Thursday, November 11, 2010

Press Briefing

Nov 11, 2011

Indonesia's Example to the World

Federal President Has a Listening Problem - The idea that government can spend our way to prosperity doesn't make sense to voters

Tuesday Talks: Veterans Day

George W. Bush's Fuzzy Math

Nuclear Regulation in Dynamic Times: A Conversation with NRC Chairman Gregory Jaczko

How About a Partnership Stimulus? - To help rebuild America's roads and airports, let's tap the billions of dollars of private capital looking for safe returns

U.S. Assistance to the Palestinian Authority

The $30 Bonanza - The Supremes hear a major arbitration case. Trial lawyers pant.

Market structure developments in the clearing industry: implications for financial stability

White House Statement on the Initial Bowles-Simpson Bipartisan Fiscal Commission Proposal

Joel Klein's Report Card - If you can reform schools there . . .

Remarks by the President at the University of Indonesia in Jakarta, Indonesia

Wind Jammers at the White House - A Larry Summers memo exposes the high cost of energy corporate welfare

Recovery Through Retrofit

How to Shut Down Fannie and Freddie. By Emil W Henry Jr
The Treasury Department can stop rubber-stamping their debt issuance at any time
WSJ, Nov 11, 2011

Although Fannie Mae and Freddie Mac played a central role in causing the recent economic crisis, they are absent from the reform plans of Congress and the Obama administration. So these two government-sponsored enterprises (GSEs) remain mired in conservatorship, as extensions of the federal government. Bureaucrats now steer the primary provider of secondary market liquidity for our $10 trillion housing finance market.

The administration has offered many explanations for the delay: Housing finance is complex, says Treasury Secretary Tim Geithner, so he's consulting Congress and has assembled "academic experts, consumer and community organizations, industry participants and other stake holders" to review the matter.

But the Treasury doesn't need Congress or an academic assessment in order to tackle the most important reform goal: eliminating the GSEs and moving their activities to the private sector. Mr. Geithner himself can immediately reshape the mortgage markets—by withholding his approval of new debt issuances by the GSEs. That's the best way to begin curtailing the GSEs, and it can be done unilaterally.

Congress chartered the GSEs and in their charters required that the Treasury secretary approve all of their new debt. For decades, the Treasury exercised this duty, and the GSEs submitted each new debt issuance to the department for prior approval.

But the Clinton administration found this process cumbersome and a strain on Treasury staff. It established a new process that weakened the administrative approval process for GSE securities offerings. This hands-off approach represented an abdication of Treasury's essential oversight powers.

The bloating and strategic drift of the GSEs began soon thereafter. Within a decade, there were vast failings in Fannie's and Freddie's accounting, corporate governance and risk management—including the cessation of basic disclosure practices such as annual reports. Even after the Sarbanes-Oxley law, which forced public companies to adhere to a new oversight paradigm, the GSEs escaped with minimal scrutiny. Insolvency was a matter of time.

By the mid-2000s, the GSEs' process of debt approval had devolved to a simple notification of the Treasury, without any formal process of approval. The pace of debt issuance was so rapid that such notifications came to the Treasury weekly, typically on one piece of paper that simply listed proposed issuances without supporting data (such as income statements or balance sheets) upon which to make informed judgments.

If the Obama administration is serious about addressing the GSEs, it should re-establish a rigorous process to review all GSE debt issuance. That process should require the GSEs to provide Treasury with full financial data and justification for issuances, including statistics that show the creditworthiness of the agencies after each offering. In addition, the Treasury secretary should have to approve all new debt issuances personally.

The administration should also announce that in 2012 the Treasury will begin to deny a portion of GSE debt issuances with the goal of reducing their debt 50% by 2015 and 100% by 2018. This eight-year period of adjustment would allow the private markets ample time to provide secondary market liquidity.

There will be a private market ready to absorb the securities currently held by the GSEs. Private companies won't be able to borrow as cheaply as the GSEs could (thanks to their implicit government guarantee), but there will still be plenty of profit left to capture in the market for mortgage securities.

Large banks may be wary of this solution because the federalization of the GSEs has offered them a stable vehicle for off-loading their mortgages. Policy makers, meanwhile, will worry about impairing the recovery if a private market is slow to materialize. But the alternative is keeping the flawed system whereby liquidity depends upon distorted price discovery, permanent subsidization, and the economic judgments of bureaucrats.

To allow Fannie and Freddie to exist in any form—even on a smaller basis—would again give them an unfair funding advantage. Buyers of their debt would again pay up for implicit government support. And, once again, we'd have the market distortions, risk-taking and obscene political patronage that caused so much economic chaos.

Mr. Henry, the CEO of Henry, Tiger, LLC, was an assistant secretary of the Treasury from 2005 to 2007.

Video: President's Town Hall with Students in Mumbai

The 1099 Democrats - The Democrats decoupled from business—and lost the election

Shame on Holder and Panetta for Not Going after CIA Destruction of Torture Evidence

Stop Smearing Federalism - From consumer advocacy to gay marriage, liberals routinely embrace federalism. So why do they keep comparing it to slavery?

Respecting the Dignity and Human Rights of People on the Move: International Migration Policy for the 21st Century

Fixing Transit: The Case for Privatization

Panel Chairmen Recommend Cutting Federal Spending by $200 Billion

Wednesday, November 10, 2010

Press Briefing

Nov 10, 2010

Geithner, Shanmugaratnam, Swan: A Four-Point Plan for the G-20 - Strengthen global growth, keep it balanced, let currencies adjust, avoid protectionism

Rand Paul and Earmarks

Late-Breaking Races Swing in Democrats’ Favor

Super Marius vs. the World - A CEO doesn't find takers for more transparent resource markets

Strengthening an Emerging Industry While Helping Families Save Money

Not as Easy as A,B,C - Fighting crime in one of Manhattan's rougher neighborhoods

You’re Invited “Inside The White House”

How to Outmaneuver Iran in Iraq - The Sunni-backed bloc needs to be brought into the government, and the U.S. shouldn't be shy about saying so

State Dept: Making Progress in Combating Piracy Off the Horn of Africa

From Jakarta to Jerusalem - Obama's puzzling settlement demarche

Response of the United States of America to Recommendations of the United Nations Human Rights Council

A Better G-20 Agenda - The real source of global 'imbalances' and how freer trade can help

President Barack Obama’s First Two Years: Policy Accomplishments, Political Difficulties

The GOP's Racial Challenge - Republicans can't win in the future without more nonwhite votes

Dispatch from the Reddest State

If You Give a Solar or Wind Company a Subsidy

Saving Lives in Laos: United States Leadership in Clearing Landmines and Unexploded Ordnance

A Happy Meal ban is nothing to smile about - The proposal to ban meals with toys in San Francisco is based on some dubious assumptions about obesity and health

Tuesday, November 9, 2010

Press Briefing

Nov 09, 2010

White House and State Department Issue Statements on Burma’s Elections

The President's Indonesia Opportunity - It isn't enough to declare that we aren't at war with Islam, as true as that is

State Sec Clinton Highlights the Importance of U.S. Trade at Port of Melbourne

The virtues and hazards of going 'all in' at moments of crisis - Review of Bush's Decision Points

Business Summit in Mumbai

Union Card Checkmate - Voters in four states protect the secret ballot

Remarks by the President to the Joint Session of the Indian Parliament in New Delhi…

The ACLU Stands Up for Pro-Lifers—Really - Unelected commissions shouldn't pass judgment on campaign claims

Have a Question About the Economy and Job Growth? Ask us.

Blair: Making Muslim Integration Work

Remarks by the President and the First Lady in Town Hall with Students in Mumbai

Burma's Hollow Election - A sham vote to please outsiders

The National Export Initiative: U.S. - India Transactions

The Fed's reckless notion that it can simultaneously raise inflation and lower interest rates presumes bond buyers are fools. They aren't.

