Possible Budget Deal With Wide-Ranging Implications
House and Senate negotiators have struck a tentative deal on major elements of the fiscal 2010 budget resolution that includes fast-track procedures for a health care overhaul and for legislation to curtail the role of private lenders in the federal student loan program. The compromise also would trim $10 billion from President Obama’s discretionary spending request, while allowing some additional spending for household energy assistance. The negotiators plan to hold a formal conference committee meeting April 27. Behind-the-scenes negotiations will continue Friday and through the weekend – and until all details are finalized the initial agreements could fall apart...
...One outstanding question is what [Senate Budget Cmte Chair Kent] Conrad may get in exchange for not standing in the way of reconciliation provisions. “Would I want things? Yeah,” Conrad said. Conrad and Judd Gregg of New Hampshire, the ranking Republican on the Senate Budget Committee, have long pushed for creating a task force that would write policy prescriptions for the government’s long-term budget problems that Congress would have to vote on. When asked if this proposal could in some way be part of a potential deal on the budget resolution, Conrad only would say that many things have been discussed.
Politico adds: "Obama could move closer to Conrad on the issue of creating a new commission to address long term savings in government entitlement programs or moving more aggressively on tax reform. The entitlement commission is something Speaker Nancy Pelosi (D-Calif.) has opposed in the past, but she would have less leverage if Conrad were to insist on this as a condition for supporting reconciliation of healthcare-a top Pelosi priority. But more likely some side arrangement will be made with the White House, and there was no evidence Thursday night that the commission was yet part of the final deal taking shape."
The Treatment's Jonathan Cohn says "This Changes Everything:" "Put yourself in the shoes of a health care industry group--say, for example, the insurance industry ... imagine Democrats have the option of using reconciliation. They need just fifty votes, which means they may not need your support after all. If you demand too much, they may just ignore you altogether--and craft a bill, perhaps with the help of more cooperative lobbyists, that is not in your self interest. In this scenario, there are three options on the table. A bill you like, no bill at all, and a bill you really hate. So what do you do? Chances are, you concentrate a lot harder on trying to get that bill you like."
AP reports Obama to speak on college costs today: "The White House says the president will meet Friday with a family struggling to afford the cost of college. Obama is proposing to cut wasteful spending from the federal student loan program by ending taxpayer subsidies to banks."
US News & World Report's Paul Bedard on Bush team health care attacks: "First the Bushies whacked at President Obama's economic plans. Then they assailed his release of torture memos. Now they're going after his plan to provide federal healthcare coverage. Former Health and Human Services Secretary Mike Leavitt has penned a note on the new AmericaSpeakOn.org site warning that Obama's plan could dry up corporate-funded healthcare. He reasons: Why should companies pay for healthcare if the federal government is going to cover the uninsured?"
Wonk Room's Igor Volsky: "Why The Public Health Plan Is Not A Trojan Horse"
Stress Test Results Privately Released Today
NYT previews stress test results, to be privately shared to banks today: "Analysts are already betting that the stress tests will show that banks need to raise significant amounts of new capital, as profits made in the first three months of the year give way to more losses, tied to credit card, commercial real estate and corporate loans. ... As the dust settles from the shakeout on Wall Street, the 19 banks subject to stress tests are starting to divide into three groups: the strong that can weather the storm; the weak that will need new, perhaps significant, support; and the ones on the verge, whose fate will be decided by regulators."
W. Post reports on new capital standard based on stress tests: "Federal banking regulators plan to announce a new, tougher standard for the capital reserves held by 19 large banks that could force some of those firms to sell ownership stakes to the federal government ... Companies that fall short -- even those with enough capital under the traditional regulatory standard -- will be required to meet the new standard ... For banks that have trouble raising additional capital from private investors, the only available option could be a sale of common shares to the federal government. In some cases, the government would swap its preferred shares for common shares. Other companies might get additional federal money."
Bloomberg: "U.S. banks that get preliminary results today of U.S. government stress tests may struggle to raise money after bad assets at the biggest lenders almost tripled on average in the past year."
