House by unanimous voice vote. I think we can say with great confidence that those particular outcomes would never have happened today, and we'd have seen far more caterwauling about the impositions placed on business and so on.

I will grant that the ADA has cost businesses some money, and that there surely have been some nuisance lawsuits. But it's made the US a better place. In 1990, the GOP saw this. Today's GOP would never accept such regulatory "impositions" on the private sector. You might get eight or 10 of them to vote for such a bill, because they would make the decision as a party that overall they didn't want to be seen as picking on people in wheelchairs, but the distance from only a handful of Republicans opposing that bill to Rand Paul's comments in May is one marker of how extreme the GOP has become.

Has this change in priorities over the past few decades made America a better place? For some, yes. For most, no. Jon Cohn has more.

Watching the Economy

| Tue Jul. 27, 2010 11:15 AM EDT

Stuart Staniford takes a look at global oil production figures as a proxy for economic growth and comes away unhappy:

In the short term, global oil production is a sensitive indicator of the state of the global economy, and I'm not aware of any other publicly available proxies for the overall state of the world's economy that are as timely.

In this case, given that prices are falling rather than rising, and that OPEC undoubtedly has some spare capacity, the question becomes one not about whether supply is struggling to rise, but rather about whether demand is faltering or even declining.

Whether this presages a renewed contraction in the global economy, a stagnation, or just a transient hiccup in the ongoing recovery, I'm not certain of yet. But certainly each passing month of lower oil production will add to the concern.

Are there any economic indicators that look healthy right now? Not that I can think of. Corporate profits are up, of course, as are Wall Street salaries, but that's small comfort to those of us in the non-millionaire class. Most core indicators are, at best, stagnant, while others are downright gloomy. This one is in the latter category.

Sarah Palin's Kiss of Death?

| Tue Jul. 27, 2010 11:04 AM EDT

Last week, Sarah Palin—via a Facebook note—endorsed former New Hampshire Attorney General Kelly Ayotte, a Republican Senate candidate facing two other GOPers in a September primary. Palin called Ayotte a "mama grizzly," and Ayotte, in return, praised Palin as "a conservative icon who has brought enormous energy to our Party." Palin's thumb's up appeared to be a boost for Ayotte. But perhaps only in the short term.

Polling conducted after the endorsement shows Ayotte slipping in a match-up against Rep. Paul Hodes, a Democrat running for this Senate seat. Public Policy Polling reports:

Kelly Ayotte's seen her appeal to moderate voters crumble in the wake of her endorsement by Sarah Palin and her lead over Paul Hodes has shrunk to its lowest level of any public polling in 2010—she has a 45-42 advantage over him, down from 47-40 in an April PPP poll.

There's not much doubt that the shift in the race is all about Ayotte. Hodes' favorability numbers have seen little change over the last three months.

The polling firm points to Palin's seal of approval as the probable cause of Ayotte's decline.

The Palin endorsement may well be playing a role in this. 51% of voters in the state say they're less likely to back a Palin endorsed candidate to only 26% who say that support would make them more inclined to vote for someone. Among moderates that widens to 65% who say a Palin endorsement would turn them off to 14% who it would make more supportive.

Ayotte's favorability with moderate voters (the largest group of Granite State voters) has plummeted from +5 at 32/27 to -19 at 27/46. And Hodes' numbers haven't improved at all vs. the other potential GOP candidates—just against Palin-endorsed Ayotte. PPP notes that the Palin endorsement has "certainly helped" Ayotte in the Republican primary, in which she is already the favorite. But the Palin embrace will no doubt be an issue in the general election and, most likely, a liability for Ayotte , if she wins the GOP nomination. And if that does happen, Ayotte might then want to send Palin into hibernation. 

Democrats, meanwhile, are rejoicing at PPP's findings. The Democratic National Committee sent out an email this morning about the poll. Its subject line was "Why Sarah Palin endorsements are awesome."

(Last week, Nick Baumann predicted that Palin might be a problem for Ayotte.)

What BP Knows About the Size of Gulf Disaster

| Tue Jul. 27, 2010 10:43 AM EDT

While BP publicly stuck to claims that its blow-out well was leaking at rate of 5,000 gallons of oil per day, the company was privately operating under the assumption that at least five times that amount was gushing into the Gulf, according to documents released today by congressional investigators.

BP's internal estimate of 53,000 barrels per day is buried in one of the company's requests to use more than the maximum threshold of dispersants established by the EPA, which the Coast Guard released earlier this month. In letters dated July 6 and 11 to the government's on-scene coordinator in the Gulf, at that time Coast Guard Admiral James Watson, BP Chief Operating Office Doug Suttles cited the 53,000 figure in justifying the company's request to use 25,200 gallons of dispersant per day to break up the oil.

The official per-day estimate of the spill's size is still a large range. The government's flow rate team has said that during the three months that oil was spewing into the Gulf anywhere from 35,000 to 60,000 barrels may have leaked daily. But BP, after first claiming oil was entering the Gulf at a rate of 1,000 barrels per day and then later adopting the initial, extremely low government estimate of 5,000 barrels, hasn't offered another estimate of its own in weeks.

The government team is expected to come up with a more concrete estimate, though there's some concern that we'll never get a truly accurate figure, which is crucial to levying fines against BP and assessing damages in the Gulf.

