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Economy

CFTC Chairman Advocates Tighter Derivatives Reform: ‘Exemptions Will Only Come Back To Haunt Us’

Next week, Congress returns from its Memorial Day recess, meaning that the conference committee that will reconcile the House and Senate versions of financial regulatory reform will begin to meet. And one of the most contentious areas will be reform of derivatives, the instruments that played a large role in the collapse of many large financial firms, most notably AIG.

Successful derivatives reform will be achieved if a significant amount of trading is forced to go onto public exchanges (like those used for stocks) and through clearinghouses (which act as middlemen, ensuring that both sides have adequate collateral). On this measure, the Senate bill is stronger, as it forces all standardized derivatives onto exchanges and puts all customized derivatives through clearinghouses. There are exemptions for non-financial companies, which allow them to avoid the requirements, but they are narrow in scope.

The House bill, meanwhile, has much wider exemptions, which has led the banking industry — and its allies at the Chamber of Commerce — to push for the House language, and argue that more, larger exemptions are in order. Yesterday, Gary Gensler, the Chairman of the Commodity Future Trading Commission (which polices derivatives), weighed in strongly against those exemptions, saying that they will “come back to haunt us in the future”:

Language in the House bill may be read to provide for a more liberal exemption for entities using derivatives to hedge commercial, balance sheet or operational risk, which could leave a larger class of transactions out of a clearing requirement – including those between two financial entities…Every exemption for financial companies creates a link in the chain between a dealer’s failure and a taxpayer bailout. Every slice of the financial system that we cut out through an exemption could allow one bank’s failure to spread like fire throughout the economy. It is essential that financial reform does not allow loopholes that leave interconnectedness in the system. Such exemptions will only come back to haunt us in the future.

Even House Financial Services Chairman Barney Frank (D-MA), who ushered the bill to passage in the lower chamber, isn’t pleased with the language. “I am not defending what we passed in the House,” he said. “I lost on a couple of votes that, if we were doing them now with the public attention we are getting without health care, we would have won.”

The overwhelming majority of derivatives trading is between financial firms, with no legitimate end-user hedging any risk (which is the whole reason for which derivatives were created). In fact, five large banks — JP Morgan Chase, Goldman Sachs, Bank of America, Citigroup, and Wells Fargo — account for 97 percent of the activity. The more exemptions exist, the easier it will be for these financial companies to exploit them. And in the end, a transparent marketplace that is free of fraud — which exchanges and clearinghouses help to create — will drive down prices of derivatives for companies that actually need them.

Health

What’s The Matter With Mississippi? State With Highest Poverty And Health Needs Coming Out Against New Law

Mississippi Governor Haley Barbour

Mississippi Governor Haley Barbour

In yesterday’s LA Times, Noam Leveyhighlighted the fact that the people who need health care insurance most, often live in states with the fewest means and the least interest in providing coverage or making care more affordable. States like Mississippi — which has “the highest poverty rate in the nation and some of the sickest people, with the country’s highest rate of heart disease and the second-highest rate of diabetes” — are more interested in suing the federal government over reform than expanding Medicaid or establishing the new health insurance exchanges, where residents can find subsidized coverage.

Under the new law, the federal government will kick in an estimated $9.9 billion over the next ten years to expand the Medicaid program, “enough to allow the state to cut in half the number of poor adults without insurance.” But as Levey discovered, the state government isn’t interested in implementing these measures:

For every dollar the state spends to expand healthcare for the poor, it stands to get as much as $20 from Washington. But state officials have been making it harder, not easier, to enroll in government-backed healthcare programs.

Republican Gov. Haley Barbour campaigned on a promise to cut the healthcare safety net to balance the state budget. Shortly afterward, Mississippi began requiring Medicaid recipients to submit to in-person interviews once a year, making it the only state with such a sweeping rule. In Tutwiler, the closest registration office is in nearby Sumner. It’s open one day a week, on Tuesdays, from 9 a.m. to noon and 1 p.m. to 3 p.m., as well as the third Wednesday of the month.

