D-Day

Not Buying It

2009-07-16T15:47:00.000-07:00

Jeremy Scahill raises objections to the Democrats' anger over a secret CIA program to allegedly assassinate Al Qaeda leaders.

Partisan politics often require selective amnesia. Over the past decade, we have seen this amnesia take hold when it comes to many of President Bush's most vile policies. And we are now seeing a pretty severe case overtake several leading Democrats. It makes for good speechifying to act as though all criminality began with Bush and -- particularly these days -- Cheney, but that is extreme intellectual dishonesty. The fact is that many of Bush's worst policies (now being highlighted by leading Democrats) were based in some form or another in a Clinton-initiated policy or were supported by the Democrats in Congress with their votes. To name a few: the USA PATRIOT Act, the invasion of Iraq, the attack against Afghanistan, the CIA's extraordinary rendition program, the widespread use of mercenaries and other private contractors in US war zones and warrant-less wire-tapping.

Regarding the Bush-era assassination program, there is great reason to be skeptical that the program CIA Director Leon Panetta alleges was concealed from Congress is actually the program the public is currently being led to believe it is. Why would the CIA need to conceal a program that never was implemented and, if it never was implemented, why did Panetta need to shut it down? Moreover, who was running this inactive program from the minute Obama was sworn in until June 24 when Panetta supposedly announced its cancellation? This program -- as it is currently being described -- should hardly be a major scandal to members of the House and Senate Intelligence Committees, as some are now treating it. As they well know, President Obama has continued the Bush targeted assassination program using weaponized drones and special forces teams hunting "high value targets." As former CIA Counter-terrorism chief Vincent Cannistraro and others have pointed out, "The CIA runs drones and targets al Qaeda safe houses all the time." Cannistraro told Talking Points Memo that there is no important difference between those kinds of attacks and "assassinations" with a gun or a knife.

Except no Democrat has actually talked about the nature of the program. They have raised anger at having the secret program concealed from Congress, apparently at the behest of Dick Cheney. But no Democrat has ratified the print media's take that the program in question concerned targeted assassination squads. And these stories just keep on coming. The AP writes that George Tenet cancelled the hit squads, because he found the details problematic. The American Conservative discussed the program and how it ran into trouble in Kenya. The Washington Post fingers the hit squad policy as the one Cheney ordered kept from Congress, saying that it never reached more than an aspirational stage. Then they contradicted themselves on that point today, claiming that CIA officials were about to activate the plan when Leon Panetta found out about it and ordered it terminated. In the same article, Dennis Blair, the Director of National Intelligence, said that the CIA didn't break the law in concealing an aspirational program from Congress, which Jan Schakowsky rebuked, but only on the technical grounds of withholding classified information.

There is no reason to believe, in my view, that this particular program is the same as the one that has raised Congress' ire. There may have been an assassination squad program; it's apparently been reported as far back as 2001. But nobody really knows what program Panetta closed with a flourish and reported to Congress, and those who think they do are either speculating or getting information from unreliable sources. It defies belief that Dick Cheney, on the ropes for ordering the CIA to hide information from Congress, would hide this particular information, in continuity with what past Administrations have done. And it defies belief to think that dozens of sources would come out of the woodwork on Cheney to describe a program of "killing bad guys," which is very favorable to the former Vice President. Nope, this was something bigger. Much bigger.

Movement

2009-07-16T15:19:00.000-07:00

Regardless of the Blue Dog pushback and all the other slings and arrows lodged at health care, some potentially big news has come down in the past 24 hours.

First, the Congressional Progressive Caucus has produced the names of 50 members who will not vote for health care without what they call a "robust public option." Robust is in the eye of the beholder, of course, and the one the House proposed would only cover 9 million or so people, which may not be enough to reverse incentives in the industry, but they drill down pretty far into the meaning of robust:

Enact concurrently with other significant expansions of coverage and must not be conditioned on private industry actions.

Consist of one entity, operated by the federal government, which sets policies and bears the risk for paying medical claims to keep administrative costs low and provide a higher standard of care.

Be available to all individuals and employers across the nation without limitation

Allow patients to have access to their choice of doctors and other providers that meet defined participation standards, similar to the traditional Medicare model, promote the medical home model, and eliminate lifetime caps on benefits.

Have the ability to structure the provider rates to promote quality care, primary care, prevention, chronic care management, and good public health.

Utilize the existing infrastructure of successful public programs like Medicare in order to maintain transparency and consumer protections for administering processes including payment systems, claims and appeals.

Establish or negotiate rates with pharmaceutical companies, durable medical equipment providers, and other providers to achieve the lowest prices for consumers.

Receive a level of subsidy and support that is no less than that received by private plans.

Ensure premiums must be priced at the lowest levels possible, not tied to the rates of private insurance plans.

In conclusion, the public plan, like all other qualified plans, must redress historical disparities in underrepresented communities. It must provide a standard package of comprehensive benefits including dental, vision, mental health and prescription drug coverage with no pre-existing condition exclusions. It must limit cost-sharing so that there are no barriers to care, and incorporate up-to-date best practice models to improve quality and lower costs. All plans, including the public plan, must include coverage for evidence-based preventive health services at minimal or no co-pay. All plans, including the public plan, should be at least as transparent as traditional Medicare.

I now think that the public option will be a feature of whatever gets signed by the President. The House is providing a progressive firewall, and most of the objections of the Blue Dogs and others are over other aspects of the bill. What's more, the American Medical Association, scourge of universal health care for decades, has blessed the House bill, which is remarkable.

And that makes it a pretty big deal. No, the AMA is not as powerful, nor as representative of the medical community, as it once was. But an unqualified endorsement for the most liberal plan out there has large symbolic value, given the role AMA played in killing health care reform for most of the 20th Century.

So what's in it for the docs? The medical community came into this debate with two big concerns. One is the financial and emotional burden of malpractice lawsuits. The other is the annually scheduled reduction in Medicare payments, known as the Sustainable Growth Rate (SGR) formula, that the AMA and other physicians lobbies end up fighting every summer when it's about to take effect [...]

Changing the SGR is expensive, probaby $200 to $300 billion over the course of ten years, depending on the details. And that's on top of the cost of expanding insurance coverage. But, to be clear, the SGR adjustments were becoming a farce. If they are part of a package that includes payment reforms designed to improve quality and reduce health care costs over the long run, it'd be money well spent.

Nobody in Washington supports legislation without getting something for themselves, but I agree with Cohn that this looks like a decent enough deal.

And now, the Senate Finance Committee thinks his committee will have a deal on his bill by the end of the day.

Senate Finance Committee Chairman Max Baucus (D-Mont.) said Thursday that he hopes to have a bipartisan deal on a health care reform bill by the end of the day.

He made the remarks after huddling for about two hours with five Finance Committee members most closely involved in the negotiations. It was the first time Baucus acknowledged a time frame for reaching an agreement.

“We are meeting very aggressively today,” Baucus said of the bipartisan group, which plans to meet again at 1:30 p.m. “We will keep meeting all day long. I hope we can reach some kind of agreement by the end of the day, but having said that, it depends on what kind it is.”

If the Finance Committee can get a bill reported out, suddenly the chances of a bill become much greater. What form that bill will take, of course, is open for debate.

AP Has "The Math"

2009-07-16T14:34:00.001-07:00

You may have heard about the Associated Press citing an unnamed Democratic source to price the House Tri-Committee health care bill at $1.5 trillion dollars over 10 years, rather than the $1 trillion dollar number used by the Congressional Budget Office. This has seeped into the conservative mainstream and even other news outlets. Where is it coming from? Brian Beutler reports:

The Congressional Budget Office score of $1.04 trillion that the Democrats cite is the figure for the new health insurance "exchange."

However, that is a net figure, including about $237 billion in revenue raised from employer and individual mandates -- fees paid by those who don't provide or purchase care. Therefore, if you look at costs, the score on that is about $1.27 trillion.

There is also a separate piece of the bill covering Medicare. It includes about $350 billion in new spending (the biggest single piece is for the so-called "doc fix," which involves the payment rate to doctors under Medicare).

This looks to me like the AP worked up some analysis after the fact, once that unnamed Democratic source whispered in their ear. I'm not sure if I agree totally with it, but the Congressional Budget Office is generally seen as the arbiter on costs of legislation. If they have not completed its score, you call their bill a partial score. You don't throw out your own analysis and parcel out parts of the legislation and just put together your own numbers. Or that is, you can, but you might want to say they're your own numbers instead of the numbers. Really irresponsible journalism.

Question: when a CBO score is incomplete and favored toward conservatives, does the AP go rogue then and put its bean-counters to work reducing the cost?

CalPERS Goes After The Rating Agencies

2009-07-16T13:07:00.000-07:00

People are justifiably worried that credit ratings agencies like Moody's, Fitch and S&P have lowered California's credit ratings to near-junk bond status. The nature of the way we pay our bills means that we will eventually have to access bond markets to borrow, and these low ratings will dramatically increase the cost of that borrowing. I've said often that the risk of default on any bond issue, as a Constitutional matter, is infinitesimal, yet in this case, the rating agencies are being overly conservative and reflecting the fears of Wall Street.

And yet the rating agencies are not independent actors. They are owned by banks who issue the securities they rate, and throughout the financial meltdown, they continued - almost until the end - to rate mortgage-backed securities filled with subprime loans at the highest quality, facilitating the buying frenzy. In fact, the rating agencies structured many of the deals in order to ensure high ratings, intervening in the market for those securities instead of dispassionately assessing them. Now CalPERS, the largest public pension fund in the country, which has been hammered by losses in the stock market, is suing those rating agencies for their gross negligence.