Portfolio.com's Ryan Avent is unsettled: "...the test results will be unable to avoid playing favorites. Recommendations will not be one-size-fits-all, but will be tailored based on the quality of a bank's assets, its likely earning power, and its exposure to other, potentially weak, institutions. This creates an obvious problem; the banks in the best condition will need to raise the least capital and will have the easiest time doing it. There's a distressing corollary; those in the worst condition will be required to raise the most capital. They'll have an awful time of it. Private investors will be uninterested, because the possibility of a good return will be slim, and because government could come careening in at any moment, messing up whatever calculation convinced an investor that Citigroup was a promising bet ... The actual results are the opening act. The main event is what the government rolls out as its solution. I have this uncomfortable feeling that if the stress tests reveal anything like the true picture at a Citigroup and the policy response is a combination of an increase in equity stake, fingers crossed for private recapitalization, and the promise of PPIP, markets may be very upset indeed."
FT on key deadline in toxic assets plan: "The Obama administration will on Friday get the first indication of investor interest in its $1,000bn toxic assets plan amid fears that the threat of government intervention and banks’ reluctance to sell will deter fund managers from participating. Applications to become one of the five asset managers charged with raising funds to buy mortgage-backed securities from banks are due today...
Obama Stares Down Credit Card Companies
LA Times rounds up the latest on restoring rules for credit cards: "The deep recession and the public's anger with banking institutions are giving the Obama administration and congressional Democrats potent weapons to push through credit card reforms that the consumer lending industry has held at bay for decades ... As early as next week, House Democrats expect to act on a bill that would make it harder for the industry to slap new fees and rates on cardholders while also requiring clearer disclosure of the costs and risks. The bill would codify and expedite rules already proposed by the Federal Reserve Board but would not be implemented until 2010. Legislation pending in the Senate would go further, barring lenders from imposing interest rate increases on consumers' existing balances ... The president said he wanted to address 'people finding themselves starting off with a low rate and the next thing they know their interest rates have doubled; fees that they didn't know about that are suddenly tacked onto their bills -- a whole lack of clarity and transparency in terms of the terms and conditions of their credit cards.' Consumer advocates and other opponents of the industry's practices expressed delight that Obama had stepped out on the issue..."
NYT reports from inside the credit card meeting: "Mr. Obama’s firm tone left some executives resigned. One executive told the president that although her assignment had been to try to persuade the president not to support new restrictions, 'it was pretty clear I won’t succeed.'"
The Hill adds: "Before Thursday’s meeting, Sens. Charles Schumer (D-N.Y.) and Dodd sent a letter to Federal Reserve Chairman Ben Bernanke asking for an 'emergency freeze' on credit card rates. The two senators said consumers have complained to their offices of rates on their accounts being doubled and tripled, and specifically asked that next year’s rules instead be implemented immediately. "
USA Today editorial board scolds credit card companies: "...the card issuers have a choice. They can expend every last ounce of their energy and lobbying clout trying to round up enough senators to block quick, meaningful reform. Or they can pursue a more productive approach: getting back to the basics, establishing respected brands, and building lasting relationships with customers rather than with lawmakers and regulators."
Moving Towards Grand Financial Crisis Commission
OurFuture.org's Isaiah Poole analyzes Senate action: "The amendment has some key elements of what we have been calling for. The committee would be comprised of seven members of the Senate, and would explicitly have the power to subpoena witnesses and collect sworn testimony. The committee would have a year to submit its first report to the Senate, and would have two years to submit a final report ... House Speaker Nancy Pelosi promised that she would flesh out her own call for a Pecora Commission by the end of this week. If it is at least as tough as the Senate bill, we will have an important foundation for driving the accountability and reform that we need."
The Hearing's Simon Johnson notes the history of the 1930s Pecora commission: "Ferdinand Pecora had a goal, which was to help people see through the complexities of Wall Street, to get a sense of what had gone wrong and - most difficult - begin to build an agenda for serious reform. Let's try to do the same."
Climate Negotiations Continue
Bloomberg on climate compromise pushed by fossil fuel state Dems: "A group of Democrats on the House Energy and Commerce Committee want to give utilities free permits for all their existing carbon emissions, according to people familiar with a plan sent to the committee’s chairman. Representative Rick Boucher of Virginia sent the four-page list of recommendations to Henry Waxman, the committee’s chairman and the author of draft climate-change legislation that some of his fellow Democrats are seeking to temper, said the people, who declined to be identified before the plan is made public."