A US-India Partnership on Open Government

Palin's Dollar, Zoellick's Gold - An unlikely pair elevate the monetary policy debate

The Lord’s Resistance Army of Today. By Ledio Cakaj

Obama's Best Speech - In India, the president defended free markets, free trade and free societies

Sunday, November 7, 2010

Press Briefing

Nov 08, 2010

Remarks At the Australia-United States Ministerial

'Net Neutrality' Goes 0 for 95 - Regulating the Web wasn't a political winner last week

An Interview with W. S. Merwin, Poet Laureate (raw transcript)

Rubio Republicans - Republican candidates can talk tough on immigration and still do well with Hispanic voters if they can convincingly promote a message of economic opportunity

Rand Paul’s Lack of Class

Dawa and the Islamist Revival in the West, by Nina Wiedl

President Obama Promotes U.S.-India Partnership on Open Government

The Damascus Mirage - Team Obama's Syrian education

Remarks by the President on the October Jobs Report

The Great Transmission Heist - The latest scheme to subsidize solar and wind power to the detriment of rate payers

Press Gaggle on the President's Upcoming Trip to Asia by Press Secretary Gibbs, Deputy National Security Advisor Froman, Deputy National Security Advisor Rhodes and Treasury Under Secretary for International Affairs Brainard

California: The Lindsay Lohan of States - Sacramento is headed for trouble again, and it shouldn't expect a bailout

Secretary Clinton's Visit to Australia Highlights Collaboration

How Medicare Killed the Family Doctor - Low government payment rates became the private-sector benchmark, resulting in fragmented care

Attacks on President Obama Going to Asia: A Long Trip from Reality

The New Malaise and How to End It - Given what ails the economy, additional monetary policy measures are poor substitutes for more powerful pro-growth policies

Press Briefing

Nov 07, 2011

Weekly Address: President Obama Calls for Compromise and Explains his Priorities

Assessing "The Vision of the Jihaadi Movement"

Defending GM's Wagoner, Round Two - How GM failed and Ford survived is not a tale of either Obama genius or CEO incompetence

A Short History of Midterm Elections - If the past is indeed prologue, then Republicans shouldn't get too cocky

Iowa's Total Recall - Voters give activist judges the boot. Lawyers are shocked.

Governors and the Development of the Pragmatic Caucus

The Pelosi Minority - The Speaker decides to reward herself for an epic defeat

RT @theprogressive: "Republicans say they’re offering up an olive branch. But it looks more like a painted paralyzed asp with the anesthetic wearing off"

The president as intellectual and political philosopher - Review of James T. Kloppenberg's Reading Obama

Friday, November 5, 2010

Comments on Jesus Fernandez-Villaverde's Recomendaciones de Lectura: Ley Dodd-Frank

Spanish - comentary on Jesus Fernandez-Villaverde's Recomendaciones de Lectura: Ley Dodd-Frank, Oct 22, 2010, :

hola, el artículo referido habla de "[c]entralised clearing of derivatives" y dice que, junto con "the push for greater transparency of prices, volumes, and exposures–to regulators and in aggregated form to the public–" los mercados deberían estar mejor capacitados "to deal better with counterparty risk, in terms of pricing it into bilateral contracts, as well as understanding its likely impact."

De ninguna forma se ve en ese artículo, basado en la introducción del libro que van a publicar los autores, que haya alguna preocupación por que los centralized clearinghouses puedan ser "the ultimate too big to fail organization."

Abundando en esa preocupación, un artículo en WSJ (European Clearing Reform Dealt Late Setback, Nov 01, 2010, revela los últimos desarrollos en Europa al respecto:


Regulators were this week expected to approve a so-called "interoperability" arrangement between four of Europe's largest clearing houses [...]. However, at least one national regulator—thought to be the U.K.'s Financial Services Authority—raised concerns over the deal at the eleventh hour and has postponed its approval until the end of this month at the earliest, these people said. Those worries are understood to center on risk-management issues.


[A] source close to one of the clearers said the FSA had contacted the four central counterparties, advising them that the meeting at which the decision was expected to be made would be delayed until the end of November. The FSA wasn't available to comment.

In February this year, the regulator sent a private letter to the central counterparties in which it outlined concerns that the clearing houses needed to account for a number of risks created by interoperability. These included additional counterparty credit risk, technical, and liquidity risk. The FSA hasn't prescribed any measures, however, and has left it up to the central counterparties to work out how to address these issues.


Responding to industry pressure, LCH.Clearnet, SIX x-clear, EuroCCP and EMCF agreed to link their technology systems in the first half of last year but concerns regarding the threat of "contagion risk" between clearers—namely that the clearers could spread systemic risk across borders—led the Dutch, Swiss and U.K. regulators to halt the project last November.

Por supuesto, no he encontrado la carta de FSA en su website. Si alguien puede añadir más información, por favor, sería de agradecer.

European Clearing Reform Dealt Late Setback, by Michelle Price
WSJ, Nov 01, 2010

AMSTERDAM—A long-awaited agreement between four of Europe's leading clearing houses, which was expected to be signed off as early as this week and would have opened up competition in the market after years of pressure from banks and investors, has been postponed by European regulators at the last minute, according to people familiar with the matter.

Regulators were this week expected to approve a so-called "interoperability" arrangement between four of Europe's largest clearing houses: the London-based LCH.Clearnet; the Swiss clearer SIX x-clear; EuroCCP in London; and the Netherlands-based European Multilateral Clearing Facility, according to senior sources in the market infrastructure industry attending the Sibos conference in Amsterdam last week.

However, at least one national regulator—thought to be the U.K.'s Financial Services Authority—raised concerns over the deal at the eleventh hour and has postponed its approval until the end of this month at the earliest, these people said. Those worries are understood to center on risk-management issues.

Interoperability is important because it would open up the fragmented post-trade market infrastructure to competition and reduce costs for market participants and, ultimately, for investors and pension funds.

Interoperability between clearers would allow trading firms to choose which clearing house they want to clear their trades, instead of being—as they are now—forced through the clearer chosen by the exchange or platform on which they are trading.

Most exchanges and trading venues in Europe route their trades through a single clearer. All-in trading costs are consequently as much as 10 times higher than in the U.S. The lack of open competition means that fees for clearing and settlement account for the majority of trading costs for investors and market participants.

The industry hopes that interoperability could have the same impact on clearing and settlement as the 2007 markets in financial instruments directive did on equities trading, or Mifid. Mifid triggered a wave of new entrants into the equities market, increasing competition and reducing trading fees across the industry.

The head of one trading venue said last week at the Sibos international banking conference in Amsterdam: "We are expecting the go-ahead for full interoperability between these four clearers to come—at last—in the first week in November." Sources close to two of the clearers involved confirmed the expected announcement.

However, a source close to one of the clearers said the FSA had contacted the four central counterparties, advising them that the meeting at which the decision was expected to be made would be delayed until the end of November. The FSA wasn't available to comment.

In February this year, the regulator sent a private letter to the central counterparties in which it outlined concerns that the clearing houses needed to account for a number of risks created by interoperability. These included additional counterparty credit risk, technical, and liquidity risk. The FSA hasn't prescribed any measures, however, and has left it up to the central counterparties to work out how to address these issues.

The concept of interoperability was first mooted by the former European Commissioner for the internal market, Charlie McCreevy, who imposed a code of conduct on the industry in 2006. However, a combination of vested interest and protectionism by incumbent clearers meant the code was broadly ignored.

Responding to industry pressure, LCH.Clearnet, SIX x-clear, EuroCCP and EMCF agreed to link their technology systems in the first half of last year but concerns regarding the threat of "contagion risk" between clearers—namely that the clearers could spread systemic risk across borders—led the Dutch, Swiss and U.K. regulators to halt the project last November.

In August, the clearing houses re-submitted a detailed plan that addressed these concerns by including provisions for more robust risk management between the clearers. It is understood the regulators have yet to finish their analysis relating to the cash collateral provisions designed to address their concerns over contagion.

"Interoperating in cash equities is not tremendously difficult," one person close to the discussions said. "The problem has been that during the reviews that the regulators have been performing during the last year, the analysis produces a list of questions and the answers generate more questions, so it's been a fairly circular process."

Press Briefing

Nov 05, 2010

An Undeserved Win for the GOP - Conventional wisdom says the president was too liberal and tried to do too much. Nonsense.

William Galston, former domestic policy adviser to President Bill Clinton, writing at, on the independent vote

The G-20 Seoul 2010 Summit: Strengthening the Global Recovery

The Two Left Coasts - Why the GOP wave didn't wash over New York and California

Global Agriculture and Food Security Program Partners Announce Second Round of Grants

The GOP's 2012 Game Plan

Will Post-Elections Australia Pursue a Course Independent of the United States?