The lawsuit blames the three big Wall Street credit rating agencies Moody's Investors Service, Standard & Poor's and Fitch Ratings for effectively luring CalPERS into a series of disastrous 2006 deals by giving the investments "wildly inaccurate and unreasonably high" grades.

The investments have gone bust at a cost of "perhaps more than $1 billion," said the California Public Employees' Retirement System in the suit, filed last Thursday in San Francisco Superior Court.

The losses represent a small portion of the roughly $60 billion CalPERS has lost in the past year due to declines in its stocks, real estate and other holdings. The losses are so steep that CalPERS has served notice that it will demand higher contributions from the state and the local governments that rely on the fund for pensions.

As a large industry actor, CalPERS has some ability to move policy in the financial world. And they are hitting one of the biggest targets here. Barry Ritholtz explains further:

Now, here comes the fun part: Calpers doesn’t give a rat’s ass about the money. Sure, the financial instruments at hand (Cheyne Finance, Stanfield Victoria Funding and Sigma Finance) have defaulted on their payment obligations. The losses to Calpers are ~!$1 billion.

But that’s not what’s going on here: These Left Coasters want their pound of flesh. They don’t care for the Ratings Agency folks, and consider them a blight on the investment landscape.

The goal of the litigation (as I see it) isn’t to make the rating agencies pay a financial penalty; rather, it is to publicly try them just as the regulatory rules are being rewritten. I also predict that CALPERS is going to attempt to not just win, but humiliate these agencies, call them out in the most embarrassing way possible, trash the senior executives, and make things very uncomfortable in general for these firms.

They don’t want them to merely suffer — they want to destroy their unique position as an Oligopoly, to remove them from having a special status under the SEC rules.

The credit rating agencies are a FRAUD, and I would argue that this downgrading of California bonds regardless of Constitutional dictates represents a furthering of that fraud. CalPERS is fighting back on principle, because the relationship between the rating agencies and the financial industry they are supposed to serve is among the sleaziest on Wall Street.

Under Phil Angelides, CalPERS used its considerable clout to move toward progressive reforms in the financial industry. Bill Lockyer has done less of this. But I'm glad to see the fund standing up on behalf of not only its clients, but every investor, against the near-criminal structure of these rating agencies.

Peter Bergen On Afghanistan

2009-07-16T12:43:00.000-07:00

Stanley McChrystal, the COINdinista commander of forces in Afghanistan, still wants to push for more troops despite Obama Administration demurrals. He has jurisdiction over Afghanistan and not the big picture, so it's to be expected that he would argue for more troops to wage his personal war. The President needs to see the full extent of military policy, and must weigh costs and benefits. I personally believe we can do a lot more by reducing the corruption and lawlessness in the current Afghan government (including removing warlords who kill prisoners with impunity) and working toward economic development instead of playing Whack-a-Mole with insurgents that can be brought into the political process and an Al Qaeda faction that can be contained through local law enforcement and intelligence sharing.

That said, I am interested by Peter Bergen's assessment of the war.

But the growing skepticism about Obama’s chances for success in Afghanistan is largely based on deep misreadings of both the country’s history and the views of its people, which are often compounded by facile comparisons to the United States’s misadventures of past decades in Southeast Asia and the Middle East. Afghanistan will not be Obama’s Vietnam, nor will it be his Iraq. Rather, the renewed and better resourced American effort in Afghanistan will, in time, produce a relatively stable and prosperous Central Asian state [...]

The similarities between the Taliban and the Vietcong end with their mutual hostility toward the U.S. military. The some 20,000 Taliban fighters are too few to hold even small Afghan towns, let alone mount a Tet-style offensive on Kabul. As a military force, they are armed lightly enough to constitute a tactical problem, not a strategic threat. By contrast, the Vietcong and the North Vietnamese Army at the height of the Vietnam War numbered more than half a million men who were equipped with artillery and tanks, and were well supplied by both the Soviet Union and Mao’s China. And the number of casualties is orders of magnitude smaller: in Afghanistan last year, 154 American soldiers died, the largest number since the fall of the Taliban; in 1968, the deadliest year of the Vietnam conflict, the same number of U.S. servicemen were dying every four days. Estimates of the total civilian death toll in Vietnam are in the low millions, while estimates of the total number of Afghan civilian casualties since the fall of the Taliban are in the thousands.

Nor has the U.S. intervention in Afghanistan been anywhere near as expensive as Vietnam was—in fact, that’s in part why American efforts have not met with as much success as they could have. During the Vietnam War, the United States spent almost 10 percent of its GDP on military spending. Today’s military expenditures are somewhere between 4 and 5 percent of GDP, and of that, Afghanistan last year consumed only 6 percent of the total expenditure, while Iraq sucked up some five times that amount.

I think a lot of Bergen's points are stuck in the world of a few years ago in Afghanistan than in today. He says Karzai is still relatively popular - that has waned. He says that Afghans still welcome US troops - that is less clear now. He says we have not made a major troop commitment - but it's growing, and McChrystal wants it to grow even further. He says that more troops will reduce airstrikes and civilian casualties - but precisely the opposite has happened so far. He says the Taliban don't have the manpower to take over the country - and on this point he's right, but that's not necessarily an argument for staying. Rather, the Taliban have their Pashtun strongholds which will be hard to defeat, and the rest of the country's ethnic factions will be hard for the Taliban to co-opt. That's a stalemate - or in other words, a quagmire.

Bergen does criticize policy toward Pakistan, which is of course the elephant in the room as it relates to Afghanistan policy, but thinks that militants there have made fatal mistakes and are seeing the citizenry turn on them. I actually kind of agree with this, but whether the Pakistani military, a powerful force in the country, is fighting the homegrown Taliban while aiding and abetting the Afghan version is of concern.

I think Bergen's article is worth reading to test assumptions and challenge biases, but I was left unconvinced. If Obama holds firm to a policy against future escalation, I may be persuaded.

Cost Control Is A Political Problem

2009-07-16T11:59:00.001-07:00

Doug Elmendorf, who runs the Congressional Budget Office, testified today that the health care bills under suggestion in Congress would increase public health care spending and continue to threaten the long-term budget outlook.

Under questioning by members of the Senate Budget Committee, CBO director Douglas Elmendorf said bills crafted by House leaders and the Senate health committee do not propose "the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount."

"On the contrary," Elmendorf said, "the legislation significantly expands the federal responsibility for health-care costs."

Though President Obama and Democratic leaders have said repeatedly that reining in the skyrocketing growth in spending on government health programs such as Medicaid and Medicare is their top priority, the reform measures put forth so far would not fulfill their pledge to "bend the cost curve" downward, Elmendorf said. Instead, he said, "The curve is being raised."

To which I respond, of course. This is the fundamental problem with health care reform that I've mentioned earlier. Nobody wants to do the trade-offs. There are plenty of cost-control options on the table. One would be capping or eliminating the employer deduction on health benefits, which Elmendorf cites as "a federal "subsidy" that encourages spending on ever more expensive health packages." Another would be putting public health reimbursement rates into the hands of MedPAC and away from the parochial concerns of Congress members, which leads to overpaying for providers in many cases (though lots of Medicaid and Medicare reimbursement rates are low). There are comparative effectiveness reviews that would sweep away ineffective treatments that are too expensive relative to their benefit. There are proposals to change the long-term pay structure of Medicare for providers, away from fee-for-service and toward primary care emphasis and bundled payments. There's the option to make insurers pay the negative externality of denying care by slapping an operating fee on them. And there's a public option that can use Medicare bargaining rates, which would lower costs by 20-30% per individual.

But the unions don't want to break up the inefficient employer-based system and put their gold-plated insurance policies at risk. Congresscritters don't want to lose the power to set Medicare reimbursement rates for their localities. Device makers and their allies want to ensure that their devices aren't rendered useless through research and study. Doctors and hospitals and insurers all want to preserve their profits. And nobody is intellectually honest enough to call for cost controls and a public option that would legitmately drive costs down. Harry Reid's rejoinder is instructive:

Senate Majority Leader Harry M. Reid (Nev.) dismissed Elmendorf's push for the benefits tax. "What he should do is maybe run for Congress," Reid said.

The truth is that we have too shitty a political system right now to get real reform. We might get it incrementally, and can build on it. But the CBO isn't saying anything people don't know. It's just that politicians are afraid to lead.

Goldman's Record Taxpayer-Subsidized Profits

2009-07-16T11:32:00.000-07:00

Matt Taibbi's excellent reported piece on Goldman Sachs is now online, and he's created a kind of sequel with this piece about Goldman's big profits, mostly the result of handout after handout from the Feds:

Last year, when Hank Paulson told us all that the planet would explode if we didn’t fork over a gazillion dollars to Wall Street immediately, the entire rationale not only for TARP but for the whole galaxy of lesser-known state crutches and safety nets quietly ushered in later on was that Wall Street, once rescued, would pump money back into the economy, create jobs, and initiate a widespread recovery. This, we were told, was the reason we needed to pilfer massive amounts of middle-class tax revenue and hand it over to the same guys who had just blown up the financial world. We’d save their asses, they’d save ours. That was the deal.

It turned out not to happen that way. We constructed this massive bailout infrastructure, and instead of pumping that free money back into the economy, the banks instead simply hoarded it and ate it on the spot, converting it into bonuses. So what does this Goldman profit number mean? This is the final evidence that the bailouts were a political decision to use the power of the state to redirect society’s resources upward, on a grand scale. It was a selective rescue of a small group of chortling jerks who must be laughing all the way to the Hamptons every weekend about how they fleeced all of us at the very moment the game should have been up for all of them.

