May 14, 2014

Welcome to Wonkbook, Wonkblog's morning policy news primer by Puneet Kollipara. Send comments, criticism or ideas to Wonkbook at Washpost dot com. To read more by the Wonkblog team, click here.

Wonkbook's Number of the Day: 0.2 percent to 0.8 percent. That's the percentage by which the economy might have contracted in the first quarter, banks and economic firms say.

Wonkbook's Chart of the Day: This chart shows that many states that rejected the Medicaid expansion have had a surge in Medicaid signups anyway.

Wonkbook's Top 4 Stories: (1) A big shift on Fannie, Freddie; (2) the net never was neutral; (3) out of the Medicaid woodwork; and (4) tax extenders highlight waning deficit concern.

1. Top story: A big shift on Fannie and Freddie's role in housing

In shift, regulator says Fannie and Freddie should stay in housing market. "The chief regulator of Fannie Mae and Freddie Mac reversed course Tuesday and no longer plans to have the companies retreat from the housing market, asserting that the government-controlled mortgage giants must help keep home loans flowing to the public....Melvin L. Watt said his goal is to make sure the mortgage market is working smoothly while limiting taxpayers' exposure to lending risks. The vision reverses the strategy of his predecessor, who worked to wind down the companies in part by limiting the number of loans they backed and raising their prices." Dina ElBoghdady in The Washington Post.

Explainers:

6 takeaways from Mel Watt's housing speech. Nick Timiraos in The Wall Street Journal.

What economic considerations are at play? "Both Watt's predecessor, Edward DeMarco, and the Obama administration favored cutting the size of so-called conforming loans as a way to make room for more private capital. But housing industry groups had warned the step could undercut a market that already appears to be flagging. Federal Reserve Chair Janet Yellen said last week there was a risk a protracted housing slowdown could undermine hopes for stronger economic growth this year." Margaret Chadbourn in Reuters.

U.S. household debt is increasing, but so is aversion to mortgages. "Americans made more progress in repairing their postrecession finances and have increased their overall borrowing, yet they are also showing an aversion to credit cards and new mortgages that could hinder the economic recovery....The figures suggest Americans are still playing it safe when it comes to borrowing, a practice that should help protect them from longer-run excesses. But the combination of weak demand for credit and slow real wage growth could bode ill for consumer spending, which accounts for more than two-thirds of economic output." Neil Shah in The Wall Street Journal.

All this comes as Congress mulls phasing out Fannie and Freddie. "President Barack Obama has proposed a broad overhaul of the mortgage finance system that includes gradually winding down Fannie and Freddie....Legislation to phase out Fannie and Freddie, and instead use mainly private insurers to backstop home loans, has advanced in Congress. The Senate Banking Committee is scheduled to vote on it on Thursday. The plan, crafted by two key senators, has been endorsed by the White House. But the opposition of six Democratic senators on the committee means the legislation likely will be only narrowly approved, and its prospects for a vote by the full Senate are weak." Associated Press.

Primary source: The Johnson-Crapo Fannie, Freddie reform bill.

Geithner: We didn't have great options on housing relief. "In 'Stress Test,' his account of the financial crisis that hit shelves Monday, former Treasury Secretary Timothy Geithner says he regrets the Obama administration's rollout of programs designed to soften the crash of the housing market. But he says there wasn't a game-changing policy that fully lessened the pain." Nick Timiraos in The Wall Street Journal.

Background from 2012: Cautious moves on foreclosures haunting Obama. "The nation's painfully slow pace of growth is now the primary threat to Mr. Obama's bid for a second term, and some economists and political allies say the cautious response to the housing crisis was the administration's most significant mistake. The bailouts of banks and automakers are now widely regarded as crucial steps in arresting the recession, while the depressed housing market remains a millstone." Binyamin Appelbaum in The New York Times.

Economic/financial data:

U.S. economy did contract in first quarter, data show. Ben Leubsdorf in The Wall Street Journal.

Small-business confidence is back at pre-recession levels. Reuters.

Retail sales slow, but growth outlook still upbeat. Lucia Mutikani in Reuters.

Import prices down in April, showcasing stubbornly weak inflation. Ben Leubsdorf in The Wall Street Journal.

Other economic/financial reads:

If debt caused the last crash, boosting risk for lenders might soften the next. Brenda Cronin in The Wall Street Journal.

Drop in food-stamp enrollment picks up steam. Damian Paletta and Josh Zumbrun in The Wall Street Journal.

Holder tightens squeeze on banks. Devlin Barrett in The Wall Street Journal.

Fed says banks haven't implemented junk loan guidelines. Kristen Haunss in Bloomberg.