Boehner: What the Next Speaker Must Do - Secrecy, arrogance, and the abuse of power have shattered the bonds of trust between the people and their elected leaders. Repairing that trust requires sweeping change, beginning with an end to earmarks.

Criticizing the Inspectors

The German Ecological-Industrial Complex. By Malte Lehming
This 'good' ideology increases inequality more than neo-liberal policies ever could
WSJ, Nov 04, 2010

Berlin - Germans are the most eager sorters of trash. They dutifully bring their light bulbs and batteries to special recycling points, introduced deposits on bottles and cans seven years ago, build tunnels under highways so frogs can safely cross. They fight for every endangered tree and animal. More and more windmills dominate the landscape. Environmental studies is taught in school, and the German chancellor's work for climate protection is one of her trademarks.

Historically and psychologically, this close connection to ecology is understandable. The Germans need some sort of ideology. They've had bad experiences with fascism and communism and had to be painstakingly educated in the ideals of freedom and democratic virtue. So ecology was the right idea at the right time. Germans believe it gives them a vision that puts them, for the first time, on the right side of history, the side of the good and of the future.

This explains the inexorable rise of the Greens. For the last five weeks, the party has been polling ahead of the Social Democrats (SPD), replacing them as the second strongest political force. Only slightly behind the ruling Christian Democratic Union (CDU), the Greens could even appoint the chancellor in a coalition with the SPD if national elections were held today.

The Greens' voters long ago stopped coming primarily from the left-wing alternative milieu. Their strongest supporters now come from the well-off middle class. According to the polling institute Forsa, 37% of German civil servants would vote Green. Among upper-level civil servants the figure is as high as 41%. Nearly one in three self-employed voters supports the environmental party. Green voters are "well-off post-materialists": Their average household income is higher than that of the supporters of any other party. Workers and retirees go elsewhere.

That said, all of Germany's other parties have long-since discovered ecology as well. Chancellor Angela Merkel was once the federal environmental minister, as was (SPD) leader Sigmar Gabriel. Even the market-friendly Free Democrats (FDP) have turned greenish. The governing CDU-FDP coalition recently adopted the world's most ambitious climate-protection program. "Clean Energy For Everyone" was the slogan. Wind parks in the sea, solar plants, energy storage facilities, energy-saving renovations: The goal is that by 2050, Germany should be able to power itself almost entirely through regenerative energy while the carbon dioxide emissions of all buildings will be reduced to zero.

This will be enormously expensive, but that doesn't bother the Germans. Energy prices have already risen drastically, and Mrs. Merkel has prepared the country for rent increases. "Of course, at first glance not everyone likes that," she says, but in the long run everyone will gain. There is consensus that current generations must bear the main burden of ecologically restructuring Germany's energy system. We're the good guys.

And these days, being good even pays off. Given the increasingly global regulations to curb pollution and carbon emissions, exporting countries hope to make environmentally friendly technology the leading industry of the 21st century. In 15 years, according to a government-sponsored study, green technology will overtake the automobile industry as Germany's core industry. A multi-billion-dollar market has developed, and Germany is the leader in many emerging branches, with a worldwide market share in green technology of around 16%. Some 1.5 million Germans already work in the green industry.

Ecology has become an economic "stimulus" program of sorts. Consumers are forced to buy new versions of expensive everyday products—from refrigerators to cars—not because of age or deterioration, but because they no longer conform to the most recent environmental standards. These norms also serve as wonderful import-defense weapons. No dirty plastic dolls from China can enter, no gene-manipulated food may be purchased. Germany's purity law has turned into a type of national environmentalism. Our morality protects our markets.

But it's the consumer who pays the piper. Climate-friendly retrofitting of Germany's buildings might cost some €2.5 trillion. Building owners can transfer these costs to tenants. That means that rents will rise steeply for years. In Berlin alone, according to estimates by tenants' associations, nearly one in three households will have to move because they will no longer be able to afford their old apartments. This will primarily affect the unemployed and those with low income.

You have to be able to afford ecology. The Greens can, but weaker social groups will suffer. Expensive organic products, kerosene surcharges, gas price increases, higher parking fees, rising energy prices and rents—ecology makes the poor poorer. And for those who can no longer afford to fly to Mallorca, the Greens graciously recommend taking a vacation at home. That will boost domestic tourism.

Those who believe they are on the right side of history may view the social consequences of radical environmentalism, in coldly arrogant tones, as unavoidable collateral damage. And wasn't it always unpleasant for Germany's well-off to share the beaches in exotic vacation locales with simple workingclass families, just because of those cheap charter flights?

The Greens like to portray themselves as fighting against the excesses of capitalism. Now it's clear that the ecological-industrial complex increases inequality more than neo-liberal policies ever could.

Mr. Lehming is op-ed page editor of Der Tagesspiegel. Belinda Cooper translated this essay from the German.

Holographic Video Brings Star Wars-Style 3D Telepresence a Step Closer

Thursday, November 4, 2010

Press Briefing

Nov 04, 2010

Holographic Video Brings Star Wars-Style 3D Telepresence a Step Closer

A Way Forward for Obama - What the president can do if he wants to remain relevant

Court should nullify Arizona immigration law

The GOP will have operational control of the Senate more often than Majority Leader Harry Reid will

Life-Saving Treatments: Made in the U.S.A.

Martyrs to ObamaCare - Health care blows a hole in the Democratic majority

Arms Control and International Security: Remarks to the National Model UN Conference

More Monetary Cowbell - "I got a fever, and the only prescription is more quantitative easing!"

The New START Treaty: It's Time for the Senate to Vote

GOP: Unlock the American Economy - A genuine pro-growth economic agenda requires more than spending restraint

Lessons of the Election

President James Madison on the limits of federal power over the economy: veto message on the Internal Improvements Bill, 1817
WSJ, Nov 03, 2010

The legislative powers vested in Congress are specified and enumerated in the eighth section of the first article of the Constitution, and it does not appear that the power proposed to be exercised by the bill is among the enumerated powers, or that it falls by any just interpretation within the power to make laws necessary and proper for carrying into execution those or other powers vested by the Constitution in the Government of the United States.

"The power to regulate commerce among the several States" can not include a power to construct roads and canals, and to improve the navigation of water courses in order to facilitate, promote, and secure such a commerce without a latitude of construction departing from the ordinary import of the terms strengthened by the known inconveniences which doubtless led to the grant of this remedial power to Congress.

To refer the power in question to the clause "to provide for the common defense and general welfare" would be contrary to the established and consistent rules of interpretation. . . . It would have the effect of subjecting both the Constitution and laws of the several States in all cases not specifically exempted to be superseded by laws of Congress. . . . Such a view of the Constitution, finally, would have the effect of excluding the judicial authority of the United States from its participation in guarding the boundary between the legislative powers of the General and the State Governments. . . .

I am not unaware of the great importance of roads and canals and the improved navigation of water courses, and that a power in the National Legislature to provide for them might be exercised with signal advantage to the general prosperity. But seeing that such a power is not expressly given by the Constitution, and believing that it can not be deduced from any part of it without an inadmissible latitude of construction and a reliance on insufficient precedents; believing also that the permanent success of the Constitution depends on a definite partition of powers between the General and the State Governments, and that no adequate landmarks would be left by the constructive extension of the powers of Congress as proposed in the bill, I have no option but to withhold my signature from it.

What You Missed: Tuesday Talk on the President’s Trip to Asia

Dan Rather on MSNBC: Mitch McConnell 'Wants to Cut Out Obama's Heart and Feed His Liver to the Dogs'

International Cooperation: Furthering US National Space Policy and Goals

State Bailouts? They've Already Begun - Bond subsidies and transfers have allowed states to avoid making tough decisions. It won't last.

Radio Renegades - Review of Adrian Johns' Death of a Pirate

Wednesday, November 3, 2010

Press Briefing

Nov 03, 2010

State Dept: Addressing Today's Nuclear Threats

On Capitol Hill, Anything Goes

Statement by the Press Secretary on the Case of Ms. Sakineh Mohammadi Ashtiani

Arizona Christian School Tuition Organization v. Winn - A crucial case on tax credits for scholarships to religious schools

Statement by the President on the 10th Anniversary of Crews Aboard the International Space Station

High Rollers at the Fed. WSJ Editorial
The central bank becomes a Treasury profit center—for now.
WSJ, Wednesday, November 3, 2010

The Federal Reserve's Open Market Committee seems poised today to make a historic decision to expand its balance sheet by as much as $1 trillion or more to boost inflation and reduce unemployment. We've said before that we think this is a monetary mistake, but the public and Congress should also be aware that it increasingly carries fiscal risks.