Goldman's profits only count as "profit" if you consider a pass-through federal subsidy to AIG, quick and easy loans and multiple bailout programs made available to them by the FDIC and the Fed after converting themselves into a bank holding company, the forced collapse of much of its competition and fees from stock issuance from other banks having to repay TARP to be something based on hard work and ingenuity and not political connections and corporate welfare.

But what's most amazing about all of this is how Goldman Sachs is taking all this federal largesse and plowing it back into the market at HIGHER rates of leverage than even during the crisis which amount burnt down the entire financial system:

As Felix Salmon notes, Goldman last year, after it converted to bank holding company status, announced that it was “taking steps to reduce leverage.” But what’s happened since then is that Goldman has actually been emboldened by all its state backing to borrow more and gamble more than ever. This is the equivalent of a regular casino gambler who hears that the house has doubled down on his credit line and decides to stay up at the tables all night, instead of going home and sobering up. Just look at Goldman’s VaR, or Value at Risk, which measures the amount of money the bank puts at risk on any given day: it’s soared since last year.

Taken altogether, what all of this means is that Goldman’s profit announcement is a giant “fuck you” to the rest of the country. It is a statement of supreme privilege, an announcement that it feels no shame in taking subsidies and funneling them directly into their pockets, and moreover feels no fear of any public response. It knows that it’s untouchable and it’s not going to change its behavior for anyone. And it doesn’t matter who knows it.

And meanwhile, out in the country, unemployment will top 10 percent soon, and lots of people will be wondering why those Wall Street profits haven't trickled down.

Ian Welsh has a lot more.

Wanted: More Reform In This Reform

2009-07-16T10:38:00.001-07:00

For liberals, the public option has become a line in the sand. Given that the public option is carefully circumscribed and not open to everyone who may want to choose it, I find that more curious than ever.

President Obama and leading Democrats have stressed that people who like their employer-sponsored insurance would be able to keep it, under a health care overhaul. But they haven't emphasized the flip side: That people who don't like their coverage might have to keep it.

Under the main health bills being debated in Congress, many people with job-based insurance could find it difficult to impossible to switch to health plans on a new insurance exchange, even if the plans there were cheaper or offered better coverage. The restrictions extend to any government-run plan, which would be offered on the exchange [...]

Democratic lawmakers and administration officials say the restrictions are critical to maintaining a strong employer-based insurance system, which covers 158 million Americans.

But critics argue that the rules run counter to suggestions from health care reform advocates that an overhaul could provide people with a broader choice of insurance options. The rules, they say, could be especially unfair to some lower-income workers who are enrolled in costly job-based insurance. Also, they argue, the restrictions would hurt the proposed public plan by limiting enrollment.

Why are the Democrats putting up these firewalls? For years now, they have professed to have learned the lessons of 1994 by stating that "if you like what you have, you can keep it." That's been called the "beauty" of the current plan by people like Howard Dean. But what it means on a practical level is that the employer-based system, with all its inefficiency, must be sustained, in this case through forcing workers to accept their employer-based coverage. There are other reasons, too, which Ezra Klein lays out.

The political reason is that people like what they have, or are at least scared of what they don't know, and are thus skeptical of any health-care reform plan that would change their current arrangements. One of the goals of health-care reform, in fact, is to maximize employer-based coverage, which will be accomplished through the employer mandate. If employers could simply move over to the exchange -- which would probably be quite a bit cheaper for them -- then a lot of people will find their current insurance changing, and reformers don't want that.

The economic reason is that the exchange is where the subsidies live. If you make $30,000 but you work full-time for The Washington Post, The Washington Post pays for the bulk of your health-care coverage. If you were moved over to the exchange, you'd be eligible for pretty significant subsidies. That would make health-care reform costlier to the government, which would in turn make it tougher to pass. Another way of putting this is that the fewer people on the exchange and using subsidies, the cheaper health-care reform will be.

And the policy reason is that if the exchange is open to all employers in the first year, it's likely that the employers having trouble affording health-care insurance -- that is to say, the employers with sicker and older workforces -- will quickly buy in, while the young, cheaper employers won't. That could leave the exchange with a bad risk pool and thus high costs.

It's important to note that Ron Wyden is trying to change this. He's trying to allow individuals who get coverage through employers the choice to buy coverage through the insurance exchange. It's technical, but something that progressives ought to get behind.

But this issue with the insurance exchange firewalls is symptomatic of a lot of the moving parts of the health care debate. Reformers want to cut the internal costs from the current system, and are making deals with providers to do so. But in so doing they're giving up even bigger potential cost savings.

If only that were true. Far from being "game-changers," those agreements are the same old Washington game of bribes, backroom deals, profiteering and protectionism -- and a harbinger of what health care will look like if the president’s reforms succeed.

In June, the pharmaceutical lobby PhRMA agreed to give 50 percent discounts to seniors in Medicare's "doughnut hole," where enrollees now pay 100 percent of their drug costs. President Obama hailed the agreement as a "significant breakthrough," while PhRMA spun it as their $80 billion contribution toward health care reform.

Yet the PhRMA agreement would not save taxpayers $80 billion. It would cost them $80 billion, and then some.

Under the agreement, the full price of each drug would continue to count toward seniors' catastrophic deductible. As a result, even more seniors would exceed that deductible, after which taxpayers would pay 95 percent of their drug costs. Obama also agreed to oppose stricter price controls for government purchases. PhRMA members agreed to cut their prices for seniors only because Obama agreed that taxpayers would buy more drugs at higher prices.

I know, it's from Cato, but the guy's not totally wrong. For instance, in the Senate HELP Committee markup, biologic drugs were given 12 years of patent protection before competition from generics kicks in. This was a defeat for the Obama Administration, but even the victories have strings attached.

Even the revenue mechanism in the House, a surtax for the wealthy, is the result of a political concession, albeit one that Republicans walked into and ought to own (Republicans demonized sensible taxes for so many years that wealth taxes are really all that's left). The truth is that we have this fundamental paradox in the health care debate.

And that's pretty much where we are now. Democrats are making a lot of bad policy compromises because doing so is good politics. They're trying to fund the bill in the way pollsters would advise rather than policy wonks would choose. They're leaving the employer-based system alone. They're letting everyone keep what they have, even though what everyone has is expensive and inefficient, and is in fact the reason we need health-care reform.

Is it worth being disappointed about that? Sure. But legislation cannot be understood in a vacuum. The place to change the tax argument isn't in final days of health-care reform. It's in the intervening years when Republicans are attacking the very idea of taxation. Any given piece of legislation is only as good as the political culture that's produced it. Right now, our political culture isn't that good. The question is whether legislators are getting the best plausible outcomes out of a badly compromised process.

As Ezra says, we have a terrible political culture, and you're starting to see the results. If 30 million Americans get health insurance and you don't add a penny to the debt, you make that deal. And cementing something like a public insurance option into policy, given that it can only expand, which is an easier lift politically, is a good bargain as well. But the counter-intuitive compromises are a bit hard to take.

Successful Voter-Approved Program Steps In To Bail Out Failed State

2009-07-16T10:09:00.001-07:00

On May 19, voters were asked to divert money from First Five programs to pay for General Fund expenditures. The argument was that First Five had a reserve that was just "sitting around" and they should give up some of that money, earmarked for children's programs, to pay for the budget. At Calitics, we called this the "if it ain't broke, break it" proposition. First Five, financed by a tax on cigarette sales, was well-funded and able to make multi-year program projections, so that the programs started up were not in perpetual fear of being dropped.

One of the values of First Five is that they can seek out other programs affecting children and contribute to them, in keeping with their mandate. And that is what they have voluntarily agreed to do with respect to the Healthy Families program, California's version of S-CHIP.

Meeting in Sacramento this afternoon, the First 5 California Children and Families Commission agreed to help the Healthy Families Program, which faces a $90 million General Fund shortfall in 2009-10. But the Commission declined to commit to a specific level of financial assistance. As a result, it appears all but certain that the enrollment freeze approved last month by the Managed Risk Medical Insurance Board, which oversees Healthy Families, will take effect on Friday, July 17.

In a resolution, the First 5 Commission committed “to join with like-minded public and private partners, including but not limited to health plans and philanthropic organizations, to provide financial assistance in Fiscal Year 2009-10 to the extent practicable and feasible…to ensure young children have access to affordable health insurance coverage.” This commitment, however, “is contingent upon the availability of funds in the applicable First 5 California accounts.”

I wish that First Five would have chosen a specific funding level, which could have rolled back the enrollment freeze. Still, they are making a commitment to help provide health insurance to needy children, one they couldn't have made if the state clawed back some of their money in the May 19 election. This way, First Five can target the money and keep in line with what the voters asked from them - to use their revenue to provide needed services for children. The state could have used that money for anything if they skimmed it off the top.

People often wail about ballot-box budgeting and the broken initiative process in the state, and to an extent I agree with them. But First Five is an example of GOOD ballot-box budgeting. It has a dedicated funding source, it's well-managed and well-capitalized, and it has the ability to make contingencies. If the structure of state government fails to allow increased revenue to pay for needed services, it's perfectly logical to go outside that process and produce dedicated sources of funding. It shows the virtue of a balanced approach. I don't necessarily want the ballot to do all of Sacramento's work for it, but the broken system of government sometimes leaves no choice.

F-22 Intrigue

2009-07-16T09:31:00.001-07:00

The debate in the Senate over additional funding for the F-22 (even if this funding is cut, we'll have 187 of the fighters available) took a turn last night.