CQ adds: "To win over moderate Democrats, the panel is likely to finalize a bill that would give some of the allowances to electric utilities free of charge. Members from coal-heavy states argue this will help keep power bills down until technology is available to capture emissions. Alternatively, the government could auction the allowances and use the money to benefit consumers, such as with a tax rebate. But several members have said the bill will need to have some free allowances in order to win committee approval. Rick Boucher, D-Va., was expected to meet late Thursday with Chairman Henry A. Waxman, D-Calif., to negotiate possible changes to the bill. The allocation question will be key, along with how stringent the cap on emissions should be and whether to require the purchase of renewable energy."
Grist's Kate Sheppard on CBPP compromise proposal from yesterday's hearings: "The lone panel member not calling for free allocation of emission credits was Robert Greenstein, executive director of the Center for Budget and Policy Priorities. His organization wants to see the vast majority of credits auctioned off, and the revenues from that auction returned to citizens through tax credits and other rebates. Routing consumer protections through electric utilities, he said, is 'unwise,' as it cannot account for cost increases in other areas like gasoline and consumer goods. 'Relief that only focuses on home electricity and gas bill leaves a major hole,' said Greenstein. But he did suggest a middle-ground option: distributing a portion of credits to [local distribution companies], and auctioning the rest to provide consumer refunds."
HuffPost's Jesse Jenkins proposed "Sherrod Brown Test" for climate consensus: "...minimizing the economic costs of higher energy prices and maximizing the economic benefits of the legislation, particularly for the manufacturing sector ... major public investments in clean energy R&D and the deployment of emerging clean technologies - both designed to make clean energy cheap and affordable ... reassuring the Senator that climate policies will not disproportionately impact Ohio and similar states."
Wonk Room's Brad Johnson on the latest conservative misinformation on costs: "Accusing Massachusetts Institute of Technology economist John Reilly of using 'fuzzy math' and 'fuzzy logic,' the Weekly Standard has further distorted an MIT study of the economics of carbon regulation. By making an economically unsupportable assumption, Weekly Standard editor John McCormack transforms a $3100 lie promulgated by House Republicans into a $3900 lie:"
Grist: Progressive coalition spends $250,000 on ads for a green energy bill.
Unearthed doc shows fossil fuel CEOs knew they contributed to global warming, then lied. NYT: "...a document filed in a federal lawsuit demonstrates that even as the [fossil fuel] coalition worked to sway opinion [against addressing global warming], its own scientific and technical experts were advising that the science backing the role of greenhouse gases in global warming could not be refuted."
Sacramento Bee on CA's new low-carbon fuel standard: "California became the first state in the nation Thursday to mandate carbon-based reductions in transportation fuels in an attempt to cut the state's overall greenhouse gas emissions. The California Air Resources Board approved a phased-in reduction starting in 2011, with a goal of shrinking carbon impacts 10 percent by 2020. Fuel producers can comply in different ways, such as providing a cleaner fuel portfolio, blending low-carbon ethanol with gasoline or purchasing credits from other clean-energy producers. California's low-carbon fuel standard could lead to a national measure under President Barack Obama, as well as shape how the transportation sector evolves." NYT: Ethanol makers displeased.
Kirk Looking To Forge Trade Deals
USTR Ron Kirk signals WH wants to reach trade deals. NYT: "Mr. Kirk vowed to press ahead on three bilateral trade agreements negotiated by the Bush administration. He said there was strong bipartisan support in Congress for an agreement with Panama — suggesting that its completion might come first — but that the administration was also working to advance the somewhat more controversial pacts with Colombia and South Korea."
CQ covers criticism from fair traders: "Members of the House Trade Working Group, a coalition of lawmakers opposed to recent trade policy, also weighed in Thursday. 'At a time when American workers need a life raft, passage of these two trade agreements would be like throwing them anchors,' Rep. Phil Hare, D-Ill., said in a statement."
OurFuture.org's David Sirota strongly criticizes: "Politically, this is just downright dumb. As I wrote in a past column, we saw what happened when a Democratic president split apart the Democratic Party on an issue like trade at the beginning of his term. It was called NAFTA, and the move severely damaged the Democratic Party at the polls. I'm not saying this will be another 1994, but I am saying the Republicans would like nothing more than a Democratic president once again 'running over the dead bodies' of the Democratic Party base and therefore weakening the Democratic Party as a whole."