In conducting monetary policy, the Fed has historically stuck to the purchase of short-term Treasury securities and other highly safe assets. That changed amid the financial panic, as the Fed grew its balance sheet to $2.1 trillion in 2009 from $900 million in 2007. That expansion was controversial but it was defensible on grounds that the central bank was fulfilling its duty as lender of last resort during a liquidity squeeze. Roughly $1 trillion of the new assets were in short-term credit facilities, including foreign central bank swaps.

In 2008, the Fed began its dive into riskier assets by adding securities from Bear Stearns and AIG totaling about $70 billion, Fannie Mae and Freddie Mac debt of $45 billion and over $200 billion in Fan and Fred-guaranteed mortgage-backed securities. But those purchases remained a small part of the Fed's portfolio and were widely viewed as emergency measures amid a crisis. As it turned out, the Fed was only warming up.

Today the Fed's balance sheet of more than $2.3 trillion has no term auction facilities, commercial paper funding facilities or liquidity swaps. In their place mortgage-backed securities have ballooned to $1.1 trillion, U.S. Treasurys to $821 billion and Fannie Mae and Freddie Mac debt to $154 billion.

In the short-term, these investments have proven to be a revenue windfall for the U.S. government. In the first six months of 2010, the Fed says this portfolio produced net earnings of some $36.9 billion. Most of those earnings came from Treasurys, Fannie-Freddie debt and mortgage-backed securities (MBS). This compares to $16 billion in the first six months of 2009.

The Congressional Budget Office reports that in fiscal 2010, which ended September 30, the Fed earned $76 billion, a 121% increase from a year earlier. To put that in perspective, $76 billion is more than a third of the $192 billion that the corporate income tax raised in fiscal 2010. The Fed has become one of the Treasury's biggest cash cows, helping to mask the real size of the budget deficit.

As you may have read, however, there is no free lunch, and this revenue stream is the result of taking new risks. Before 2008, short-term government debt was the Fed's traditional instrument of monetary policy. Today the Fed's mortgage-backed portfolio has a maturity of more than 10 years, and nearly half of its portfolio of Treasurys is now greater than five years.

This means greater interest rate risk, as outlined in a new paper in the American Institute of Economic Research, "The World's Most Profitable Corporation," by former Atlanta Fed President William Ford and Walker Todd, a former New York Fed lawyer specializing in monetary affairs. The authors estimate that if interest rates on 30-year fixed-rate MBS were to rise to 5% from 4%, "the Fed's current portfolio of such bonds ($1.079 trillion) would decline in value by about $162 billion—nearly three times the $57 billion of capital on the Fed Banks' consolidated balance sheet in mid-October 2010."

The Fed's new risk profile also shows up in its capital to asset ratio. Messrs. Ford and Todd point out that the Fed's short-term portfolio has allowed it to carry only a 4% ratio of capital to assets compared to an 8% ratio at commercial banks. But since 2008, while the portfolio has become more risky, the capital ratio has dropped. The authors says that today the New York Fed's capital ratio is a measly 1.45%, which means a leverage ratio of 69 to 1 and the entire Fed system has a ratio of 2.46% or 47 to 1.

More leverage together with extended maturities means that if there is a sharp rise in the yield of long-term bonds, perhaps due to rising inflation expectations, the Fed's balance sheet could look very ugly, very fast. Fed officials will rightly argue that they are able to hold these long-term assets to maturity without having to realize losses. But what if the Fed has to sell assets to drain liquidity from the economy faster than it might prefer, and thus take losses on its portfolio? The revenue gain for the government would become losses. Imagine how delighted that would make Congress, not to mention complicating the political task of Fed tightening.

Everybody loves the Fed when it is easing money, as all but a few of us did during the credit boom and housing bubble of the mid-2000s. The trouble comes when the bill comes due. One task of the next Congress should be to better inform the public about the risks the U.S. central bank is taking, ostensibly on our behalf.

Readout of the President's Call with President with Yemeni President Saleh

The GOP Can Outsmart ObamaCare - How Republicans can create a national insurance charter, deregulate health insurance and save ObamaCare from itself

The President's Foreign Trip

DeMint: Remember what the voters back home want—less government and more freedom

Monetary and Fiscal Policy Interactions in the Post-war U.S.

EPA Regulations Could Cause Potentially Serious Capacity Problems Coal

Strengthening Fragile Families

Flashback: Media Decried Voters in 1994, Argued Conservatives Had "No Mandate"

Tuesday, November 2, 2010

Press Briefing

Nov 02, 2010

Maddow's list of accomplishments by the Democratic-controlled 211th Congress

Pakistan's Courts: A Counterterrorism Challenge

Kenneth Pollack explains why President Obama's current approach to Iran is no longer strong enough to succeed

RT @BarackObama: This is the day you’ve been working so hard for. Make calls to voters to make sure they get out

Conservatives: Stopping Voter Fraud

President Obama: "I need you to keep on fighting"

Ukraine's Economic Revolution - Viktor Yanukovych's reform agenda is truly transformational

Brussels' Budget Bounty - If only the EU would follow its own advice and spend within its means

President Obama: "Put It In D"

Rally to Restore Authority - What Jon Stewart really stands for.

President Obama’s Challenge to Philadelphia: 20,000 Doors

From the South Bronx to West Point - A public school discovers the Army

Poetry of the Taliban

An Empire State Reprieve? - Incredible to believe, even New Yorkers may be voting for reform

Michelle Obama: “This isn’t about politics”

Moving America Forward: Bridgeport, CT

Campaign-Finance Reform, RIP - This year's gusher of spending has made far more races competitive

Moving America Forward: Philadelphia

Democrats Can't Blame the Economy - Imagine if President Obama had moved right after Scott Brown's election. The party would be in better shape today.

Obama in India: Pakistan on the Mind

Michelle Obama: "There is so much at stake"

Obama's Next Worry: A Restive Left Flank - Every president who lost re-election in the last half-century has first been weakened by a primary fight

Statement for the Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association

Mitch Stewart on Rachel Maddow: What Republican Surge?

Why Obama Is No Roosevelt - Roosevelt: 'Your government has unmistakable confidence in your ability to hear the worst without flinching and losing heart.' Obama: We don't 'always think clearly when we're scared.'

Monday, November 1, 2010

Press Briefing

Nov 01, 2010

Latest Reports from Recovery Act Recipients on

Journalism Scoops WikiLeaks - There's little of public benefit in the documents that hadn't already been reported

Cleveland Readies for President Obama’s Visit, Volunteers Get Out the Vote

Gabrielle Union: Raise Your Vote

Puerto Rico's Governor Channels Ronald Reagan - Luis Fortuño wants deep tax cuts to spur growth. Are Republicans in D.C. paying attention?

Video: Helping Businesses Grow and Hire New Employees

Wall Street Still Doesn't Love the GOP - Bankers understand that Dodd-Frank has written 'too big to fail' into law. So do the tea partiers.

More than 800,000 White House Visitor Records Online

The Ground Zero Settlement - The plaintiffs have been offered a fair deal

"Volunteer for what you believe in."

Where Is Gao Zhisheng? - The Chinese human rights lawyer has disappeared

10 Million Goal Smashed—On to the Final Push

Hallmarks of al Qaeda - Why drone attacks against Awlaki in Yemen are justified

Your Questions on Veterans Education, Student Debt, and Protecting America

A Vote Against Dems, Not for the GOP - Voters don't want to be governed from the left, right or center. They want Washington to recognize that Americans want to govern themselves.

Failed States and the Spread of Terrorism in Sub-Saharan Africa. By Tiffiany Howard

Why rising government debt burdens really matter

Saturday, October 30, 2010

Utopia, With Tears - A review of Fruitlands, by Richard Francis

Utopia, With Tears. By ALEXANDRA MULLEN
No meat, no wool, no coffee or candles to read by, but plenty of high aspirations—and trouble.A review of Fruitlands, by Richard Francis (Yale University Press, 321 pages, $30)

WSJ, Friday, October 29, 2010

In 1843, in the quiet middle of Massachusetts, a group of high-minded people set out to create a new Eden they called Fruitlands. The embryonic community miscarried, lasting only seven months, from June to January. Fruitlands now has a new chronicler in Richard Francis, a historian of 19th-century America. "This is the story," he writes, "of one of history's most unsuccessful utopias ever—but also one of the most dramatic and significant." As we learn in his thorough and occasionally hilarious account, the claim is about half right.