Senator Levin for some reason withdraws his amendment to strike funding for the F-22 fighter that the President wants discontinued and over which he threatens a veto of the bill. And hate crimes legislation finally finds a legislative vehicle to be attached to. Only it's... the bill the President threatens to veto if the F-22 money isn't struck. That ain't gonna go over well, if anyone's looking. I don't know if there's any other effort underway besides Levin's to strike that F-22 funding. We'll see. Meanwhile, Senator Reid has done what needs doing to clear the decks for a vote on the hate crimes amendment. He's filled the amendment tree and filed for cloture [...]

I'd hate to see them stay until one in the morning on Friday to get this done, only to attach it to a doomed bill. But maybe it's not so doomed if this is attached. Maybe that's the thinking. To trade the president the hate crimes salve he promised the LGBT community after the DOMA brief fiasco in exchange for his letting the F-22 authorization escape the veto. Slick!

The White House appears serious enough about removing the additional F-22 funding that I suspect the amendment will return in some form, if not in conference committee. Peter Orszag also objects to $438.9 million in funding for a new engine for the Joint Strike Fighter, which has a perfectly good engine already. And the F-22 funding is being assailed in print media, both in this NYT op-ed:

The plane, the most expensive jet fighter ever built, was designed for cold war aerial combat. Defense Secretary Robert Gates has repeatedly argued that the Pentagon needs to phase out such high-cost, outdated programs so it can buy the kinds of weapons that American troops desperately need to complete their mission in Iraq and defeat the Taliban and Al Qaeda in Afghanistan.

The F-22 has not been used in either war. Buying more would only make it harder for the Air Force to shift money into aircraft like unmanned intelligence drones and the more adaptable, cheaper-to-fly F-35 fighter, which is set to begin production in 2012 [...]

Providing for America’s real defense needs is expensive enough without making the military budget double as a make-work jobs program. Capping the F-22 program at 187, as the Pentagon wants, would keep production lines intact for years to come, well beyond the immediate need for stimulus-related job creation.

Not to mention this reported piece in WaPo (h/t Hilzoy why the hell are you leaving blogging!!!), detailing all the failures of the F-22 as a vehicle:

"The United States' top fighter jet, the Lockheed Martin F-22, has recently required more than 30 hours of maintenance for every hour in the skies, pushing its hourly cost of flying to more than $44,000, a far higher figure than for the warplane it replaces, confidential Pentagon test results show. (...)

"It is a disgrace that you can fly a plane [an average of] only 1.7 hours before it gets a critical failure" that jeopardizes success of the aircraft's mission, said a Defense Department critic of the plane who is not authorized to speak on the record. Other skeptics inside the Pentagon note that the planes, designed 30 years ago to combat a Cold War adversary, have cost an average of $350 million apiece and say they are not a priority in the age of small wars and terrorist threats.

The plane is literally "vulnerable to rain." And we spend $1.7 billion a piece for them.

So I think the F-22 funding will come out, by hook or by crook. But here's the really interesting part of the defense bill:

The Obama administration has objected to a provision in the 2010 defense funding bill currently before the Senate that would bar the military's use of contractors to interrogate detainees.

The provision, strongly backed by Senate Armed Services Committee Chairman Carl M. Levin (D-Mich.), describes interrogations as an "inherently governmental function" that "cannot be transferred to contractor personnel." It would give the Defense Department one year from the bill's enactment to ensure that the military had the resources to comply with it.

A White House policy statement yesterday signaled "many areas of agreement" with the bill that emerged from Levin's committee late last month but said the administration has "serious concerns" about some provisions. The statement repeated Obama's threat to veto the $680 billion bill unless $1.75 billion to fund an additional seven F-22 fighter aircraft is removed.

The more that we privatize interrogation, the more likelihood that those less accountable contractors sully America through torture. We can absolutely meet the needs of intelligence gathering without using CACI or other contractors, and it's sad to see the Obama Administration fight this provision.

Basically, there's a whole lot tied up in this bill at the moment. I could see nothing passing and defense funded under last year's agreement. Which would be a net loss and a missed opportunity at reform, not to mention a loss for the hate crimes bill.

Color Me Surprised

2009-07-16T08:29:00.001-07:00

No bailout for CIT. Reserved for the 20 richest banks in the world, thank you very much.

CIT Group Inc. shares tumbled more than 75 percent Thursday morning as its inability to get emergency government funding raised expectations that the commercial lender will file for bankruptcy protection.

But it is unclear how such a filing by a company that lends to thousands of small and mid-size businesses would affect shaky financial markets hobbled by an economy in recession and bleeding hundreds of thousands of jobs a month. Small businesses are seen as keys to economic recovery.

I fully expect conservatives to rally around the President letting the free market work and allowing businesses who get themselves in trouble to fail.

Oh wait, they'll probably accuse the President of not caring about small businesses.

Simon sez:

CIT had friends, but not enough - and maybe this tells us something about the shifting political sands. The Financial Services Roundtable (top financial CEOs) came out in force, the House Committee on Small Business reportedly made worried noises, and Barney Frank sounded supportive. But the American Bankers Association (the broader mass of bankers) publicly stood on the sidelines and Senate Banking – and prominent senators – seemed otherwise engaged.

CIT’s small and mid-size customers are important to the recovery. But the reckoning is that this business can be easily sold to someone else – after all, this is exactly what bankruptcy can get right in the U.S.

So the question became: is CIT too big – on its liabilities side – to fail? And if $80bn financial firms are now “too big to fail”, what does that imply for other potential bailout conversations and for our fiscal future? [...] The bottom line: we need fewer $800bn firms and more $80bn firms. If Goldman Sachs were broken into 10 independent pieces, we could all sleep much more soundly.

Instead, something like CIT's core businesses will be absorbed by a Goldman.

Coup Watch

2009-07-16T08:16:00.001-07:00

Just in case you're wondering, the President of Honduras, Mel Zelaya, is still outside the country, negotiations are still ongoing (though not producing much of value), and now he's called for a popular insurrection.

"The Honduran people have the right to insurrection," said Zelaya, speaking Tuesday in the neighboring Central American country of Guatemala.

Insurrection is a legitimate democratic right "when faced with a usurping government and a coup-supporting military," he added, urging his supporters in Honduras to strike, march and engage in civil disobedience because that is "a necessary process when the democratic order of a country is disrupted.

"I want to tell you to not leave the streets, that is the only space that they have not taken from us," he told a news conference alongside Guatemalan President Alvaro Colom.

Zelaya has issued an ultimatum to the interim government led by Roberto Micheletti that it must relinquish power within the week and demanding his own immediate restitution.

This is in the middle of negotiation sessions, mind you. I guess Zelaya is playing bad cop.

...which seems to be working!

(CNN) -- Provisional Honduran President Roberto Micheletti told reporters Wednesday that he would be willing to step down as long as ousted President Jose Manuel Zelaya ceases his claims to the presidency.

The provisional president said that if it became "extremely necessary" for him to step down in order to maintain peace in the country, he would, as long as Zelaya was not restored to power, Micheletti's son, Aldo Micheletti, confirmed to CNN en Español.

It seems like the best practice here is to allow Zelaya to serve out his term but leave after that without expanding term limits. That is not what Micheletti is offering here, but it's closer.

The Blue Dogs Go To Work

2009-07-16T07:50:00.000-07:00

Mike Ross, apparently the point person for the Blue Dogs on health care, says he has the votes to defeat the bill in the Blue Dog-heavy Energy and Commerce committee, if he doesn't get certain changes.

A leader of the conservative "Blue Dog" Democrats told CNN Wednesday he and other group members may vote to block House Democrats' health care bill from passing a key committee if they don't get some of the changes they want.

"We remain opposed to the current bill, and we continue to meet several times a day to decide how we're going to proceed and what amendments we will be offering as Blue Dogs on the committees," said Rep. Mike Ross, D-Arkansas.

Ross said the bill unveiled Tuesday by House Democratic leaders did not address concerns he and other conservative Democrats outlined in a letter late last week to Speaker Nancy Pelosi.

The conservative Democrats don't believe the legislation contains sufficient reforms to control costs in the health care system and believe additional savings can be found. Their letter to leaders raised concerns about new mandates on small businesses. Blue Dogs also say the bill fails to fix the inequities in the current system for health care costs for rural doctors and hospitals.

Of course, this is inconsistent. You cannot control costs in the health care system while demanding higher payments to rural doctors and hospitals. I wonder if anyone has pointed that out. The same with the mandates on small businesses. House Democratic leaders actually exempted small businesses from the employer mandate with a higher amount of payroll than what was initially in their discussion draft - up to $250,000. But the Blue Dogs want larger small businesses to be exempted as well. That means less money in the system, because businesses would pay 8% of payroll for each employee if they don't provide health care. So the Blue Dogs want both cost controls, less cost controls, and more targeted health spending. It's not supposed to make any sense.

In addition, freshman Jared Polis is trying to derail the surtax on the wealthy used as a mechanism in the House bill to pay for it.

And Rep. Jared Polis (Colo.), meanwhile, was circulating a draft letter among freshman Democrats to Pelosi opposing the $544 billion income tax surcharge on the wealthy, arguing it would hit many small businesses and manufacturers.

“Especially in a recession, we need to make sure not to kill the goose that will lay the golden eggs of our recovery,” Polis wrote. “By concentrating the cost of health care reform in one area, and in one that will negatively affect small businesses, we are concerned that this will discourage entrepreneurial activity and job growth.”

That objection was gaining steam Wednesday among freshmen and others from wealthy suburban districts, as business groups stepped up their attacks.

Actually, what the surtax does is add extra brackets, which should have been done long ago and should actually go further.