Barbour, who said recently that the healthcare overhaul “would prove disastrous” for Mississippi, has joined a lawsuit filed by GOP officials in several states seeking to overturn the law. For the little clinic near the banks of Hobson Bayou, that could mean more challenging days ahead.

The clinic that Levey profiles in his story treats so many uninsured patients it has to rely on donations and grants to keep its doors open. Its director, a Roman Catholic nun named Anne Brooks, is excited about the additional funding in the new law, but remains “doubtful the state’s leaders will take advantage of the federal help.” “I just know I have to see my patients,” Brooks said, as she reminisced about those she has treated, including the town’s former physician who rode through the bayous to see patients with a rifle on his saddle to fend off panthers. “It would be nice if someone could figure out a way to pay us for doing it.”

To be clear, the law does require states to spend extra dollars on Medicaid, but the additional spending is small compared to “increases in coverage and federal revenues and relative to what states would have spent if reform had not been enacted.” The federal government picks up the entire tab of Medicaid expansion until 2016 and will pay for 95% of the expansion in 2017, 94% in 2018, and 93% in 2019. Beginning in 2020, the federal government will fund 90% of the expansion. A recent Kaiser Family Foundation study found that Mississippi would have to spend $429 million on Medicaid between 2014 and 2019 (a 4.8% increase) to cover 320,748 thousands residents. The federal government would pick up the rest of the tab, financing 95.8% of the expansion.

Politics

The life BP CEO Tony Hayward wants back: ‘I don’t work weekends. … And I take all my holidays.’

tony-haywardLast Sunday, BP CEO Tony Hayward complained that the Gulf oil disaster that his company caused is taking up too much of his time. “I would like my life back,” he moaned. Days later, Hayward apologized for his remark. “I made a hurtful and thoughtless comment on Sunday when I said that ‘I wanted my life back.’” So what is it exactly that the oil giant CEO was missing? ABC News reports that he once told a company publication that he really values his free time:

What is the life Tony Hayward wants back? By all accounts, it was charmed, until Deepwater Horizon blew.

I don’t work weekends. … And I take all my holidays,” the British CEO once told a BP publication as he explained his affinity for triathlons and West Ham football. Sailing through the tropics and skiing in Vail, Colo., are annual rituals with his wife, a former BP geophysicist, and their two kids.

Yglesias

Endgame

We’re too drunk to feel it:

Gushing articles about how delicious Yang’s Fry-Dumpling in Shanghai is really ought to note that it no longer exists, and the entire block is now slated for demolition to become the home of a “New Business Hub.”

— Speaking of Shanghai, the slogan “Better City, Better Life” currently on banners everywhere to advertise Expo 2010, is pretty awesome.

— Is the Afghanistan peace process selling women out?

— A brain-dead public culture will necessarily disadvantage progressives.

— Jonathan Mark argues in Jewish Week that Israel should become more indiscriminate.

K-12 performance pay literature review.

— NPR brings the funny

Japandroids “Young Hearts Spark Fire”.

Politics

Rima Fakih: ‘I’m Miss USA, I’m not Miss Religion. … I think I’m misunderstood.’

As ThinkProgress previously documented, right-wing pundits reacted with rage to the crowning of Rima Fakih as Miss USA. The right highlighted her Muslim and Arab identity to label her as a terrorist sympathizer and the product of “an odd form of affirmative action.” Her victory has also set off a debate among many Muslims, with some questioning to what degree is she representative of Islam. Speaking for herself, Fakih said her message is: “Don’t stereotype Muslim women.” In an interview with Al Jazeera’s Riz Khan this weekend, Fakih confirmed that she is a Muslim, but noted that she does not like to respond to questions about her faith because other pageant contestants aren’t expected to answer similar questions. But, she added:

I mean, we all have in every religion – you have your conservative and your liberal. I think we all have a tendency to forget that. And one more thing, I’m Miss USA, I’m not Miss Religion. I’m not Miss anything else. I think I’m misunderstood if you understand what I mean.