The utopian community of Fruitlands had two progenitors: the American idealist Bronson Alcott and the English socialist Charles Lane. Alcott was a farm boy from Connecticut who had turned from the plough to philosophy. According to Ralph Waldo Emerson, his friend, Alcott could not chat about anything "less than A New Solar System & the prospective Education in the nebulae." Airy as his thoughts were, Alcott could be a mesmerizing speaker. Indeed, his words partly inspired an experimental community in England, where he met Lane.

Lane has often been considered the junior partner in the Fruitlands story, merely the guy who put up the money (for roughly 100 acres, only 11 of which were arable). But Mr. Francis fleshes him out, showing him to be a tidier and more bitter thinker than Alcott, with a practical streak that could be overrun by his hopes for humanity.

As Mr. Francis notes, Alcott and Lane shared a "tendency to take moderation to excess," pushing their first principles as far as they could go. One such principle was that you should do no harm to living things, including plants. As Mr. Francis explains: "If you cut a cabbage or lift a potato you kill the plant itself, just as you kill an animal in order to eat its meat. But pluck an apple, and you leave the tree intact and healthy."

The Fruitlands community never numbered more than 14 souls, five of them children. The members included a nudist, a former inmate of an insane asylum, and a man who had once gotten into a knife fight to defend his right to wear a beard. Then there was the fellow who thought swearing elevated the spirit. He would greet the Alcott girls: "Good morning, damn you." Lane thought the members should be celibate; Alcott's wife, Abigail, the mother of his four daughters and the sole permanent woman resident, was a living reproach to this view.

All of Fruitlands members, however, agreed to certain restrictions: No meat or fish; in fact nothing that came from animals, so no eggs and no milk. No leather or wool, and no whale oil for lamps or candles made from tallow (rendered animal fat). No stimulants such as coffee or tea, and no alcohol. Because the Fruitlanders were Abolitionists, cane sugar and cotton were forbidden (slave labor produced both). The members of the community wore linen clothes and canvas shoes. The library was stocked with a thousand books, but no one could read them after dark.

And how did the whole experiment go? Well, most of the men at Fruitlands had little farming experience. Alcott, who did, impressed Lane with his ability to plow a straight furrow; but Alcott was always a better talker than worker. The community rejected animal labor—and even manure, a serious disadvantage if you want to produce enough food to be self-sufficient. The farming side of Fruitlands was a dud.

But the experiment was indeed, as Mr. Francis claims, "dramatic." The drama came from a common revolutionary trajectory in which "a group of idealists ends by trying to destroy each other." "Of spiritual ties she knows nothing," Lane wrote of Abigail. "All Mr. Lane's efforts have been to disunite us," she confided to a friend, referring to her relations with Bronson. Even the usually serene Bronson agonized: "Can a man act continually for the universal end," he asked Lane, "while he cohabits with a wife?" By Christmas, which he spent in Boston, Bronson seemed on the verge of dissolving his family. In the new year he returned to Fruitlands, but he had a breakdown. This was no way to run a utopia, and the experiment ended.

Was Fruitlands "significant"? In Mr. Francis's reading, the community "intuited the interconnectedness of all living things." That intuition, he believes, underlies our notions of the evils of pollution and the imminence of environmental catastrophe, as well as our concerns about industrialized farming. The Fruitlanders' understanding of the world, he argues, helped create a parallel universe—an alternative to scientific empiricism—that is still humming along in the current day.

Perhaps so. Certainly many New Age and holistic notions, in their fuzzy and well-meaning romanticism, share a common ancestor with the Fruitlands outlook. But the result is not always benign. It was the Fruitlanders' belief, for instance, that "all disease originates in the soul." One descendant of this idea is the current loathsome view that cancer is caused by bad thoughts.

Though obviously sympathetic to the Fruitlands experiment, Mr. Francis gives us enough facts to let us draw our own conclusions. He records Bronson and Abigail's acts of charity, already familiar to us from their daughter Louisa's novel "Little Women" (1868). But he also retells less admiring stories, of their petty vindictiveness and casual callousness. Along the way he adumbrates the ways in which idealism can slide into megalomania.

Mr. Francis reports a conversation that Alcott once had with Henry James Sr., the father of the novelist Henry and the philosopher William. Alcott let it drop that he, like Jesus and Pythagoras before him, had never sinned. James asked whether Alcott had ever said, "I am the Resurrection and the Life." "Yes, often," Alcott replied. Unfortunately, Mr. Francis fails to record James's rejoinder: "And has anyone ever believed you?"

Ms. Mullen writes for the Barnes & Noble Review.

Press Briefing

Oct 30, 2010

A Closer Look into the Commit to Vote Challenge

Is China’s Wen Backing Away from Reform?

State Sec Clinton pressed Asian leaders to resolve maritime disputes through international legal channels, repeating a position that has raised China's ire recently

Questioning the Yuan’s Rise to Global Status

Stand Up

Kal Penn wants you to vote

GM's Wagoner Gets His Due - The much-maligned former CEO fixed GM's dysfunctional welfare state. Maybe he can fix ours.

The President in Maryland: "We Have to Do More to Accelerate This Recovery"

West Wing Week: "The Mysterious Case of Mysterious Case 55"

Dissecting French Schizophrenia - The lost children of Bastiat have traded a monarchy for a union-made straitjacket

Video: Open for Questions: Pete Souza

Bubba and Charlie - The pair are made for one another

Video: President Obama's Statement on Security Alert

John Legend: “I’m committed to vote this year—are you?”

The New Abnormal - The Keynesian determinism of slow growth and high unemployment

You Did It: 7 Million Voters in Less Than Seven Days

Michigan Turns to the GOP for Jobs - During previous recessions, voters went for Democratic candidates. Not this year.

Your Call Tonight Can Make the Difference

ObamaCare and Voters - Clinton and Obama told Democrats it would be popular. Whoops.

Video: The National: Raise Your Vote

Democratic Rep. Brian Baird says that job creation should have been priority 'number one, two and three'

Update: U.S. Response to Pakistan's Flood Disaster

GE Gets Over 2.3 Federal Energy Grants…Every Month!

Thursday, October 28, 2010

Press Briefing

Oct 29, 2010

Saturday in DC: Phonebank to Restore Sanity

A religious perspective on Halloween - The holiday is a rare opportunity in the religious calendar to reflect on death

On Human Rights, Send in the Experts

Sandra Day O'Connor v. the People - The former Supreme Court justice wants trial lawyers to pick state judges

Solar Panels on the White House and in the Desert, 36 Billion Gallons of Biofuels, and Cleaner Trucks

How To Cut Federal Spending

Video: First Question with Robert Gibbs - October 28, 2010

Prop 23 and the Green Jobs Myth - Californians could protect a million or so jobs by overturning the state's self-imposed carbon dioxide limits

Highlights from President Obama’s Daily Show Appearance

Rendell's Frack Attack - Pennsylvania's gas boom and its discontents

Secretary Clinton and Norwegian Foreign Minister Store Publish Joint Op-Ed on Women as Peacemakers

And the FAIR Tax Trap - Democrats turn a conservative fad against GOP candidates

2010 Summit of the Global Banking Alliance for Women

The Tax Me More State - Two initiatives that would further punish California

Why Business Should Fear the Tea Party - CEOs who complain about uncertainties caused by President Obama's policies aren't going to be happy about a new crop of congressman seeking to abolish the Fed

Recognising the risk-mitigating impact of insurance in operational risk modelling

Democrats Outpacing Republicans in Early Voting

A Little Lady Predicts a Big Win - The Republican tide may even reach the Jersey Shore

Calling the voters who’ll make a difference this year is big—or as a certain vice president might say, a BFD

Conservatives: The Obama War On Science

President Obama on the Daily Show with Jon Stewart

How Long Before We See Tea Partiers Start Showing Up in Uniform, 1930s Style?