"In the case of BP's financial liability and the flow rate of this spill, ambiguity is BP's ally, and precision is the government's," said Rep. Ed Markey (D-Mass.), who chairs the Energy and Environment Subcommittee and the Select Committee on Energy Independence and Global Warming, which released the BP document. "This document turns the tables on BP by exposing their own assumptions about the size of the spill."

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The Great Interchange Fee Scam

| Tue Jul. 27, 2010 10:35 AM EDT

Adam Ozimek is obviously trying to make my head explode this morning. Today he points to a new paper from the Boston Fed that investigates the consequences of credit card interchange fees. The basic background is this: (1) card companies charge merchants a 1-2% interchange fee on all credit card purchases, (2) merchants raise the prices of all their products slightly in order to cover this cost, and (3) because most merchants charge everyone the same price, regardless of whether they use cash or credit, cash users end up paying a little more than they should while card users pay a bit less than the actual cost of the interchange fee they incur. So what does it all mean?

On average, each cash-using household pays $151 to card-using households and each card-using household receives $1,482 from cash users every year. Because credit card spending and rewards are positively correlated with household income, the payment instrument transfer also induces a regressive transfer from low-income to high-income households in general. On average, and after accounting for rewards paid to households by banks, the lowest-income household ($20,000 or less annually) pays $23 and the highest-income household ($150,000 or more annually) receives $756 every year.

Isn't that peachy? This is the result of allowing an effective monopoly in the card business, thus giving network providers the power to force merchants to keep interchange fees hidden instead of charging them directly to card users. Vast masses of poor and middle income families end up paying a few dollars into the system every year while a small number of upper income families reap the benefits.

This is why I don't like hidden fees: there's rarely much point in keeping something hidden if it's fair and equitable. You only do that if someone is getting screwed. And guess who gets the shaft more often than not?

CO's Romanoff Bets the House—Literally

| Tue Jul. 27, 2010 10:31 AM EDT

You've got to hand it to US Senate hopeful Andrew Romanoff out in Colorado: The man's got chutzpah. So much chutzpah, in fact, that he recently sold his $360,000 bungalow to boost his campaign's coffers in his effort to unseat Democratic incumbent Michael Bennet. Soon after his house sold, Real Clear Politics reports, Romanoff, the former Colorado house speaker, made a $325,000 donation to his campaign with two weeks to go before his August 10 primary bout against Bennet. 

Judging by somewhat recent polls, Romanoff's hefty donation is a last-ditch bid to salvage his Senate run. In a mid-June Denver Post/Survey USA poll, for instance, Bennet led Romanoff by 16 percentage points. Despite winning the endorsement of Bill Clinton, Romanoff has struggled to compete with Bennet throughout the spring and summer, both in the polls and in the fundraising battle. While Bennet, the former Denver education chief, raised $7.5 million the second quarter of this year and had $2.5 million in cash on hand, Romanoff paled in comparison, with $1.6 million raised and $464,000 on hand.

Romanoff justified the sale of his bungalow with a one-liner to the Denver Post: "I'm never home anyway."

Obama Admin Cracks Down on For-Profit Colleges

| Tue Jul. 27, 2010 9:10 AM EDT

For-profit universities have come under fire for driving exponential profit growth by preying on vulnerable student populations like the homeless, the poor, and the under-educated. But starting in 2012, these institutions will have to prove that they adequately prepare their students for "gainful employment" to remain eligible for federal aid.

Secretary of Education Arne Duncan announced the new rules late last week, adding that the regulations are not a denouncement of higher education's fastest growing sector, but rather a measure meant to protect students from "a few bad actors." He estimated that the new rule will disqualify about 5 percent of the industry from receiving federal funding.

For-profits can adhere to the new rules in one of two ways. They can verify that at least 45 percent of former students are paying down the principle on their federal loans, or they can show that graduates are paying no more than 8 percent of their total income toward student debt. This may, however, prove a tall order. A report published by the College Board in April showed that more than 50 percent of for-profit students graduate with $30,500 or more in debt—only 24 percent of graduates from private non-profit schools owed as much.   

Last week, ProPublica's Sharona Coutts wrote of for-profits stooping to another new low—luring single moms into expensive loans with ads for 'Obama Mom' grants: The ads told of stimulus funding for single moms interested in returning to college, but in fact, no such funding exists, the Department of Education confirmed. The fake ads were created by companies that mined users' personal information and sold it to for-profits. 

Autism Activists on the Judge Rotenberg Center

| Tue Jul. 27, 2010 7:38 AM EDT

Autism advocates are following up on a DOJ investigation of the Judge Rotenberg Center (JRC), a private Massachusetts school that punishes some autistic, retarded, and emotionally troubled students with electric shocks. The Judge Rotenberg Center, whose practices were recently condemned by the UN as "torture," will be the subject of a radio interview between the International Coalition for Autism and all Abilities (ICAA) and Massachusetts state senator Brian Joyce. Joyce, who we've written about previously, has made stopping the JRC's electric shocks a goal of his for the past decade. He's introduced bill after bill trying to get the shocks outlawed, but this year his bill passed the Massachusetts senate and is headed to the House. ICAA's interview with Joyce will air Wednesday, July 28, at 10am CST. You can listen to the broadcast then at http://www.blogtalkradio.com/icaa or find it on iTunes. To read Mother Jones's groundbeaking investigation of the Judge Rotenberg Center, click here