Watch it:

Yglesias

Israel Cocoon Of Denial

Gregory Djerejian’s long post on the flotilla fiasco contains an important analysis of the continuing ideological delegitimization of Israel and Israelis’ cocoon of denial about its causes:

And last, while there are still other strategic setbacks besides, the continued de-legitimation of Israel among large swaths of global opinion coming out of the ’06 Lebanese conflict, the dismal Operation Cast Lead, the Goldstone Report, and now this latest debacle, is worth highlighting as well. I know, I know, everyone would be beating up on Tel Aviv anyway, we are told by those who are always at the ready to provide carte blanche style rationalizations for whatever conduct Israel might deem appropriate, and with whatever the consequences, but this seems too easy a retort, no?

At this point, if little old Jewish me says something critical of Israeli policy nobody is very interested. That’s just “the usual suspects” going at it again. But the fact of the matter is that my tendency to write in this vein has been responsive to events. It largely began with the attack on Lebanon, which struck me as continuous with the folly of the Iraq war, and intensified over time as Israeli policy has drifted further and further to the right. Or to put it another way, Ariel Sharon’s formation of the Kadima Party made me enormously hopeful that the formation of a center-right party that would isolate Bibi Netanyahu on the fringes of politics could lead to peace. Instead, Israeli politics has shifted so far right that Kadima is now a left-of-center opposition party, and Netanyahu governs in coalition with further-right elements.

Of course irrational bias against Israel is a real phenomenon, but the habit of deploying this concept to deflect criticism has blinded a lot of people to the real opinion dynamics in the world. It’s just stunning to me how swiftly Peter Beinart has been shifted (along with me, Ezra Klein, Eric Alterman, and a seemingly endless list of liberal American Jewish writers) into the category of “knee-jerk Israel-hater who we should dismiss.” And of course that’s to say nothing of how non-Jews (and even worse, Europeans!) who have bad things to say about Israel are treated. The problem with this isn’t that individual people are being treated poorly (I’m fine, Beinart is fine, even the much-slandered Steven Walt is fine) but that Israel seems increasingly sealed off from the notion that there’s a cause-effect relationship between Israeli actions and hostile public responses. All harsh criticism is by definition a manifestation of a worldwide anti-Jewish conspiracy that rather implausibly runs from Kenneth Roth to Richard Goldstone and has unaccountably intensified during a period when, by coincidence, Israeli politics took a hard right turn.

Which is perhaps a long way of introducing the idea that I hope people over there will read Spencer Ackerman’s review of Start-Up Nation and take it to heart, but I’m quite sure they won’t.

Climate Progress

As Oil Gushes, Information From BP Slows To A Trickle

Riser cap gusher
Oil gushes from the riser cap Friday afternoon.

According to a top BP official, the effectiveness of the latest attempt to capture oil from the Deepwater Horizon blowout will only be announced once every twenty-four hours. In a press briefing this afternoon, BP senior vice president Kent Wells discussed their latest attempt to capture some of the gushing oil using a funnel placed on the riser pipe at 11 PM last night. Wells refused to tell reporters how much oil and natural gas is being captured by the funnel and drawn to the Discoverer Enterprise, Transocean’s ultra-deepwater drilling ship.

Wells stated that BP arranged with National Incident Commander Thad Allen to only release information on how much oil is being captured once every 24 hours.

Wells said that he expects the success rate of the riser cap to be announced during Allen’s once-a-day briefings.

This is yet another case of the federal government allowing BP to limit information instead of oil damage — a pattern that has emerged as the public and press have unsuccessfully attempted to get clear answers about the blowout flow rate, the damage to wildlife, the status of undersea oil plumes, the toxicity of dispersants, claims processing, offers of assistance and and more. The live feeds from BP’s robot submarines were made public after over a month of wrangling and pressure from Congress.