Press Briefing

Oct 28, 2010

Video: ‘Backstage with Barack’

How Obama Will Address Outsourcing in India

An Event to End Violence Against Women

The Rage Against Citizens United - Why Barack Obama gave the Supreme Court a public tongue-lashing

President Obama in Nevada: “Let’s go forward”

Time for Bailout Transparency - Big banks don't want you to know which of them went to the Fed for emergency help

Your Questions on Climate Change and Foster Youth

Gold vs. the Fed: The Record Is Clear - There were no world-wide financial crises of major magnitude during the Bretton Woods era from 1947 to 1971

Real Update on Real Property

Christie Gets Off the Train - The New Jersey Governor cancels a bloated railroad project

United States -Japan 2010 Joint Projects in APEC

Midterms are tough for presidents, but party leaders aren't usually in trouble

Counterterrorism: Preventing Terrorism: Strategies and Policies To Prevent and Combat Transnational Threats

Political Conservation Returns

What You Missed: Tuesday Talk with David Axelrod

David Plouffe: You are changing the dynamic of this election

12 Year-Old Kayla: 'What we're doing now affects the next generation'

A Referendum on the Redeemer - Barack Obama put the Democrats in the position of forever redeeming a fallen nation rather than leading a great one

Making a Habit of Subverting the Will of Voters - New York will finally get the chance to vote on term limits

Libertarians: The 111th Congress fits a familiar Democratic pattern

Wednesday, October 27, 2010

Press Briefing

Oct 27, 2010

Sec Clinton's Remarks at Millennium Challenge Corporation Signing Ceremony for the Jordanian Compact

Private Social Security Accounts: Still a Good Idea - A couple who worked from 1965 to 2009 would have beat the government payout by 75%

The Global Immigrant Experience, by Under Secretary for Democracy and Global Affairs

7 in 7 Day One: 1,329,196

Dishonest Prosecutorial Services - Democrats try to revive a vague antibusiness bludgeon

Small Business and the Economy

Where the New Jobs Are - In Texas, not California

367 Calls in One Night

Boxer's Friends at Cisco - Outsourcing and political double standards

President Obama in Rhode Island: "When You Vote Against Small Business Tax Relief..."

On the NERC report - The EPA wants to take away 7% of U.S. power generation

White House - Closing the IT Gap: An Update

House Afire - The elusive search for villains in the foreclosure crisis

U.S.-Colombia Action Plan on Racial and Ethnic Equality

Karzai and the Scent of U.S. Irresolution. By Fouad Ajami
Our longest war is now being waged with doubt and hesitation, and our ally on the scene has gone rogue, taking the coin of our enemies and scoffing at our purposes
WSJ, Oct 27, 2010

'They do give us bags of money—yes, yes, it is done, we are grateful to the Iranians for this." This is the East, and baksheesh is the way of the world, Hamid Karzai brazenly let it be known this week. The big aid that maintains his regime, and keeps his country together, comes from the democracies. It is much cheaper for the Iranians. They are of the neighborhood, they know the ways of the bazaar.

The remarkable thing about Mr. Karzai has been his perverse honesty. This is not a Third World client who has given us sweet talk about democracy coming to the Hindu Kush. He has been brazen to the point of vulgarity. We are there, but on his and his family's terms. Bags of cash, the reports tell us, are hauled out of Kabul to Dubai; there are eight flights a day. We distrust the man. He reciprocates that distrust, and then some. Our deliberations leak, we threaten and bully him, only to give in to him. And this only increases his lack of regard for American tutelage. We are now there to cut a deal—the terms of our own departure from Afghanistan.

The idealism has drained out of this project. Say what you will about the Iraq war—and there was disappointment and heartbreak aplenty—there always ran through that war the promise of a decent outcome: deliverance for the Kurds, an Iraqi democratic example in the heart of a despotic Arab world, the promise of a decent Shiite alternative in the holy city of Najaf that would compete with the influence of Qom. No such nobility, no such illusions now attend our war in Afghanistan. By latest cruel count, more than 1,300 American service members have fallen in Afghanistan. For these sacrifices, Mr. Karzai shows little, if any, regard.

In his latest outburst, Mr. Karzai said the private security companies that guard the embassies and the development and aid organizations are killer squads, on a par with the Taliban. "The money dealing with the private security companies starts in the hallways of the U.S. government. Then they send the money for killing here," Mr Karzai said. It is fully understood that Mr. Karzai and his clan want the business of the contractors for themselves.

[Photo: Afghan President Hamid Karzai (left) and Iranian President Mahmoud Ahmadinejad]

The brutal facts about Afghanistan are these: It is a broken country, a land of banditry, of a war of all against all, and of the need to get what can be gotten from the strangers. There is no love for the infidels who have come into the land, and no patience for their sermons.

In its wanderings through the Third World, from Korea and Vietnam to Iran and Egypt, it was America's fate to ride with all sorts of clients. We betrayed some of them, and they betrayed us in return. They passed off their phobias and privileges as lofty causes worthy of our blood and treasure. They snookered us at times, but there was always the pretense of a common purpose. The thing about Mr. Karzai is his sharp break with this history. It is the ways of the Afghan mountaineers that he wishes to teach us.

When they came to power, the Obama people insisted they would teach Mr. Karzai new rules. There was a new man at the helm in Washington, and there would be no favored treatment, no intimacy with the new steward of American power. Governance would have to improve, and skeptical policy makers would now hold him accountable (Vice President Joe Biden, Special Representative Richard Holbrooke, et al.). Mr. Karzai took their measure, and everywhere around him there were signs of American retreat, such as the spectacle of the Pax Americana eager to reach a grand bargain with the Iranian theocrats.

Mr. Karzai didn't need to be a grand strategist. He had, as is necessary in his world of treachery and betrayal, his ear to the ground, his scent for the irresolution of the Obama administration. He saw the scorn of Iran's cruel leaders for America's diplomatic approaches. He could see Iranian power extend all the way to the Mediterranean, right up to Israel's borders with Lebanon and to Gaza. The Iranians were next door and the Americans were giving away their fatigue. Why not accept the entreaties from Tehran?

A year ago, the U.S. ambassador to Kabul, Karl Eikenberry, laid out the truth about Mr. Karzai and his regime in a secret cable that of course made its way into the public domain. "President Karzai is not an adequate strategic partner," Mr. Eikenberry wrote. The Karzai regime could not bear the weight of a counterinsurgency doctrine that would win the loyalty of the populace. There were monumental problems of governance but "Karzai continues to shun responsibility for any sovereign burden, whether defense, governance, or development. He and much of his circle do not want the U.S. to leave and are only too happy to see us invest further. They assume we covet their territory for a never-ending war on terror and for military bases to use against surrounding powers." In Mr. Eikenberry's cable, Mr. Karzai is a man beyond redemption, who was unlikely to "change fundamentally this late in his life and in our relationship."

In one of his great tales of the imperial age, "Lord Jim," Joseph Conrad depicts the encounter between a criminal and a noble figure. "Gentleman" Brown and a band of robbers had come into Tuan Jim's domain—a small world, Patusan, where Jim's writ ran and the natives honored and deferred to him. Everything was on the side of Jim—possession, security, power. But Brown senses the hidden irresoluteness of Jim, a man who had come to this remote, small world in the Pacific in search of redemption. We are equal, says Brown: "What do you know more of me than I know of you? What did you ask for when you came here?" Jim pays with his life. He had let the ruffian set the terms of the encounter.

A big American project, our longest war, is now waged with doubt and hesitation, and our ally on the scene has gone rogue, taking the coin of our enemies and scoffing at our purposes. Unlike the Third World clients of old, this one does not even bother to pay us the tribute of double-speak and hypocrisy. He is a different kind of client, but then, too, our authority today is but a shadow of what it once was.

Mr. Ajami is a professor at The Johns Hopkins University School of Advanced International Studies and a senior fellow at Stanford University's Hoover Institution.