THE WASHINGTON POST. "Contrary what you may have heard, reducing the federal role in the housing market is not a radical free-market notion....You can call this a victory for defenders of the status quo who backed Mr. Watt to replace Edward DeMarco, an advocate of aggressively winding down Fannie and Freddie. Or, equally validly, you can see Mr. Watt's declaration as a recognition of reality -- economic and political. The economic reality is that there is still no good private-sector alternative to the Fannie-Freddie duopoly. And the political reality is that Congress has failed to legislate one. The only bipartisan bill has foundered in the Senate Banking Committee" Editorial Board.

Top opinion

SUNSTEIN: Why worry about inequality? "Piketty himself makes a strong argument that if the goal is to create good economic incentives, it is unnecessary for the very wealthiest to be so far ahead of the rest of us. To that extent, a progressive tax that falls most heavily on the wealthy...is not difficult to justify. Fair enough. But if we focus our attention only on the wealthiest members of society, we might get distracted from what should be the more fundamental goal: providing decent opportunities and minimum security for all....To build a just society for the 21st century, Roosevelt's Second Bill of Rights, and not Piketty's prescriptions, is the best place to start." Cass Sunstein in Bloomberg View.

HARDING: Clarification needed from Yellen on rates. "The Federal Open Market Committee's statement now talks about keeping rates 'below levels the Committee views as normal in the longer run" even after "employment and inflation are near mandate-consistent levels'. That is crucial to Ms Yellen's message.... It begs a question, however. If the economy is back to full employment, with normal levels of inflation, then surely that means all is well? Why would it still need less-than-normal levels of interest rates? FOMC officials do not agree on the answer. Several of the possible explanations, meanwhile, are either so tenuous or so gloomy that it is easy to see why a Fed chair might be reluctant to talk about them." Robin Harding in The Financial Times.

E. KLEIN: Millennials are losing faith in the presidency. Good. "Electing the right president is a (probably) necessary but not nearly sufficient condition to bringing change to American politics....If Millennials are learning that lesson -- if they're figuring out that the presidency is oversold in American politics -- then that's a very good thing. The first step towards changing American politics is knowing who actually has the power to change American politics. The problem is if they learn that lesson and then simply give up, deciding that if politics can't be changed through the easy, exciting vehicle of the presidency, then it's not worth changing at all." Ezra Klein in Vox.

BERNSTEIN: No, millennials are losing faith in the president. "People have been asked about trust in government, and in various institutions, for decades, and it's still not clear how to interpret the answers. However, it's safe to assume that young people haven't suddenly figured out that the presidency doesn't work the way that a major strain of the political culture (mistakenly) believes it does. More likely, these young people have lost faith in President Barack Obama, not the presidency itself -- and they're probably discouraged about the economy." Jonathan Bernstein in Bloomberg View.

PORTER: The politics of income inequality. "The income of a typical American family has barely risen since the 1970s. The share of national income captured by the richest 1 percent of Americans is even higher than it was at the dawn of the 20th century. The parallel offers valuable insight into one of the most important questions posed by the nation's lopsided development: Can democracy stop inequality from rising? Despite the gains of the Progressive Era, the answer echoing down the halls of history is not encouraging." Eduardo Porter in The New York Times.

PETHOKOUKIS: You can be a climate skeptic and still take action. "As I've written before, there's nothing 'conservative' about making an all-or-nothing bet that the vast majority of climate scientists have the story completely wrong. Yes, air temperatures at the Earth's surface have been flat for 15 years even as greenhouse-gas emissions have continued to increase. Also true that climate models have continually overstated the degree to which the Earth is warming compared with actual climate data. But are those data points enough to warrant inaction?...Balancing risks and accounting for trade-offs also seem like a political and policy smart way to being thinking about climate change and what to do about it." James Pethokoukis in American Enterprise Institute.

SABHLOK: Forget net neutrality. What about those fees? "Let's face it; even before the FCC's proposal on net neutrality, the net was never really neutral. At least not in the United States. Americans pay more than most countries for Internet access -- way more....To add insult to injury, the Internet "super highway" in the U.S. is slooooow....Net neutrality is important for sure, but it's the wrong discussion for the FCC to be having. The real debate should be why Americans pay a premium for sub-par Internet access in the first place." Raj Sabhlok in Forbes.

Animals interlude: This dog isn't very good at catching treats.

2. News flash -- the net has never truly been neutral

Internet has never been truly neutral. "The argument goes that the Internet has always been a bastion of equality, a level playing field where all websites load at the same speed without having to pay any 'tolls.' And the FCC is about to throw all that away.... But the truth is that the Internet has never been the level playing field that some seem to believe. Big websites have always been able to pay for faster service--and the biggest ones are already spending billions to get it. For example, just about all major websites pay for content delivery networks, or CDNs, to carry their traffic. Those CDNs (companies like Akamai and Level 3) build networks of servers around the country to store website data." Brendan Sasso in National Journal.