The lack of an instinct for self-preservation strikes me. If health care doesn't pass, the primary part of the President's agenda, the 2010 midterms could get ugly. And the first people to pay the price would be Blue Dogs in conservative districts and freshmen, the same people grousing at the provisions of the bill. Some of that is legislative sausage as they look to get paid off - but the cost of not having a bill for these members of Congress is great. Henry Waxman puts it best:

Energy and Commerce Chairman Henry Waxman (D-Calif.) said he will meet with Ross, along with others, and plans to amend the bill again tomorrow himself.

But he urged them to work to pass the bill instead of tearing it down.

“Can a bunch of Members bring a bill down? Yeah. Then what? ... Democrats have a lot at stake in this legislation, the president has made this his No. 1 priority,” he said. “We’re going to have to come together.”

(notice, too, that the public option was not part of any of these concerns. The blogosphere is missing the mark here)

...Here's Ben Nelson also being an idiot and attributing the idiocy to his constituents.

Deal Talks Break Down Over Prop. 98 Suspension

2009-07-16T07:33:00.001-07:00

Hopes for a deal on the California budget faded last night as the Big Five could not agree over the big issue of whether and how to suspend Prop. 98, the mandate for education funding.

The education money discussion is not new; much of it dates back to the February budget negotiations, which resulted in a ballot measure asking voters to offer blessings upon a supplemental payment. Voters rejected that measure, Proposition 1B.

And as with most education financing debates, this one lands squarely back at the maze of formulas and calculations that embody the 21-year old funding guarantee enshrined into the state constitution by voters, Proposition 98.

In a nutshell, the current debate focuses on whether schools are owed money in the future to make up for some of the recent spending reductions, and whether that obligation (the so-called "maintenance factor") should be codified in law as part of the current $26.3 billion deficit deal.

"The Prop 98 law is so confusing," said Senate President pro Tem Darrell Streinberg to a throng of reporters outside the governor's office, "that we want to make sure that there is clarity."

My belief is that education leaders will win this money in the courts, no matter how long Arnold and the gang put it off. The lawsuit has already been filed. The Democratic leadership want to just deal with the $11 billion dollars in essentially stolen money from schools inside the budget agreement by promising the money in the out years, while the Republicans and Arnold don't.

So if you wanted a 2010 campaign slogan, you have the source material.

It looks to me like Arnold is holding out simply so he can prove a point. His effort to insert privatizing social services eligibility at the last minute is flawed enough that even the Yacht Party might have trouble stomaching it. The proposed cuts in the deal are really intolerable but not what the Governor promised at the outset. It's unclear whether the Governor will get his anti-fraud provisions, also inserted late into the process. And it's completely unclear, given the deal likely to come out, why we had to wait two weeks for virtually the same deal.

Whatever budget deal ultimately is passed -- and in this economy it'll only be a temporary fix, at best -- virtually the same agreement could have been reached weeks ago [...]

Democrats produced a stop-gap plan supported by Assembly Republicans that would have staved off IOUs. They proposed $3.3 billion in cuts to education and other programs that would have kept the cash flowing, at least for a few weeks. It would give them time to negotiate more cuts. Schwarzenegger rejected the idea and persuaded Senate Republicans to follow.

That's where the governor began bobbling the ball, although his coaches figured he was playing to his fan base, what's left of it.

Issuing IOUs will cost the state roughly $26 million in interest for July, the state controller's office estimates. The IOUs also prompted Wall Street bond rating agencies to lower California's credit to near junk status. That potentially could cost the state $7.5 billion over 30 years, according to the treasurer's office.

Schwarzenegger, aides say, calculated that Democrats wouldn't negotiate seriously without facing a deadline, such as the latest: most banks refusing to accept IOUs. Negotiating piecemeal would get nowhere, the governor believed.

But he might have dodged IOUs completely. Guess it doesn't rankle much that the state he has governed for nearly six years must now pay bills with scrip.

Schwarzenegger's clumsy attempt at the Shock Doctrine, when the deal Democrats were willing to agree to was painful enough, was about as irresponsible as a chief executive could be.

Journamalism

2009-07-15T17:58:00.000-07:00

Two pretty incredible scandals over the past couple weeks in the world of journalism really lay bare how corroded the Beltway media structure truly is. First we had the Washington Post Pay-2-Play scandal, which as their ombudsman reports was far more widespread than at first disclosed, with key editors in the newsroom knowing about it for months. And now, from South Carolina's flagship paper The State, we learn about how access drives everything inside the Beltway.

National media blitzed Gov. Mark Sanford’s staff, offering big ratings and, possibly, a sympathetic venue in an effort to land the first interview with the governor after his six-day trip to Argentina.

In addition, a blogger and state leaders reached out to Sanford’s office to try to coordinate a way to “push back” on the growing mystery surrounding Sanford’s absence.

The behind-the-scenes maneuvering is detailed in e-mails released by the governor’s office this week in response to The State’s request under the freedom of information act.

The e-mails show some outlets promised Sanford “friendly ground,” while others objected to early reports that questioned his disappearance.

“If you all want to speak on this publicly, you’re welcome to Washington Times Radio,” wrote staffer Joseph Deoudes to Sanford spokesman Joel Sawyer on June 23. “You know that you will be on friendly ground here!" [...]

Another reporter, Griff Jenkins of Fox News, invited Sanford on to set the record straight.

“Having known the Governor for years and even worked with him when he would host radio shows for me,” Jenkins wrote to Sawyer on June 23, “I find the story and the media frenzy surrounding it to be absolutely ridiculous!” [...]

“If he wants something more personal for the blog to push back, I’m happy to help,” wrote Erick Erickson, a writer for RedState.com. On June 23, Erickson ripped “media speculation” about Sanford’s whereabouts.

“I wasn’t trying to be a reporter. I wanted to curtail the story,” Erickson said by e-mail. “Well that didn’t work.” [...]

The media e-mails also illuminate the tactics of national outlets to land the big interview.

ABC News White House reporter Jake Tapper e-mailed Sawyer twice on June 23, both to note coverage of competitor NBC.

With a subject line of “NBC spot was slimy,” Tapper e-mailed Sawyer a “Today” show transcript of Sanford coverage, calling it “insulting.” Later, Tapper forwarded Sawyer a Twitter post by “Meet The Press” host David Gregory.

Jeff Schneider, a vice president at ABC News, said Tapper was “carrying some water for producers who knew he had a relationship with the governor’s office.”

My favorite is actually from "Governor" Stephen Colbert, although he actually comes off looking just as bad as the rest of the media - though he's not a member of it and thus looks a bit better.

The media really favors the "get" over the truth, and it took a paper like The State to actually do some reporting on this story. Good for them for publishing these emails, by the way, because it's quite illuminating. Now, a for-profit business like journalism could maybe be given a bit of slack for wanting to chase a popular story. But these are the same people who call for blogger ethics panels at every opportunity, who put themselves on some kind of pedestal where they are unassailable objectives observers, when that clearly isn't the case. They drive stories based on external events, access and ego-massaging, and it happens much more than anyone thinks.

Moving In The Right Direction

2009-07-15T17:17:00.000-07:00

Despite the AP inflating the cost of the House health care bill based on the words of an anonymous staffer rather than the CBO score, the bill would actually cost $1 trillion dollars over 10 years, which is $100 billion per year, far less than the money lost from, say, the Bush tax cuts. And since the bill is paid for through internal cost reforms and, in the House bill, a surtax on the wealthy, it won't cost the federal government one cent. Igor Volsky has a good look at the overall benefits of the bill.

As far as the public option is concerned, Walker has the good news and bad news.

*The public option will be available nationwide and from “day one” on the new national health insurance exchange.

*The public plan will be run by the Department of Health and Human Services.

*The public option will pay doctors the same rates as Medicare plus 5% for the first three years.

*The public option will have the power to directly negotiate drugs prices.

*Roughly a third of all people buying health insurance through the exchange are projected to select the public plan (around 11 to 12 million). This is not a high enough percentage that the public plan will “dominate” the exchange. Incredibly important!

*The public option's premiums will be 10% cheaper than a typical private insurance plans.

*The public plan will drive down the cost of overall reform. The size of subsidies will be based on the cost of the three cheapest plans. By offering a cheaper public plan, the size of subsidies are reduced.

*The public plan will self-sufficient and not increase the federal debt.

The Bad News

*The public plan will not be available until 2013. The Health Insurance Exchange will not start until 2013, so no one can purchase the public plan until then.

*The public option will only pay Medicare rates for the first three years. After that it will need to negotiate its own.

*Medicare providers are not required to accept the public plan. (On the positive side: providers that are part of Medicare's network will be part of the public plan's network unless they opt-out.)

*Large businesses will not be allowed to choose the public plan. It is only available to individuals and small businesses getting coverage through the exchange.

*Only 30 million Americans will be able to select the public plan because of the above restriction. (On the positive side: starting in 2016, the Commissioner might allow some larger employers to give their employees insurance through the exchange)

*The public plan's power to negotiate drug/service prices will weaken because of restrictions which strongly limit the number of Americans who can choose to sign up for it.

Because the employer-based system is sustained in this reform, far less people can be eligible for the public option, which I don't like. But I agree with Walker that getting the option in place is the heavy lift - expanding access, especially if it's successful, will be easier politically. Furthermore, with only 10 million - 3-4% of the population - likely to enroll in the public option, the private insurance market, which will stand to GAIN customers through the individual mandate, is not really negatively impacted by it in the opening 10 years. And it will save money for the federal government, individuals and businesses.