The live data about the oil recovery efforts — such as pressure, flow rate, and chemical composition — should be made public immediately. Each bit of knowledge assists in the effort by the nation to comprehend and respond rapidly to this growing disaster.

This is a matter not just of public interest but of great financial significance — BP intends to sell the oil being collected for a potential revenue of more than $1.4 million a day.

Under sustained questioning, Wells finally admitted that the limiting factor of the recovery effort is not the flow rate of the gusher — still utterly unknown — but the capacity of the Discoverer Enterprise, which is 630,000 gallons (15,000 barrels) a day. That capacity is not expected to be reached for days, as most of the oil is still being vented into the ocean at the sea bed and injected with toxic dispersants. BP engineers intend to slowly close vents and increase the still-secret capture rate.

Also today, BP announced that it would be spinning off its disaster response efforts as a separate unit to be led by BP managing director Bob Dudley, who believes that CEO Tony Hayward is “doing a fantastic job” and believes that BP’s “spill responses at the surface now are being very, very effective.”

Yglesias

Results!

(cc photo by kevin dooley)

(cc photo by kevin dooley)

I agree with David Brooks that the Race to the Top program is pretty great, but having just been participating in a tedious listserve debate about this issue, I think the rhetoric deployed in this paragraph is counterproductive:

Third, the president has better aligned the education system with American values. In every other job in this country, people are measured by whether they produce results. For decades, that didn’t apply to schools, where people were rewarded even as student achievement stagnated.

The fact of the matter is that it’s simply not true that measurement by results is universal in American employment. For example, op-ed columnists at the New York Times are not paid via a rigorous assessment of their marginal impact on readership. Nor, for that matter, are New York Times reporters. In the internet world, it is feasible to compensate writers largely on the basis of the traffic they draw and some people are paid this way but that’s a new phenomenon in the world of media. What’s more, it’s a compensation scheme that most people find unpleasant to work under, so I think it’s unlikely that pure traffic-based performance pay will ever become the rule since, somewhat paradoxically, implementing strict performance pay seems likely to undermine performance. Similarly, I don’t think military units would function better if we had junior officers handing out differentiated performance-related bonuses to the soldiers under their command.

That said, Brook is right that we should change the way we pay teachers! Every year some teachers leave the profession and other teachers don’t leave the profession. And whether or not a given teacher quits teaching has some relationship to how much money he or she learns. Since it is possible to roughly measure how much a teacher’s students are learning, it makes sense to offer more money to teachers whose students learn a lot since that way teachers who are very good at teaching are less likely to leave than teachers who aren’t very good at it. But this wouldn’t somehow transform the labor market for teachers into one that’s just like “every other job in this country” and it’s very hard to see how you could achieve that goal or why you would want to. It just happens to be the case that there are some performance pay reforms to public school salary schemes that make sense.

Security

Taking Photos With Dictators

Barzani-BushMichael Rubin writes “On this, the one-year anniversary of Obama’s Cairo speech, the silence of the Obama administration in the face of backsliding on rights, freedom, and liberty in Kurdistan, Turkey, and Arab states such as Egypt and Yemen, is deafening”:

In recent weeks, independent journalists in Kurdistan have begun to receive cell phone death threats (as Sardasht did before his murder). When they have gone to security to lodge complaints, the journalists are harassed. It is now only a matter of time until more journalists are whacked. The victims are not insurgents nor violent Islamists, but rather liberals and the best of the new generation. Obama’s inaction is dangerous because, when administration officials like assistant secretary of state Jeffrey Feltman or U.S. congressmen on a junket take their photos with [Masud] Barzani, cynicism grows about perceived U.S. endorsement [of] dictators; this in turn encourages anti-Americanism.

