Tuesday, May 8, 2012

Daily D.C. DIARY Update

The D.C. Diary will be updated most weekdays to keep a running chronology of beltway insider information that might be of general interest to readers of this blog.

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May 14, 2012 - ONE SIDE’S UNCERTAINTY: The multibillion-dollar hedging mistake by JP Morgan Chase has propelled one of this year’s hottest, costliest and most secretive lobbying battles out of the shadows and onto the election-year agenda. Democrats know right where they want to position themselves; Republicans, not so much.

The locus of the dispute is the Volcker Rule, a provision of the Dodd-Frank financial services regulatory overhaul that’s supposed to outlaw proprietary trading for a bank’s own benefit. But the language of the law has left plenty up to federal regulators, who have been besieged by the banks — JP Morgan first among them — to write fine print for the rule that’s as loose as possible.

Now that Jamie Dimon has conceded his firm sought to capitalize on the slow-moving regulatory process by making a huge and hugely complicated credit bet on the economy before the Volcker rule kicks in — and then lost at least $2 billion that belonged to their customers — Democrats are feeling emboldened to push for an even stricter version of the rule than they were originally going to go after this year (still hoping to keep getting at least a portion of Wall Street’s campaign cash). They say the trading disaster is all the evidence anyone should need — whether they live in Greenwich or Kokomo — that creative bank activities are going to keep putting the economic recovery at risk unless they’re reined in explicitly and quickly. Carl Levin and Jeff Merkley, who wrote the Volcker rule, will now push regulators to come up with language that would straight-up prohibit the sort of portfolio hedging activity at which JP Morgan failed so spectacularly. In effect, what those Democratic senators want is regulations that come as close as possible to reinstating Glass-Steagall, the law that kept banks and investment companies separated from the Great Depression until the end of the go-go '90s.

On both policy and politics, Republicans are in a trickier place. They’re not really in a position to go to bat any more for JP Morgan and the other banking behemoths that have lobbied so hard to minimize the coming regulation. Instead, their only viable option is to help the big banks argue that the $2 billion loss was from an activity that the law was not designed to prevent — and as a practical matter could never prevent: Banks hedging their bets on one portfolio of securities by trading in areas where their interests are in essence the opposite (putting $10 on red just in case the $100 bet on black goes bad). And what about the argument that congressional intent was to allow what JP Morgan did? It may be more true than not, on balance. But it makes at best a marginal argument, politically, at a time when the vast majority of voters will pay no attention to this latest Wall Street debacle beyond concluding that dysfunctional Washington hasn’t made their finances any safer despite all the warnings from the Great Recession.

(The bank confirmed this morning that chief investment officer Ina Drew, the executive responsible for the failed trading strategy, would leave the firm. At 55, she had risen to become one of the highest-ranking women on Wall Street.)

May 14, 2012 -  EYES ON ISSA: By the end of the week there will be a climax in Darrell Issa’s drive to get the House to hold Eric Holder in contempt. The Oversight chairman is working behind the scenes — and against the wishes of the leadership — to force a floor vote on whether the attorney general should be formally cited for not cooperating fully in the committee’s probe of the Justice Department’s ill-conceived Fast and Furious gun-running operation. He’s working to round up support not only from fellow Republicans but also from about 30 conservative or politically imperiled Democrats. But the resistance he’s running into is coming not only from Boehner and Cantor (and, of course, Pelosi) but also from a fellow Republican who previously chaired the committee. Dan Burton, the famously hot-headed lawmaker who launched so many probes of the Clinton White House in the 1990s, says he’s not in favor of a contempt proceeding, mainly because he thinks the investigation would produce more by waiting even longer for Holder to come through with what he’s promised. If Burton — who has absolutely nothing to gain by being a team player, because he’s retiring — is taking the leadership’s side, then the Speaker and majority leader should be able to put down this minor rebellion on their right — and do so before Friday, when a 10-day Memorial Day break begins.

May 14, 2012 -  WON’T GO THERE: There’s another example today of a famously hot-tempered (and coverage-craving) House Republican pulling his punches. Peter King, the chairman of the Homeland Security panel, says he will not make the New York tabloids apoplectic with glee by meeting with Dania Londoño Suárez, the don’t-call-me-a-prostitute-because-I’m-an-escort at the center of the Secret Service scandal. King said on CNN this morning that he would not be part of such “a publicity stunt,” especially not while his panel is conducting its investigation into misbehavior by agents on overseas trips. (Secret Service Director Mark Sullivan, meanwhile, said today that he would appear before Senate Homeland a week from Wednesday; it will be his first public testimony since the Cartagena incident, which has so far resulted in the dismissal of nine agents.)