International Health Issues: Advancing the Status of Women Around the World

Undergoverned space in the sub-Sahel area

Sec Clinton's Remarks at the 10th Anniversary of UN Security Council Resolution 1325 on Women, Peace and Security

Solar Energy is California’s New Gold Rush

Celebrating Science and Engineering on the National Mall

Conservatives: Returning the People’s House to the People

Tuesday, October 26, 2010

Press Briefing

Oct 26, 2010

Wall Street Reform: "One of the most important victories we achieved"

Former George W. Bush adviser Mark McKinnon on union funding for political campaigns

DOT, EPA Propose Nation's First-Ever Emissions, Fuel-Efficiency Standards

Eliminating Lifetime Limits Helps Paul Focus on Care

The Pakistan Paradox - Unless we're prepared to deal with it as an enemy, we must make do with it as a friend

Organizing for America's Director Mitch Stewart: "The calls I'm getting, from all over the country"

Mandelson: Prosperity Is More Than Just Money - Democracy, freedom, and entrepreneurial opportunity are at least as important

Michelle Obama: "Don't wait—vote early"

A $1.50 Lens-Free Microscope - The device could diagnose disease in the developing world and enable rapid drug screening

The Free Checking Restoration Act - Middle-class consumers are paying the price for the Dodd-Frank financial reform. The next Congress can undo the damage.

Soros: Why I Support Legal Marijuana - We should invest in effective education rather than ineffective arrest

Nancy Pelosi Who? - Democrats deny being Democrats

Committed to Vote in South Carolina

Geithner's Global Central Planning - The Chinese government's accumulation of U.S. debt represents a tragic investment decision, not a currency-manipulation effort

Remarks to Participants in the Edward R Murrow Program for Journalists

Big Insurance, Big Medicine - ObamaCare is already driving a wave of health-care consolidation—and higher costs
WSJ, Oct 26, 2010

ObamaCare's once and future harms have been well chronicled, but the major effects so far are less obvious and arguably more important: A wave of consolidation is washing over the health markets, and the result is going to be higher costs.

The turn toward consolidation among insurance companies is not new, and neither is it among doctors, hospitals and other providers. Yet the health bill has accelerated these trends, as all sides race to anticipate and manage political risk and regulatory uncertainty. This dynamic is leading to much larger hospital systems and physician groups, and fewer insurers dominated by a handful of national conglomerates. ObamaCare was sold using the language of choice and competition, but it is actually reducing both.

The first surge will come among the 1,200 insurers doing business in the U.S., given that a major goal of ObamaCare is to convert these companies into de facto public utilities. Those regulations are now being written—and once they're up and running some medium-sized carriers will collapse under the new mandates and higher overhead. State insurance commissioners warned the Administration this month that "improper or overly strident application . . . could threaten the solvency of insurers or significantly reduce competition in some insurance markets." They also implied that bankruptcies are likely.

With these headwinds, investors and Wall Street analysts are now predicting a lost decade for health insurance stocks. But it may be more accurate to say that there will be a lot of losers and some very big winners. Mergers and acquisitions will increase dramatically once companies get a better look at the regulation and figure out the valuation of M&A targets. Larger carriers will swallow smaller ones quietly before they fail.

Both publicly traded and nonprofit insurers have been heading in this direction for years, as in any industry where there are returns to scale. Size is also important in a low-margin business in which capital is costly and political clout vital. But scale is far more central now, because ObamaCare standardizes benefits. Once insurers lose the freedom to design their own products, they'll essentially be selling commodities, and survival will depend on enrollment volume and market share.

The same thing will happen to stand-alone and community hospitals—always a precarious business. Nearly a third of U.S. hospitals are currently operating in the red and will get steamrolled by ObamaCare, and many of them will be annexed by national chains and larger local systems.

This trend got a preview two weeks ago when Mercy Health Partners announced that it was seeking buyers for three Catholic hospitals in northeast Pennsylvania. CEO Kevin Cook told local media that ObamaCare was "absolutely" a factor in the decision to sell, only to backtrack once his comments were used in campaign ads against House Democrats Paul Kanjorski and Chris Carney, who voted for the bill.

Though it received little attention over a year of debate, ObamaCare actively promotes provider consolidation. Writing this summer in the Annals of Internal Medicine, Nancy-Ann DeParle and other White House health advisers argued that "The economic forces put in motion by the Act are likely to lead to vertical organization of providers and accelerate physician employment by hospitals and aggregation into larger physician groups."

Ask and ye shall receive. Across the country, providers are building giant hospital systems and much tighter doctor alliances like multispecialty groups to get out ahead of a concept known as "accountable care organizations," or ACOs. To modernize the delivery of medical services, ACOs would encourage doctors to work in teams to use resources more efficiently, streamline treatment and improve quality. The model is the Mayo Clinic and other large integrated systems.

At the moment ACOs are only a gleam in some bureaucrat's eye, and no one has a clue how they'll operate in practice until the government releases a working regulatory definition next year. Yet the percussive effects are already being felt across medicine.

Hospitals are now on a buying spree of private physician practices in the rush to build something that will qualify as an ACO. Some 65% of doctors who changed jobs in 2009 moved into a hospital-owned practice, while 49% of doctors out of residency were hired by hospitals, according to the Medical Group Management Association. In its 2010 census, the American College of Cardiology reports that nearly 40% of private cardiology groups are currently integrating with hospitals or merging with other practices.

Doctors are selling because complying with the ever-growing list of mandates has become more cumbersome; and while staff physicians on salary do gain predictability, they also lose the autonomy of independent practice. The other problem is price controls in Medicare, which are about 20% below private payments for doctors and 30% lower for hospitals. Hospitals are also scooping up practices to lock in referral sources and make up for ObamaCare's Medicare cuts. As it is, two-thirds of hospitals lose money today on Medicare inpatient services, according to Medicare.

ACOs are also driving consolidation among hospitals. Anecdotally, Marquette General Hospital and Bell Hospital formed a strategic ACO partnership in July that will dominate Michigan's upper peninsula. In Omaha, Methodist Health System and the Nebraska Medical Center recently followed suit. Similar alliances are underway in Detroit, Baltimore, Chicago, greater Boston, Roanoke and southwest Virginia—even Youngstown, Ohio.

The accountable care movement could do some good if it spreads best practices. But no one should entertain the illusion that it will reduce costs perforce and "bend the curve." In fact, the most concrete effect of this wave of consolidation may be to increase private health spending significantly.

Unlike Medicare and Medicaid, private reimbursement rates are determined by negotiations, often highly antagonistic. Insurers always attribute premium increases to the underlying cost of care, while doctors and hospitals always argue that there isn't enough competition among health plans. Both claims are "true," some of the time—but it depends on which side has more market power.

Insurers extract lower rates by steering patients and revenue to certain providers through their networks. Providers gain bargaining leverage when health plans can't credibly threaten to exclude them, whether because their share of the market is too large or due to public demand for "must have" hospitals. Consolidation will increasingly feed off itself as providers and insurers vie to get the whip hand in rate negotiations.

Most neutral experts believe the balance of power has tipped toward providers over the last decade, though this isn't always anticompetitive. Higher rates generally reflect investments in staffing, technology, specialization and sometimes consumer preferences. There is also the cost-shift to private insurance to offset Medicare's price controls. However, most economic studies on hospital M&A over the last two decades show that consolidation increases unit prices, though there is significant disagreement over the magnitude.

Accountable care organizations may become little more than a pretext for building up market power and fixing prices. The American Medical Association wants the government to stop insurers from individual contracting in favor of "exclusive dealing arrangements" with ACOs. In effect, the AMA wants a mandatory collective bargaining tool that would convert ACOs into unions.

"In a lot of states, the problem is just you don't have competition at all," President Obama said in February at his health summit. "We want competition."

Yet the consolidation wave is churning the insurance markets and reshaping clinical medicine with almost no public scrutiny. A rational system would give consumers an incentive to reward those businesses that innovate and deliver higher quality at lower cost, whether they are providers or insurers. ObamaCare is already moving the U.S. even further from the rational world, and this forced retreat will continue the longer it is left in place.

Sunday, October 24, 2010

Press Briefing

Oct 25, 2010

President Obama’s message at the Moving America Forward rally in Las Vegas

The Feds vs. Fruit Juice - The FTC goes to war against those who promote the health benefits of the pomegranate

Back to Work at California HQ

Panama's Presidential Temptation - Its market-friendly leader is beguiled by grandiose state projects

President Obama & Moving America Forward Rally Fires Up Base

Licensing to Kill - A new study shows how city regulations harm small business

OFA: What Can You Do to Help Further Change?

Another Drilling Smackdown - The White House loses again in court

Los Angeles Goes All in with President Obama

The G-20's 'Rebalancing' Act - Dollar devaluation is not a global growth strategy

Federal President's Weekly Address: Letting Wall Street Run Wild Again

How to Privatize the Mortgage Market - Europeans manage just fine without Fannie and Freddie-type agencies

The White House Blog: What Do They Expect in Return?