Pressure On Chrysler Heightens, What Will Happen To Pensions?
NYT reports Treasury is stepping up the threat of Chrysler bankruptcy, trying to protect union pensions: "The Treasury Department is directing Chrysler to prepare a Chapter 11 bankruptcy filing as soon as next week ... The Obama administration has told Chrysler it will provide up to $6 billion in new financing, on top of the $4 billion in loans it has already given the company, if Chrysler can complete a deal by next Thursday with a cost structure that gives it a chance of survival. The creditors have so far balked at the terms ... the negotiations have taken a new direction. Treasury now has an agreement in principle with the U.A.W., whose members’ pensions and retiree health care benefits would be protected in the event of a bankruptcy filing ... under this outcome, Fiat would complete its alliance with Chrysler while the company is under bankruptcy protection ... A bankruptcy filing for Chrysler would most likely wipe out existing equity stakeholders, notably Cerberus Capital Management..."
W. Post on the possibility of breaking pension agreements: "...one of the biggest losers may be the automakers' current and future retirees, a group of nearly 1 million people who could see their pensions and health-care funds slashed by tens of billions of dollars ... 'We are going to do what we can to help protect their benefits to the degree that we can,' said an administration official, who spoke on condition of anonymity because the discussions are private. 'It's premature to speculate on what will happen. This is certainly a constituency that we are focused on, but we have not and cannot rule anything out.'"
NYT says auto deal may signal end of defined benefit pensions: "If one or both of [the GM and Chrysler] plans collapse, the federal agency that insures pension benefits, the Pension Benefit Guaranty Corporation, will lose a big source of the premium revenue it collects from companies with pension funds. But more important, the demise of the bellwether auto plans might set a template for other companies seeking to cut costs and stay competitive."
Vote, No Deal, On Mortgage Reform
CQ: "Senate Democrats are preparing to move forward on broad mortgage legislation, perhaps as early as next week, even though negotiators haven’t reached a deal on a provision that could sink the entire bill ... the bill also would include language allowing federal bankruptcy judges to modify the terms of a home mortgage in some cases to prevent foreclosure — a procedure known as 'cramdown.' ... 'We’re going to have a vote on the bankruptcy provision, which is long overdue,' [Sen. Maj. Leader Harry] Reid said Thursday."
NYT editorial board rips Senate obstructionists on mortgage reform: "...bankruptcy reform legislation is stalled in the Senate because of Republican opposition. Meanwhile, foreclosure filings — including notices of default, auctions and repossessions — rose again in the first three months of this year ... Republican opposition appears to have more to do with fund-raising than principle. The American Bankers Association and other lobbies remain opposed to the fix. Sam Geduldig, a lobbyist for several banking trade associations, recently told The Times’s Stephen Labaton and Eric Dash that as a minority party, Republicans will get 'professional donors and lobbyists to look at them in a different light,' if they show they can affect policy."
Stimulus Challenges
GAO, WH differ on stimulus status. WSJ: "The Government Accountability Office ... reported Thursday that states had yet to spend 'significant amounts' of transportation funding. It also said that only three states -- South Dakota, California and Illinois -- had completed the application process for getting aid to plug holes in their budgets under the 'State Fiscal Stabilization Fund.' ... By the middle of April, only two of the 16 states studied had agreed on how to spend more than half the [highway] money they have been allocated ... Vice President Joe Biden ... wrote that "stimulative spending is ahead of schedule" in a letter to the Senate homeland-security and governmental-affairs committee ... He said that a $400-a-year payroll tax credit was already going out to most workers, and that unemployed workers were getting increased benefits."
Stateline on distressed state budgets: "Even with federal stimulus dollars flowing into the states, many Americans will feel the pinch as states look to take a bigger cut from everyday activities to help balance budgets through 2010 that are in the red by more than $200 billion, new figures show ... At least a dozen states have either raised the sales or income tax or are seriously considering it. Hundreds of new or higher fees for a variety of services also are pending in nearly half of all states, which are scrambling for more revenue to offset plunging tax receipts."
Terrance Health contributed to the making of this Breakfast.