May 14, 2012 -  TRAIL TIPS: (Nebraska) The topsy-turvy and suddenly tight three-way race for the Republican Senate nomination will be over after tomorrow’s primary. State Attorney General Jon Bruning, the establishment’s candidate and undisputed frontrunner for months after Ben Nelson announced his retirement, now finds himself more or less clinging to the pole position; his chance of winning rests on his  rivals splitting the much more conservative vote. But, just as easily, the momentum that state Sen. Deb Fischer has built in the last two weeks could carry her to victory; she won endorsements from Sarah Palin and Rep. Jeff Fortenberry of Lincoln last week, and over the weekend TD Ameritrade founder Joe Ricketts (who’s from Omaha but now lives in Wyoming) used his super PAC to spend $200,000 on TV ads praising her and lambasting Bruning.  But  state Treasurer Don Stenberg has built a solid base among conservatives and has benefited the most from third-party spending in recent weeks — a combined $2.1 million from the anti-tax Club for Growth, Jim DeMint’s Senate Conservatives Fund and tea-party-aligned FreedomWorks. (Raising plenty of Democratic money while waiting in the wings, remember, is Bob Kerrey.)

May 14, 2012 -  (Wisconsin) Tommy Thompson didn’t even come close to wrapping things up at last weekend’s Republican state convention. The former four-time governor and HHS secretary is still the favorite to win the Senate nomination (for the seat Herb Kohl is vacating) in the Aug. 14 primary, but he’s far too moderate for the conservatives who flooded the Green Bay gathering; instead, they gave almost 60 percent of their support on the first ballot to state House Speaker Jeff Fitzgerald — not quite enough for a formal endorsement but a surprisingly strong showing nonetheless, because Fitzgerald has lagged in both fundraising and the polls. On the symbolic final ballot, Fitzgerald edged Mark Neumann, a former congressman and unsuccessful governor aspirant two years ago, by 3 points. (The Democratic candidate is Rep. Tammy Baldwin.)

May 14, 2012 -  (Missouri) Claire McCaskill remains among the most vulnerable incumbent  senators this year — she was under 50 percent in a poll commissioned by fellow Democrats last week — but that same survey shows her narrowly leading all three of her potential Republican opponents. The poll puts her bid for a second term at 45 percent to 36 percent for former state Treasurer Sarah Steelman, at 46 percent to 38 percent for businessman John Brunner and at 44 percent to 39 percent against Rep. Todd Akin. Their primary is not until Aug. 7, and none of the three has been all that formidable either in fundraising or in campaign advertising — but each would have a solid shot in November because Obama (who has counted McCaskill as one of his best congressional friends since his first campaign) is not even contesting the state this time.

May 9, 2012 - MORE OF THE SAME: While the Senate’s student loan bill remains unsettled, the Democratic leadership is preparing to push more legislation that reflects Obama’s campaign priorities while forcing the GOP to vote down ideas that seem to be in its wheelhouse. The latest piece would be a bill that would continue the ability of businesses to deduct the full cost of new equipment through the end of this year. That measure would also create a new tax credit equal to 10 percent of the cost of creating jobs or increasing wages in 2012.

As with the student loan bill, Reid will offer a procedural motion requiring 60 votes to succeed, and Republicans will hold ranks and block the measure. Even though it seems GOP-friendly on the surface, the legislation wouldn’t go far enough to please Republicans’ desire to cut taxes. The vote could come as early as this week, and the GOP will use the debate to push some of its own ideas — perhaps a House-passed measure that would cut taxes for businesses with fewer than 500 employees.
May 9, 2012 -  A ROLLING START: “I say to my conservative friends here ... on issues like national security and infrastructure, I’m a big spender. That’s what we’re here for,” Republican Sen. Jim Inhofe said yesterday in trying to set the tone for the House-Senate conference committee on the highway bill. The Oklahoman mostly was speaking, of course, to the bloc of tea party freshmen that House Republican leaders included among the conferees. Those lawmakers want some serious changes to the way the federal government handles transportation funds, and although Inhofe’s comments at the meeting implied that Senate Republicans are taking a more traditional everybody-gets-something approach to the process, the House GOP might not be so willing to give ground.

The big problem for conferees will be the usual headache of finding enough money to pay for a multi-year, multibillion-dollar measure. So far, any plans to shore up the Highway Trust Fund for at least two years have involved some creative accounting and a long, hard look for cuts elsewhere in the budget that could be applied to the legislation’s bottom line. The truth is that federal gas tax revenues aren’t enough to support the trust fund into the future. The battle in conference, then, will be about whether to buy some time with a find-money-where-we-can approach (like what Senate Finance Chairman Max Baucus is proposing) or use this year’s debate to overhaul the funding system (which House Transportation Chairman John Mica and other Republicans — including the tea party freshmen — are advocating).
May 9, 2012 -  TRAIL TIPS: (Money) Republican-oriented super PACs have raised more than $156 million this cycle, compared with about $43 million for super PACs that back Democrats, forcing those groups to push the party’s network of donors topony up more cash. George Soros says he will soon give $2 million to a couple of progressive groups, and it’s possible that other supporters could follow his lead. At least that’s what the PAC leaders are hoping as they enter a crucial portion of the fundraising season.