President Obama addressed skeptics of health care reform in the Rose Garden today:

I know a lot of Americans who are satisfied with their health care right now are wondering what reform would mean for them. Let me be clear: If you like your doctor or health care provider, you can keep them. If you like your health care plan, you can keep that too.

But here's what else reform will mean for you: you'll save money. If you lose your job, change your job, or start a new business, you'll still be able to find quality health insurance you can afford. If you have a preexisting medical condition, no insurance company will be able to deny you coverage. You won't have to worry about being priced out of the market. You won't have to worry about one illness leading your family into financial ruin. That's what reform means.

The naysayers and the cynics still doubt we can do this. But it wasn't too long ago that those same naysayers doubted that we'd be able to make real progress on health care reform. And thanks to the work of key committees in Congress, we are now closer to the goal of health reform than we have ever been [...]

Both proposals will take what's best about our system today and make it the basis of our system tomorrow - reducing costs, raising quality, and ensuring fair treatment of consumers by the insurance industry. Both include a health insurance exchange, a marketplace that will allow families and small businesses to compare prices, services and quality so they can choose the plan that best suits their needs; and among the choices available would be a public health insurance option that would make health care more affordable by increasing competition, providing more choices, and keeping insurance companies honest. Both proposals will offer stability and security to Americans who have coverage today, and affordable options for Americans who don't.

Late word today that the White House would consider using budget reconciliation to pass health care reform, which is more a threat to keep Republicans and conservative Democrats from getting locked out of the process. But if it works, all the better.

The full court press for health care reform is on.

Throwing Elbows

2009-07-15T16:34:00.001-07:00

This was a nice little move by the White House against blowhard Jon Kyl and St. McCain:

On ABC’s This Week with George Stephanopoulos this past Sunday, Sen. Jon Kyl (R-AZ) argued that the $787 billion stimulus package “hasn’t helped yet. … What I proposed is, after you complete the contracts that are already committed, the things that are in the pipeline, stop it.”

The next day Arizona Republican Gov. Jan Brewer received letters from four Obama administration officials — Secretary of Transportation Ray LaHood, Agriculture Secretary Tom Vilsack, Department of Housing and Urban Development Secretary Shaun Donovan and Secretary of the Interior Ken Salazar — pointing out the billions headed for Arizonans. LaHood wrote:

"The stimulus has been very effective in creating job opportunities throughout the country. However, if you prefer to forfeit the money we are making available to your state, as Senator Kyl suggests, please let me know."

Sen. John McCain (R-AZ) quickly fired back on Tuesday, saying that he “strongly support the comments of Senator Kyl and call[s] on the administration to retract its threat against the citizens of Arizona.”

What McCain calls a threat I call "asking the Governor of Arizona if she wants to do what her junior Senator suggests." In other words, following right-wing policies is a threat against American citizens. Now I agree with that, but it's funny for John McCain to agree.

If Republicans want to say that all government spending is bad they should be able to live with the consequences. But they never do, of course. Good for Obama and the White House for pushing back.

...Here's another Democrat, Bernie Sanders, forcing Republicans, including John McCain, to confront their own rhetoric.

Sanders: I don't want to shock anybody here, and have people dashing out of the room, but the VA is a socialized health care system, right Mr. McCain? That's what it is. That's not public insurance, but socialized medicine.

McCain: Not exactly my description, but...

Sanders: OK. And, you know, the VA has its problems, we all know that. But by and large, I think it's fair to say, when we go home, we talk to our veterans, you know what, they feel pretty good about the VA [...] All right, that's socialized medicine in the United States of America, anyone want to bring an amendment up to eliminate the VA? I would suggest the chairman accept that amendment. I don't hear too many people.

Beautiful.

CA Congressional Fundraising A Go-Go

2009-07-15T15:56:00.000-07:00

Today is the deadline for Congressional incumbents and challengers to declare their fundraising totals for the second quarter of 2009, and some numbers on the California candidates jump out. If I write "incomplete," that's because their FEC report hasn't popped up yet. I'll fill in when they become available:

We'll start with the special election in CA-10:
John Garamendi: $300,000 raised, $260,000 CoH, $54,000 debt
Mark DeSaulnier: ~~incomplete~~ $212,000 raised, $136,000 CoH, $77,000 debt
Joan Buchanan: ~~incomplete~~ $64,000 raised, $179,000 CoH, $308,000 debt
Anthony Woods: $105,000 raised, $65,000 CoH
Adriel Hampton: incomplete

Waiting on more info on this one. John Garamendi's number came from 350 people, almost $1,000 a head. That suggests no grassroots fundraising base. Anthony Woods had over twice as many donors, who could be tapped again. UPDATE: OK, this is interesting. Joan Buchanan raised a fairly paltry amount considering the primary is in six weeks, but she took out a $250,000 loan and has a significant amount of debt. She seems to be blowing through operating expenses too. Likewise, Mark DeSaulnier, who raised a decent amount, has over half of his cash on hand in debt. And I missed that John Garamendi has $50,000 in debt as well. Suddenly, Anthony Woods has more debt-free cash on hand than anyone in the field but Garamendi.

CA-03:
Gary Davis: $34,000 raised, $30,000 CoH
Dr. Amerish Bera: $288,000 raised, $286,000 CoH
Dan Lungren (inc.): ~~incomplete~~ $233,000 raised, $322,000 CoH

That is an eye-popping number for Amerish Bera, and lest you see it as a doctor self-funding, only $4,800 came from the candidate. I was shocked by that total. We'll see what Dan Lungren ends up raising later today, but it's entirely possible that Bera will have MORE cash on hand than the incumbent (Lungren only had $121,000 on hand at the end of April, with $12,000 in debts). Wow. UPDATE: So Bera outraised Lungren, but he ekes out a cash on hand lead. As an incumbent, however, that's a weak performance.

CA-45:
Steve Pougnet: $201,000 raised, $203,000 CoH
Mary Bono Mack (inc): $166,000 raised, $448,000 CoH

Steve Pougnet outraised the incumbent in Q2, which is quite impressive. Mary Bono Mack starts out with a bigger war chest, so he has some work to do, but this is an excellent start, and I think Pougnet has a natural fundraising base that will only expand once his story gets out.

CA-44:
Bill Hedrick: $65,000 raised, $66,000 CoH
Ken Calvert (inc.): ~~incomplete~~ $407,000 raised, $384,000 CoH

Certainly an improvement over the first quarter for Bill Hedrick, and all of the money came from Southern California, which means he has a solid fundraising and volunteer base locally. He needs to spread that out nationally to maximize his potential in this winnable race.

CA-26:
Russ Warner: $60,000 raised, $58,000 CoH
David Dreier (inc.): $138,000 raised, $872,000 CoH

Believe it or not, Dreier actually had a much bigger war chest last cycle. Russ Warner needs to do better to be competitive, but he's actually in a slightly better position than two years ago.

CA-48:
Beth Krom: $76,000 raised, $98,000 CoH
John Campbell (inc.): $223,000 raised, $470,000 CoH

This was a tough quarter for Krom, with the tragic death of her son taking up a lot of time in the final weeks. Campbell ramped up his fundraising a bit after Krom beat him in the last quarter.

CA-50:
Francine Busby: $160,000 raised, $136,000 CoH
Tracy Emblem: $22,000 raised, $15,000 CoH
Brian Bilbray (inc.): incomplete $325,000 raised, $388,000 CoH

A solid quarter of fundraising for Francine Busby, notwithstanding that police action at one of her fundraisers while guests were pepper sprayed. UPDATE: Brian Bilbray had a good quarter.

CA-24:
Elton Gallegly (inc.): $42,000 raised, $831,000 CoH

The field is still getting together in this race, but I wanted to see Elton Gallegly's fundraising output, which is somewhat pathetic. He does have enough of a war chest that he doesn't necessarily need to get moving on that yet, however.

UPDATE the last: Swing State Project has a full roundup with a number of other interesting tidbits.

• In CA-04, Tom McClintock raised a bundle - $341,000 - but he still has over $100,000 in outstanding debt and only $245,000 CoH. Some fiscal conservative.

• In CA-10, one Republican is showing financial viability, David Harmer, with a $175,000 haul (but that's based on the first six months, not just the quarter). He has $144,000 CoH and $17,000 in outstanding debt. And his ideological viability in that district is, shall we say, suspect, though he is likely to reach a runoff.

• In CA-11, which I think is safe, Jerry McNerney raised $288,000 and has $519,000 cash on hand. One of his potential opponents, Brad Goehring, would seem to have a good financial position with $259,000 CoH, but he only raised $14,000 for the quarter and has $250,000 in debt due to a massive loan. The same with Jon Del Arroz, who guaranteed a huge loan for himself and has as much in debt as he does in cash on hand. These guys are wasting money, in my opinion.

• I added Ken Calvert's numbers in CA-44. Clearly the NRCC is protecting him by bolstering his fundraising.

• CA-47 is on the fringe of being competitive, but Van Tran had a good quarter, beating Loretta Sanchez (barely) in fundraising:

Sanchez: $242,000 raised, $714,000 CoH
Tran: $253,000 raised, $251,000 CoH, $10,000 debt

Tran gave himself $5,500 to boost his total. And Loretta has a pretty large war chest from prior years.

Stimulus As Self-Preservation

2009-07-15T11:56:00.000-07:00

I've seen enough polls showing a small but demonstrable downtick in President Obama's approval rating that I think it can be pegged as a trend. Polling expert Mark Blumenthal attributes this fall to the concurrent fall in economic indicators:

While the significance of the shift among independents may vary, depending on what poll you look at, the decline in Obama's numbers during June and July has a clear culprit: A spate of bad economic news over the last 10 weeks.