I don’t disagree with Michael here on the Obama administration’s lack of follow-through on the promise of the Cairo speech, which I’ve found deeply disappointing, or with his concern about the increasing oppression in Iraqi Kurdistan. Nor do I disagree that cuddling up to dictators encourages cynicism and anti-Americanism (though isn’t it interesting how conservatives can make such claims without being accused of “blaming America”?) As you can see from the photo at right (Bush shaking hands with Barzani), Bush himself knew quite a bit about cuddling up to dictators.

I do disagree, however, with his use of “backsliding” here, as if George W. Bush left the region on a pro-democracy trajectory, which he most certainly didn’t. Back in January 2009, just as Bush was leaving office, Freedom House’s Freedom in the World report — its annual survey of global political rights and civil liberties — noted that “2008 marked the third consecutive year in which global freedom suffered a decline.”

In February of this year, RAND issued a report finding that the Iraq war, in addition to hurting U.S. credibility and influence in the Middle East, had hobbled democratic reform in the region. According to the report, Iraq’s continuing instability “has become a convenient scarecrow neighboring regimes can use to delay political reform by asserting that democratization inevitably leads to insecurity.” A rather grim verdict for Bush’s “freedom agenda,” the difficult consequences of which Obama now has to contend.

Politics

Defending Raghead Comment, South Carolina State Senator Says ‘We’re At War’ With Foreign Countries

Knotts2As many bloggers have noted, South Carolina state Sen. Jake Knotts (R) has been taking heat for calling an Indian-American gubernatorial candidate a “raghead.” “We already got one raghead in the White House, we don’t need a raghead in the governor’s mansion,” Knotts said of state Rep. Nikki Haley (R).

The South Carolina Republican Party quickly condemned Knotts’ slur, and he eventually issued an apology. “My ‘raghead’ comments about Obama and Haley were intended in jest,” Knotts said in a statement. He made the comments during an interview with the webcast Pub Politics, and defended himself by saying, “Bear in mind this is a freewheeling, anything-goes Internet radio show that is broadcast from a pub. It’s like local political version of Saturday Night Live.”

Pub Politics disagreed, saying Knotts’ hateful rhetoric “does not fit with our program and its goals.” They’ve announced that they won’t release the audio, but a better decision would be to post the clip of Knott’s comment on the Internet without airing the episode so that there’s a public audio record of Knott’s comment.

Knotts’ apology seems insincere. He “defended his remarks” immediately following the interview while talking to reporters, and upped his rhetoric then by calling Haley a “f**king raghead.” He then avoided retracting the comment, clarifying to say “he did not mean to use the F-word.” He also repeated his line about the “raghead in the White House,” and said, “This isn’t the first time I’ve said it.” Knotts went on to say that Haley — who was raised as a Sikh but later converted to Christianity — was not Christian enough to govern South Carolina, and that she was being directed by a secret cabal of Sikhs:

Knotts says he believed Haley has been set up by a network of Sikhs and was programmed to run for governor of South Carolina by outside influences in foreign countries. He claims she is hiding her religion and he wants the voters to know about it. [...]

“We need a good Christian to be our governor,” he said. “She’s hiding her religion. She ought to be proud of it. I’m proud of my god.”

Knotts says he believes Haley’s father has been sending letters to India saying that Haley is the first Sikh running for high office in America. He says her father walks around Lexington wearing a turban.

We’re at war over there,” Knotts said.

Asked to clarify, he said he did not mean the United States was at war with India, but was at war with “foreign countries.”

Knotts’ hateful slur may cost him his career. Former Lexington County GOP chairwoman Katrina Shealy told CNN today that “Knotts’ ‘raghead’ remark prompted her to make a very early entry into the race that won’t happen for two years.” “The political climate out there is so ugly. I am sick and tired of the negative politics,” Shealy said. Eighty percent of people on a local TV station’s poll said Knotts should be “officially reprimand.”

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