Life in the 'fast lanes' is pretty tough for the FCC chairman right now. "The political left is pressuring the chairman of the Federal Communications Commission to abandon his plan for "fast lanes" that would allow Internet providers to charge websites for preferential treatment. Liberal groups and Democrats on Capitol Hill say FCC Chairman Tom Wheeler's attempts to revise the net neutrality proposal do not go far enough and are demanding that he retreat from it." Kate Tummarello in The Hill.

The FCC vote is just the beginning. "U.S. efforts to set new Internet traffic rules face a lengthy tug of war between broadband providers and Republicans on one side and some tech companies and consumer advocates on the other as regulators prepare to propose the rules formally on Thursday. Federal Communications Commission Chairman Tom Wheeler has expanded the issues and questions raised in his 'open Internet' proposal to sway his two Democratic colleagues on the five-member panel, though some consumer advocates remain unhappy." Alina Selyukh in Reuters.

Net neutrality protesters are being heard. "A spokesperson for FCC Commissioner Ajit Pai confirmed that Pai came out and chatted on Friday with the protesters, some of whom have been camped out since May 7. While Pai, a Republican, opposes net neutrality regulations, the discussion was cordial, according to Kevin Zeese, a Baltimore-based criminal lawyer and net neutrality advocate. Other FCC staff members -- even a security guard -- have high-fived some members of the group in solidarity as they passed in and out of the building, said Zeese." Brian Fung in The Washington Post.

Explainer: The FCC's Twitter chat was actually pretty useful. Brian Fung in The Washington Post.

Did Wheeler reopen the door to reclassification? "The standard wisdom in Washington has been that reclassification is a dead issue because the cable operators, which have lots of money and influence, won't stand for it. But that case may have been undermined by Wheeler's attempt to take over the net neutrality issue unilaterally, without any prior discussion with the other commissioners. He has focused consumers' attention on what they might lose if his proposal goes through. Pushed along by public-interest groups...the public has overwhelmed FCC phone lines with objections to the plan. When Google, Amazon, and about 100 other high-tech companies issued a letter to the FCC...they got worldwide news coverage." Michael Hiltzik in the Los Angeles Times.

Other tech reads:

How the Senate's feel-good moment on patent reform fell apart. Dustin Volz in National Journal.

NSA director promises greater transparency. Rebecca Shabad in The Hill.

European ruling on privacy could give boost to U.S. advocates. Hayley Tsukayama in The Washington Post.

Rescue interlude: Dramatic elephant calf river rescue.

3. Why Medicaid enrollment is up even in states that didn't expand it

Medicaid enrollment experiencing a woodwork effect. "Even states that refused Obamacare's Medicaid expansion are seeing enrollment growth in the health-care program, according to a new analysis. Medicaid enrollment in 17 of the 26 states that hadn't expanded Medicaid as of the end of March saw their rolls increase by a combined 550,300 new beneficiaries....These states, just like the ones that did expand Medicaid, are experiencing what's known as the 'woodwork effect' among people who were previously eligible for coverage under existing Medicaid rules but didn't sign up. Those previously eligible are now seeking coverage as there's a massive effort to get people enrolled." Jason Millman in The Washington Post.

Explainer: Michigan and Arkansas prove Republicans can compromise on Medicaid. Adrianna McIntyre in Vox.

Private insurance enrollments may be up, but your choices are likely down. "In the midst of all the turmoil in health care these days, one thing is becoming clear: No matter what kind of health plan consumers choose, they will find fewer doctors and hospitals in their network -- or pay much more for the privilege of going to any provider they want. These so-called narrow networks, featuring limited groups of providers, have made a big entrance on the newly created state insurance exchanges, where they are a common feature in many of the plans." Reed Abelson in The New York Times.

Your employer may soon pay you to buy your own insurance. "What if employers started giving workers a chunk of cash to buy health insurance on their own instead of offering them a chance to buy into the company plan?...The idea that employers might drop their health plans and replace them with a 'defined contribution' for employees has been around for years. It's one way for employers to control their expenses in the face of the relentlessly rising costs of health care. Now that the Affordable Care Act has made non-company plans more accessible and affordable by creating online marketplaces where people can shop for coverage, the idea is gaining traction." Michelle Andrews in Kaiser Health News and NPR.

Here's how Obamacare triggered $1.6 billion in consumer rebates. "One of the less discussed pieces of the Affordable Care Act is a measure to control insurance premiums by limiting how much companies can spend on stuff other than medical claims. Expenses for marketing, fees to brokers, administrative costs, profits, and the like can't take up more than 20? of each premium dollar (or 15? for large-group plans). Any amount collected above that threshold must be returned to customers. This rule is known as the medical-loss ratio, and it has resulted in rebates of $1.6 billion to individuals and businesses over the last two years, according to a new tally of federal data." John Tozzi in Bloomberg Businessweek.