Read more from Mark Blumenthal on the economy's effect on President Obama at Pollster.com.
Obama's ratings fell in June and July after remaining mostly flat during the spring. Our Pollster.com trend estimate, a composite of all public polls, had shown Obama's job approval rating at a fairly consistent 59 to 60 percent during March, April and May. His approval percentage fell roughly 5 percentage points during June and the first week of July, however, and as of this writing, stands at 55 percent [...]

We can see the effect clearly thanks to a new question tracked since December by the Pew Research Center's News Interest Index surveys. Once a month, they ask Americans if they are "hearing mostly good news about the economy these days, mostly bad news about the economy or a mix of both good and bad news." Back in December, four out of five respondents said they were hearing mostly bad news. Early this year, that number steadily declined, bottoming out at 31 percent in mid-May. As Pew reported last week, however, perceived bad news has once again increased, to 37 percent in mid-June and 41 percent in the first week of July.

The chart below compares the trend in perceived bad news to Pollster.com trend estimates for both the Obama job rating and a question asked in many national polls about whether the country seems to be "headed in the right direction" or "off on the wrong track."

Not surprisingly, the "right direction" and "heard mostly bad news lately" trend lines are mirror images of each other. And while Obama's approval number held mostly steady from March through May, the chart strongly implies that the recent bad economic news has taken its toll.

The President is starting, as expected, to own the economy, as his decisions take prominence over those of his predecessor. And with the jobless rate, by Obama's own admission, likely to tick up over the next several months, in addition to the crisis of the underemployed (as much as 1 in 4 workers in some states), this is likely to continue and further drag on both the economy and the President's approval rating. Therefore he has a responsibility for his own self-preservation to turn the economy around for working people, and that means at least preparing for the eventuality of another round of stimulus, even if it's not needed. Even Mark Zandi, one of John McCain's economists during the campaign, admits that:

It is premature to conclude one way or another if the economy needs another dose of fiscal stimulus. The current stimulus has not had a sufficient opportunity to work, and while it has already provided some benefit to the economy -- the downturn would be even worse without it -- its benefit won't be fully felt until later this year. A reasonable judgment regarding the need for more stimulus should wait until year's end.

Planning now for another round of stimulus is prudent, though, given that the economy remains in an extraordinarily severe downturn and the risks are decidedly to the downside. If additional stimulus is needed, then it probably should include more aid to hard-pressed state governments, whose budget woes are intensifying, more aid to stressed households hammered by what will be double-digit unemployment, an expansion of the housing tax credit to stem the ongoing slide in house prices, a delay in legislated increases in marginal personal tax rates in 2011, and perhaps even a payroll tax holiday.

I'd tend not to include additional tax cuts, which have been revealed not to work as stimulus. Because of the lag time with getting infrastructure projects and other federal monies into the hands of communities, most of the stimulus money currently in the economy comes in the form of tax cuts. And it has had little stimulative effect.

Oberstar defended the $27 billion in the stimulus for highway and bridge projects as the right amount to help the economy during the next year. However, he said that more transit money in the stimulus would have been helpful to an economic recovery over the next three years, rather than the nearly $300 billion in tax cuts.

“Not many people realize they got a tax cut,” Oberstar said. “I have not received a single e-mail, phone call, snail mail, personal comment from anybody since we enacted this bill, since the end of February, saying, ‘I got my tax’ or ‘Thanks for the tax cut’ or ‘I hardly noticed it’ or anything.

“But I have had people saying, ‘I’m back at work because of the funding in the surface transportation program.’”

I know the fiscal scolds don't want to hear about another stimulus and additional federal debt. But Robert Reischauer has a decent compromise proposal to "time-release" deficit reduction measures in tandem with stimulus funding:

[A]ny "Son of Fiscal Stimulus 2009" should include a significant "time released" package of deficit-reduction measures. While these tax increases and spending cuts shouldn't begin phasing in until 2013 or 2014, when the economy has recovered, we need to send a strong signal to our creditors that, notwithstanding our addiction to another shot of fiscal stimulus, we will soon be on the recovery road to fiscal responsibility. If we don't, the nation could face a more serious economic collapse in the not-too-distant future -- without an ability to borrow to finance needed fiscal stimulus.

That would certainly achieve the goal of ensuring the most stimulative actions stay in the bill, while allaying concerns about debt (which aren't entirely off-base).

The Battle Over The F-22

2009-07-15T11:16:00.000-07:00

One area where President Obama deserves some praise is his stand on the F-22, at odds with parochial interests in Congress and even splitting some senior Democrats:

Democratic leaders support an amendment that would strip the $1.75 billion for seven additional jets from the 2010 defense authorization bill, which is being debated on the Senate floor this week.

But several senior Democrats are from states that will see gains from building more F-22s.

Sen. Chris Dodd (D-Conn.), who represents the state where Pratt & Whitney builds the F-22 engine, told The Hill he was working with his Democratic colleagues to convince them to support the purchase of more jets despite the president’s opposition. Dodd also faces a tough reelection campaign next year.

Sen. Charles Schumer (N.Y.), the vice chairman of the Senate Democratic Conference, will be a key vote to watch. The watchdog group Project on Government Oversight, which supports removing the F-22 funds, lists Schumer as poised to vote against stripping the money.

Schumer declined to say how he was voting, telling The Hill he is still studying the issue, and advised: “Watch the vote.”

Sen. Levin withdrew the amendment temporarily today so the Senate could take up the hate crimes bill. Sounds to me like Levin feared he didn't have the votes.

Matt Duss lays out what this is really about.

So just to be clear, this argument over the F-22, at least as it’s occurring in Congress, not really a debate over defending the country — it’s a test of whether the requirements of electoral politics can outweigh the requirements of American national security as defined by the Department of Defense. This isn’t to suggest that Congress has no role in determining American defense requirements — of course it does, but let’s not pretend that seven extra planes is the difference between air dominance and ceding the skies.

Meanwhile, Mike Goldfarb observes that “one thing that’s been consistent throughout this process has been quiet support for F-22, in contrast to the vocal opposition from Obama, Gates, and McCain. Most people thought that F-22 was DOA as soon as Gates released the administration’s defense budget. But it turns out that support for the program in Congress is pretty broad.”

I don’t know if I’d call Lockheed and Boeing spending $6.5 million and $2.4 million, respectively, on lobbying in the first three months of 2009 “quiet support.” But yes, it is rather impressive what kind of support can be gotten for an item that the military doesn’t want by spreading its production out into 48 different states, donating vast sums of money to various political action committees, and sending armies of lobbyists onto the Hill. It’s almost as if politicians were interested in getting re-elected or something.

We're moving into a phase of whether we can take even this minor step in defying the military-industrial complex - remember, the overall military budget will increase this year - or whether we're resigned to defense contractors eating up massive government contracts forever, permanently hamstringing our budget. That's what's at stake in this amendment.

Own To Rent

2009-07-15T10:16:00.000-07:00

I really hope this goes through:

NEW YORK, July 14 (Reuters) - U.S. government officials are weighing a plan that would let borrowers who have fallen behind on their mortgage payments avoid eviction by renting their homes instead, sources familiar with the administration's thinking said on Tuesday.

Under one idea being discussed, delinquent homeowners would surrender ownership of their homes but would continue to live in the property for several years, the sources told Reuters.

Dean Baker has been hawking own to rent policy since at least last year as a way to keep people in their homes.

This bill would immediately give families security in their home, so that if they like the home, the neighborhood, the school for their kids, they would have the option to stay in the house for a substantial period of time. This also has the great benefit for the neighborhood in that homes will remain occupied.

Perhaps more importantly, this change in foreclosure rules will give banks a real incentive to negotiate conditions under which homeowners can stay in their homes as owners. Banks do not want to become landlords. The bank will own the house after a foreclosure, but a house with a renter is worth much less to them than a house over which it has complete control.

Giving the homeowner the right to stay as a renter hugely increases their bargaining power with the bank. The result of this change in foreclosure rules is that far more homeowners are likely to remain in their homes as owners.

Seeking Alpha criticizes the proposal because of the implementation, when as Baker explains the goal is to give those facing foreclosure a stick to put themselves on a level playing field with renters. The worst option in the housing process is a situation where people are thrown out of their homes and the property lies vacant. The banks can't deal well with that, the homeowners are out on the street, and the economy takes an average hit of $250,000. Banks don't manage the property when it's vacant, that's arguably worse than them having to manage a rental property. Laws governing the rental arrangements can be drafted and made to a uniform standard.

Some have said that this would freeze the housing market and that's an issue, but that would happen with a moratorium as well. Those so focused on "clearing the market" don't want to deal with millions of Americans on the street. Easing these homeowners facing foreclosure into a rental situation that is sustainable makes a great deal of sense, and maybe we can clear out those homes over a number of years.

Phil Angelides To Chair Financial Crisis Inquiry Commission

2009-07-15T09:32:00.001-07:00

As part of an earlier bill, Congress initiated the modern-day analogue to the Pecora Commission of the 1930s, named after its chief counsel Ferdinand Pecora. That commission detailed the origins of the financial crisis that caused the Great Depression, and led to the passage of several banking reforms, including the Glass-Steagall Act, which separated investment banks and commercial banks. The Pecora Commission was credited for the reforms that stabilized the financial system after a 19th century full of depressions. After decades of neglect and deregulation, we needed a new Pecora Commission to examine the breakdowns in the financial system and recommend best practices to ensure it never happens again. And the man who will head this commission is Phil Angelides.

House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid today announced six appointments to the 10-member Financial Crisis Inquiry Commission, established by Congress to examine the domestic and global causes of the financial crisis.