May 8, 2012 - HARDLY THE END: Today’s test vote in the Senate won’t be a disaster for congressional efforts to keep the Stafford loan rate at 3.4 percent. Assuming that Republicans succeed in blocking the Democratic proposal, the two sides will use the afternoon — and probably the rest of the week — to spin the results (unless one party has a new approach up its sleeve, which seems unlikely at this point). But the official deadline for acting isn’t until the end of June, and neither side wants to see the rate jump to 6.8 percent this summer. They’re turning it into a fight simply because they can.

Although the student loan issue has become a campaign point for Obama, for Congress it’s a chance to stick to its favorite topic for the past year and a half: where to squeeze the budget and by how much. The bill’s proposed offsets — the Democrats want to collect more taxes from S corporations; Republicans want to eliminate a prevention fund in the health care law — are largely symbolic at this point, because neither side will give much ground on those things in the long run.

That leaves the bill in a familiar situation: The leaders in both chambers will have to find a way forward, and it’s looking as though the solution will wait until next month. It depends, in part, on how long Republicans want to let the White House bang away on the issue with younger voters.

May 8, 2012 - WHAT’S IN THE AIR? House and Senate conferees meet officially for the first time today on legislation to reauthorize highway and transit programs, and it’s possible that the rest of their work will happen in private. Some of the key issues — a mandate for quick approval of the Keystone XL oil pipeline, for example — are on the table because they were in the House’s version of the bill. But there are other topics that GOP leaders might like to address that weren’t passed as part of the legislation that came to conference. Those items will surface as negotiations move on, but there are constraints: Senate rules allow for procedural votes against anything “airdropped” into a conference report; the threshold on such challenges is 60 votes; and the 53-member Democratic majority would be able to win most, if not all, of them. The Keystone XL provision, meanwhile, already has drawn a veto threat from the White House.

May 8, 2012 -BACK AROUND: While the defense and intelligence communities are preoccupied today with news about the CIA’s thwarting of another airliner “underwear bombing” attempt by al Qaeda, multiple pieces of military-related legislation are moving in the House. The Armed Services panel is preparing for tomorrow’s markup of the annual defense policy bill, which usually serves as the venue for all manner of national security debates. This time around, the House GOP majority’s bill is likely to stir opposition from Democrats over multiple proposals, including one to block planned increases in health care fees for certain military retirees (the White House wants to use that revenue elsewhere at the Pentagon) and another to set new requirements concerning detainees (which Democrats say are generally unnecessary). Clashes over detainee policy almost caused Congress to give up on last year’s defense authorization, which would have been the first time in decades that the bill wasn’t enacted. The fiscal 2013 Defense and Military Construction-VA appropriations bills were approved by House subcommittees this morning.


May 7, 2012 - PAPER CUTS: House Budget today will approve legislation to replace the across-the-board discretionary spending cuts with $261 in mandatory spending reductions over the next decade. It’s the first big formal step in the Republican effort to tamp down sequester anxiety — especially among defense hawks and military contractors – ahead of the election. But once the full House passes the measure later in the week, it is sure to sit on the shelf until the lame duck, when there will be seven weeks left before the first $98 billion in cuts are due to take effect. In other words, what’s being referred to at the Capitol as the “shadow reconciliation” package — which would claim much of its savings from cuts to food stamps, social services block grants, federal worker pensions and the Obama financial regulatory and health care overhauls — is the GOP’s springtime opening bid for negotiations that are off until late fall. (The bill would leave $19 billion of next year’s sequester alone — a doubling-down on the appropriations standoff between the GOP House and the Democratic Senate that’s also sure to last deep into the new budget year.)  

May 7, 2012 - On Wednesday, the Republicans who run House Armed Services will push through a version of the annual Pentagon policy bill (which has gotten across the finish line for four decades straight) that may well get stuck for months because of disagreement with Obama on his plans for closing more military bases and retiring some high-altitude drones. And then on Thursday the House will approve a reauthorization for the Export-Import Bank. That, too, is a normally routine matter – but in recent weeks devolved into a re-litigation of the government’s proper role in helping big American companies find buyers for big-ticket items overseas, a standoff that it took Eric Cantor and Steny Hoyer to resolve personally. 

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