Other health care reads:

One health insurer wants to cut rates 6.8 percent. Another wants to hike them 26 percent. What gives? Jason Millman in The Washington Post.

Shinseki set to testify about alleged secret list hiding VA treatment delays. Josh Hicks in The Washington Post.

How Massachusetts screwed up on Obamacare. Sarah Kliff in Vox.

How Republicans plan to attack Obamacare next. Dylan Scott in Talking Points Memo.

Science interlude: The science of symmetry.

4. What happened to Washington's government-deficit concerns?

Senate shrugs off deficit concerns in 'tax extenders' bill. "The Senate on Tuesday shrugged off the deficit concerns that were once an animating force on Capitol Hill, voting 96-3 to take up a package of business tax breaks without offering any way to pay for them....As the deficit continues to fall, it loosens the policy reins in Washington for the first time since Mr. Obama rammed through his stimulus law in the opening weeks of his presidency." Jonathan Weisman in The New York Times.

But the White House says it doesn't want those concerns shrugged off. "The White House wants the Senate's $85 billion tax extenders bill amended so that it does not add to the deficit, but stopped short of issuing a veto threat Tuesday....Because the Senate bill is another temporary patch, it wouldn't permanently alter the Congressional Budget Office baseline for revenue -- a key consideration for the White House and Senate Democrats as both parties eye potential tax reform negotiations after the elections. Still, deficit hawks inside and outside of Congress have slammed the bill for adding to the deficit by resurrecting more than 50 tax breaks that expired at the end of 2013 for another two years." Steven T. Dennis in Roll Call.

Rubio proposes retirement reforms. "Sen. Marco Rubio (R-Fla.), who is considering a presidential bid in 2016, announced a broad plan Tuesday to reform America's retirement system....Rubio proposed raising the retirement age for younger workers, opening up the retirement program used by Congress to non-government workers, and eliminating the payroll tax for people who continue to work after reaching full retirement age. Rubio also proposed scaling back Social Security benefits for wealthy retirees by slowing how quickly benefits will increase for those retirees who may not rely as much on Social Security payments." Jonnelle Marte in The Washington Post.

Just in time for this event for fiscal wonks: A fiscal summit in Washington.

Companies are facing backlash over foreign mergers to avoid taxes. "It used to be easier for companies to keep their legal bases in out-of-the-way places, like Bermuda. It's a practice known as tax inversion, and it was popular until 2004, when Congress changed the law. Now, companies whose ownership is 80 percent based in the U.S. are subject to U.S. taxes. But tax inversion is coming back in a new form. In the last year, Chiquita, of banana fame, media giant Liberty Global and drug company Perrigo all announced deals to buy foreign companies and shift their headquarters. In each case, it lowered their tax burdens." Yuki Noguchi in NPR.

Other taxation/spending reads:

Improper payments of tax credit by IRS increased last year. Josh Hicks in The Washington Post.

'Game of Thrones' interlude: "Video Game of Thrones" intro.

Wonkblog roundup

Inside Fannie and Freddie's big policy shift. Dina ElBoghdady.

Marco Rubio's plan to fix America's retirement system. Jonnelle Marte.

Is cheap steel killing American jobs? Lydia DePillis.

One health insurer wants to cut rates 6.8 percent. Another wants to hike them 26 percent. What gives? Jason Millman.

"If you're trying and not succeeding, the welfare system today gives you basically nothing." Emily Badger.

This bestseller list shows how economics is incredibly polarizing. Zachary Goldfarb.

Nobody really knows what a "Black Mass" is. But everyone is offended by it anyway. Christopher Ingraham.

College debt is still keeping grads from buying homes. Jonnelle Marte.

These states rejected Obamacare's Medicaid expansion, but Medicaid is expanding there anyway. Jason Millman.

Tim Geithner and the paradox behind the government's crisis response. Zachary Goldfarb.

Stop blaming the IMF for everything. Matt O'Brien.

Ron Paul thinks drug use is rampant inside prisons. He's wrong. Keith Humphreys.

At work, hours don't always equal productivity. Brigid Schulte.

Et Cetera

Senators unveil six-year highway funding legislation. Laura Litvan in Bloomberg.

Obama says time is running out for immigration reform. Laura Meckler and Jeffrey Sparshott in The Wall Street Journal.

Execution of Texas inmate is halted at the last minute by court. Mark Berman and Karen Brooks Harper in The Washington Post.

Judge overturns Idaho ban on same-sex marriage. Laura Zuckerman in Reuters.

Obama administration likely to refocus deportation policy, police chiefs say. David Nakamura in The Washington Post.

The zombie Keystone XL pipeline kills an energy-efficiency bill. Brad Wieners in Bloomberg Businessweek.

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Wonkbook is produced with help from Michelle Williams and Ryan McCarthy.

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