Speaker Pelosi and Majority Leader Reid appointed Phil Angelides as chairman of the Commission. The statute requires the House Speaker and the Senate Majority Leader to jointly appoint a commission chair. Mr. Angelides, one of Speaker Pelosi’s three appointments to the commission, served with distinction as the elected California State Treasurer from 1999 to 2007. He has earned national recognition as an effective public and private sector leader with broad expertise and accomplishments in the fields of investor protection, housing, finance, and corporate and financial market reform.

The Commission will conduct a comprehensive examination of, and hold hearings on, more than 20 specific areas of inquiry related to the financial crisis, including the role of fraud and abuse in the financial sector; state and federal regulatory enforcement; tax treatment of financial products; credit rating agencies; lending practices and securitization; unregulated financial products and practices; and corporate governance and executive compensation. The Commission will also examine the causes of major financial institutions that failed or were likely to fail had they not received exceptional government assistance. The Commission will provide its findings and conclusions in a final report due to Congress on December 15, 2010.

Obviously this takes Angelides out of the running for any political races in the 2010 cycle. But he'll actually have a far more influential position - determining the causes of the financial crisis and how to fully reform the system. I'm pleased that Speaker Pelosi and Senator Reid went outside of Washington for this task, not to any of the typical high priests of bipartisanship. I hope Angelides can get this job done, and it seems to fit with his skills.

The rest of the Democrats on the commission, including Clinton-era official Brooksley Born (who wanted to regulate derivates in the late 1990s) and former Florida Sen. Bob Graham, can be found at the release.

...The Republicans added a vice-chairman with a California connection: former House Ways and Means Chairman Bill Thomas.

Forget Bipartisanship

2009-07-15T08:35:00.000-07:00

The Senate HELP committee held four weeks of markup hearings on their health care bill. They accepted 160 Republican amendments. They allowed virtually every amendment, every concern of Republicans to a free and open vote. And in the end, the bill split entirely along party lines.

A Senate committee became the first congressional panel to advance healthcare reform legislation this year, marking a significant step toward the achievement of President Obama's foremost domestic initiative.

On a party-line, 13-10 tally, the Senate Health, Education, Labor and Pensions (HELP) Committee voted to move its portion of the upper chamber's healthcare reform legislation to the floor [...]

HELP Committee ranking member Mike Enzi (R-Wyo.) slammed the bill and the partisan nature of the panel's proceedings. "The bill lays the groundwork for a government takeover of healthcare," Enzi said.

I don't know how many times you have to say this. Republicans will not vote for health care reform. If so much as one of them does, I would be stunned. And it appears that the political staff in the White House understands this as well.

Both Axelrod and White House Chief of Staff Rahm Emanuel said taking a partisan route to enacting major health-care legislation isn’t the president’s preferred choice. Yet in separate interviews, each man left that option open.

“We’d like to do it with the votes of members of both parties,” Axelrod said. “But the worst result would be to not get health-care reform done.” [...]

Emanuel, making a theoretical case for a party-line vote, offered a definition of bipartisanship based not on roll-call votes but on whether Democrats have accepted Republican ideas during the process of negotiations.

He said Democrats already have passed that test, pointing to Republican amendments that the Democratic-controlled Senate Health, Education, Labor and Pensions Committee has adopted.

“That’s a test of bipartisanship -- whether you took ideas from both parties,” Emanuel said. “At the end of the day, the test isn’t whether they voted for it,” he said, referring to Republicans. “The test is whether the final product represented some of their ideas. And I think it will.”

Now Republicans will stick out their pinkies and rattle their teacups about the shocking partisanship on display, and whine about how they've been shut out of the process. But they would always say that, and predictably, it's not true.

This is the right approach, and now the President needs to collect the votes necessary for passage. Organizing for America released an ad today that will air in key states, targeting moderate Democrats and a few moderate Republicans, and imploring them to get health care done. It has no specifics, but collects a series of health care horror stories and shows the broken nature of the current system.

This will be the toughest lift of the Obama Presidency, but if he really wants it, he can get it done.

...Here's the acting chair of the HELP Committee, Chris Dodd, offering to accept 64 amendments by unanimous consent, but the Republican leader refuses to allow it in an effort to drag out the process. This is the minority's entire raison d'etre on this bill.

Arnold So Bad At Governing, He Bungles The Shock Doctrine

2009-07-15T08:23:00.000-07:00

Meetings of the Big Five lasted late into the night, and reports are that a deal is very close. Now, that deal won't be any good. The secretive Big Five process, which Democrats actually tried to counteract with 30 hours of public meetings, ends up leading to a deal that nobody reads and gets pushed through in the dead of night. And the very structure of the California system, with its super-majority requirements, will never yield a good deal for anyone but the well-connected.

Any final deal is expected to include some of the sharpest cutbacks in government services the state has experienced. Programs that have not been cut deeply in years are likely to shrink considerably, with tens of thousands of Californians losing access to programs they have relied on. Some programs may be wiped out entirely. Large numbers of low-income Californians receiving healthcare through the Medi-Cal program are expected to be moved into managed care, and thousands of seniors who receive home healthcare would lose it.

That said, it looks as if the Governor will lose on many of his priorities. He'll lay back with a stogie in his Jacuzzi anyway, but he's not going to get everything he wants. For instance, a proposal to cut public employee pensions has been scrapped.

California will not impose a two-tier pension system promising lower benefits to future state workers as part of any wide-ranging deal to solve its $26.3 billion budget shortfall, The Bee has learned.

The controversial proposal by Gov. Arnold Schwarzenegger has been shelved in budget talks, but options for cutting pension costs are expected to be discussed again in coming months.

I'd expect that to come up again, but it should not have been wedged into a budget deal when it would offer almost no short-term fiscal benefit.

In addition, the Governor will not be allowed by the courts to slash worker pay for IHSS employees.

A federal judge on Monday ordered California to pay In-Home Supportive Services workers up to $12.10 per hour in wages and benefits immediately, suggesting the state had dragged its feet in response to her earlier injunction.

California lawmakers and Gov. Arnold Schwarzenegger had agreed to drop the state's contribution to IHSS wages and benefits to $10.10 per hour as part of their February budget deal.

In a lawsuit filed by the Service Employees International Union, U.S. District Court Judge Claudia Wilken in Oakland ruled last month that the state did not analyze the impacts of the wage cut before approving it, running afoul of federal law. She blocked the wage drop to $10.10 that was supposed to take effect July 1.

This saved a pittance of money relative to the overall budget gap, around $100 million, and, you know, violated federal law.

As I speculated yesterday, the Governor's foregrounding of "no new taxes" in his TV ad, a point already conceded by Democrats, was an effort to claim victory on something as the rest of his shock-doctrine agenda goes down in flames. We'll see if the anti-fraud measures stay in there as well.

As I said, this is going to be a horrible budget deal, and under the current system there can be almost nothing else. But I don't think the IOU issuance had the desired effect for the Governor. He ended up having to play defense because his indifference to the state's plight was seen as cruel. And just like in 1992, the refusal of bailed-out banks to honor the IOUs led almost immediately to marathon talks arriving at a solution.

Arnold could have avoided all this and saved the state billions of dollars, with almost no difference in the final result.

...Funny. Arnold's TV ad might violate the Fair Political Practices Commission regulations because it was paid with campaign money, yet referred to now campaign. Awesome.

You Get A Rescue, You Get A Rescue...

2009-07-15T07:57:00.000-07:00

Initially, the top 20 banks received bailout funds from the TARP program. Number 21 on the list was CIT, a small-business lender. And predictably, without bailout money they are a threat to go under, and in turn dissolve a lot of funding for small businesses. So the Obama Administration may rescue them as well.

While CIT has about $75 billion in assets, it was not included in the government's stress tests of major financial firms, and most analysts agree that its failure would have relatively modest consequences for the financial system. But it has grabbed the administration's attention because of its focus on small-business lending, an area of outsize political importance. The New York company is mounting an increasingly public case that its failure would crumple thousands of fragile firms.

Administration officials met yesterday afternoon to review CIT's problems and to consider possible responses, according to a person familiar with the matter. Some officials would like to leave CIT alone, to show that the economy is strong and that the government will not rescue every faltering firm. But at a time when the administration already is working on ways to increase lending to small businesses, other officials see rescuing CIT as a necessary and obvious step.

This isn't playing out on the necessity of rescuting CIT, but the politics. And that's the wrong way to determine this. Whether or not people take lessons from CIT, their presence or absence will have an effect on the economy at large, and we can plot that in a cost-benefit fashion. Basing these decisions on political questions is why we rescued Wall Street and offered no conditions or strings on much of that aid in the first place.

It looks as if the aid package will go through. Hopefully that makes sense on the merits.

Simon Johnson has more on this, coming down on the side of not allowing a rescue to CIT.

The issue of the day is obviously CIT. It’s hard to sort out the real news from clever PR/planted stories in this situation, but it looks like the FDIC is coming out strongly against being involved in a rescue package. Given Sheila Bair’s successful political positioning and strong popular appeal, it’s hard to see how – once dug in – the FDIC can be moved [...]

Essentially, by trying to refloat an undercapitalized banking system, Treasury has created pervasive financial vulnerabilities to CIT-sized shocks. These are now the basis for more bailouts and even great fiscal costs.

If CIT is determined to be “too big to fail” in today’s context, this has far reaching implications. Instead of financial entities with assets of at least $500bn creating systemic risk, we now have to worry about anyone who has not much more than $50bn. This is a profound change – and a point that seems to have escaped the Financial Services Roundtable, which is pushing hard for a CIT rescue.