The NAACP's Unhealthy Tea Party Obsession - Black-on-black crime remains at epidemic levels and black children continue to suffer in bad schools. Doesn't the organization have better things to worry about?

Our Fiscal Policy Paradox - Government's kitbag is overflowing with ways to spur demand. Yet fiscal policy sits idle, paralyzed by extreme partisanship.

Stiglitz: Why Easier Money Won't Work - The Fed risks fueling a destructive bond market bubble, while any gains from a weaker dollar will come at the expense of those to whom we hope to export

The Real Case for Defunding NPR - My quarrel with government subsidies is that they cast a chill over the markets in which entrepreneurs seek to raise capital for highbrow journalism

Saturday, October 23, 2010

Press Briefing

Oct 23, 2010

Iraq Prime Minister Calls WikiLeaks Report Political

Al-shabab ordered Kismayo district residents to pay a monthly fee

Obama Rebuilt the Regulatory State. Now, Republicans Are About To Destroy It.

What's the Worst That Could Happen With The New Health Law?

Moral Arguments for Soaking the Rich

City Centered: Investing in Metropolitan Areas to Build the Next Economy

Friday, October 22, 2010

High costs of making batteries stall affordability of electric cars

High costs of making batteries stall affordability of electric cars. By Mike Ramsey
The Wall Street Journal Europe, page 22, Oct 19, 2010

The push to get electric cars on the road is backed by governments and auto makers around the world, but they face a hurdle that may be tough to overcome: the stubbornly high cost of the giant battery packs that power the vehicles.

Both the industry and government are betting that a quick takeoff in electric-car sales will drive down the price of the battery packs, which can account for more than half the cost of an electric vehicle.

But a number of scientists and automotive engineers believe cost reductions will be hard to come by. Unlike with tires or toasters, battery packs aren't likely to enjoy traditional economies of scale as their makers ramp up production.

Some experts say that increased production of batteries means the price of the key metals used in their manufacture will remain steady—or maybe even rise—at least in the short term.

These experts also say the price of the electronic parts used in battery packs as well as the enclosures that house the batteries aren't likely to decline appreciably.

The U.S. Department of Energy has set a goal of bringing down car-battery costs by 70% from last year's price, which it estimated at $1,000 per kilowatt hour of battery capacity, by 2014.

Jay Whitacre, a battery researcher and technology policy analyst at Carnegie Mellon University, is skeptical. The government's goals "are aggressive and worth striving for, but they are not attainable in the next three to five years," he said in an interview. "It will be a decade at least" before that price reduction is reached.

The high cost of batteries is evident in the prices set for early electric cars. Nissan Motor Co.'s Leaf, due in the U.S. in December, is priced at $33,000. Current industry estimates say its battery pack alone costs Nissan about $15,600.

That cost will make it difficult for the Leaf to turn a profit. And it also may make the Leaf a tough sell, since even with government tax breaks the car will cost more than twice the $13,520 starting price of the similar-size Nissan Versa hatchback.

Nissan won't comment on the price of the battery packs, other than to say that the first versions of the Leaf won't make money. Only later, when the company begins mass-producing the battery units in 2013, will the car be profitable, according to Nissan.

The Japanese company believes it can cut battery costs through manufacturing scale. It is building a plant in Smyrna, Tenn., that will have the capacity to assemble up to 200,000 packs a year.

Other proponents of electric vehicles agree that battery costs will fall as production ramps up. "They will come down by a factor of two, if not more, in the next five years," said David Vieau, chief executive officer of A123 Systems, a start-up that recently opened a battery plant in Plymouth, Mich.

Alex Molinaroli, president of Johnson Controls Inc.'s battery division, is confident it can reduce the cost of making batteries by 50% in the next five years, though the company won't say what today's cost is. The cost reduction by one of the world's biggest car-battery makers will mostly come from efficient factory management, cutting waste and other management-related costs, not from fundamental improvement of battery technology, he said.

But researchers such as Mr. Whitacre, the National Academies of Science and even some car makers aren't convinced, mainly because more than 30% of the cost of the batteries comes from metals such as nickel, manganese and cobalt. (Lithium makes up only a small portion of the metals in the batteries.)

Prices for these metals, which are set on commodities markets, aren't expected to fall with increasing battery production—and may even rise as demand grows, according to a study by the Academies of Science released earlier this year and engineers familiar with battery production.

Lithium-ion battery cells already are mass produced for computers and cellphones and the costs of the batteries fell 35% from 2000 through 2008—but they haven't gone down much more in recent years, according to the Academies of Science study.

The Academies and Toyota Motor Corp. have publicly said they don't think the Department of Energy goals are achievable and that cost reductions are likely to be far lower. It likely will be 20 years before costs fall by 50%—not the three or so years the DOE projects—according to an Academy council studying battery costs. The council was made up of nearly a dozen researchers in the battery field.

"Economies of scale are often cited as a factor that can drive down costs, but hundreds of millions to billions of ... [battery] cells already are being produced in optimized factories. Building more factories is unlikely to have a great impact on costs," the Academies report said.

The report added that the cost of the battery-pack enclosure that holds the cells is a major portion of the total battery-pack cost, and isn't likely to come down much. In addition, battery packs include electronic sensors and controls that regulate the voltage moving through and the heat being generated by the cells. Since those electronics already are mass-produced commodities, their prices may not fall much with higher production, the study said.

Lastly, the labor involved in assembling battery packs is expensive because employees need to be more highly trained than traditional factory staff because they work in a high-voltage environment. That means labor costs are unlikely to drop, said a senior executive at one battery manufacturer.

When car makers began using nickel-metal hydride batteries, an older technology, in their early hybrid vehicles, the cost of the packs fell only 11% from 2000 to 2006 and has seen little change since, according to the Academies study.

Toyota executives, including Takeshi Uchiyamada, global chief of engineering, say their experience with nickel-metal hydride batteries makes them skeptical that the prices of lithium ion battery pack prices will fall substantially.

"The cost reductions aren't attainable even in the next 10 years," said Menahem Anderman, principal of Total Battery Consulting Inc., a California-based battery research firm. "We still don't know how much it will cost to make sure the batteries meet reliability, safety and durability standards. And now we are trying to reduce costs, which automatically affect those first three things."

Press Briefing

Oct 22, 2010

President Obama: It Gets Better

When Will Our Progressive Corporatism Nightmare End?

Employers, Insurance and Health Care

Fed’s Plosser: Bad Incentives Drove Much of Financial Crisis

Partnership for Sustainable Communities Awards Grants to Build Infrastructure…

OFA: Progress In Iowa

Offshore Oil Drilling in Shallow Water: Good Safety Record, Less Risky

Jobs and Economic Security for America's Women Report

Remarks by the President at a Rally in Portland, Oregon

Can Yoga Be Christian? - An exercise craze provokes questions of body and soul

Tax Cut Facts: How Obama’s Tax Cuts Are Helping American Families

San Francisco's Public Pension Revolt - The city has cut back on almost every service: Summer schools have been shut, potholes deepen, parks close early, and services for the poor have been pared to the quick.

Building Stronger, Sustainable Communities Through Strategic Coordination

The Tea Party Is Wrong About Earmarks - Why just accept the president's spending priorities? Congress has the right and duty to make appropriations in the public interest.

The Role and Perspectives of Arms Control and Confidence- and Security-Building Regimes in Building Trust in the Evolving Security Environment

Soros Bets on Nevada - The campaign to hijack state judicial selection

President’s Working Group on Financial Markets Releases Money Market Funds Report

Britain's 'Austerity' Lessons - What Margaret Thatcher can teach David Cameron—and the Republican Party

New Haitian Mango Centers will Increase Production and Incomes for Thousands of Haitian Mango Farmers

NPR's Taxpayer-Funded Intolerance - All Americans, particularly those of Arab or Muslim descent, should protest the firing of Juan Williams

Focus on Nutrition:  Creating Inclusive Partnerships and Deepening our Knowledge

Providing Jobs and Economic Security for America's Women

Struggles and Triumphs: Afghan Governor Naeemi Discusses Progress in Afghanistan

A Free Trade Agreement with South Korea Would Promote Both Prosperity and Security