Costly Regulation Takes Center Stage

The discussion over the appropriate amount of government regulation continues to heat up.  This week, the heads of both parties teed up the debate.  President Obama received a letter from House Speaker John Boehner (R-OH) calling on the President to list the rulemakings that would cost the economy more than $1 billion.  The letter was sent as House Republicans prepare to push for a roll back of many existing regulations this fall.

I am again asking that your Administration provide a list of all pending and planned rulemakings with a projected impact on our economy in excess of $1 billion.  I ask that you provide this information by the time Congress reconvenes, so that the information will be available as the House considers legislation requiring a congressional review and approval of any proposed federal government regulation that will have a significant impact on the economy as we continue our efforts to remove impediments to job creation and economic growth for the American people.

President Obama responded today.  He also used the opportunity to bolster his initiative to reduce the cost of regulatory burdens and further stake out his position:  the cost of regulations in 2009 and 2010 were lower than those implemented under President Bush in 2007 and 2008.  The specific list of seven proposed regulations that could exceed $1 billion are:

• A delayed EPA rule restrictions hazardous emissions by coal- and oil-fired electric utility steam generators, at $10 billion.

• New emissions standards for emissions by major industrial and commercial boilers, $3 billion.

• Standards for disposal of coal ash from power plants, $0.6 billion to $1.5 billion.

• New vehicle safety regulations for rear view mirrors, $2 billion.

• Electronic on-board recorders and documents for supporting restrictions on the hours that commercial truck drivers can operate their vehicles, $2 billion.

• New hours of service rules for commercial truck drivers, $1 billion.

Debt Ceiling Stalemate Leads to Standstill in Washington, DC

“I think this passes,” Rep. Steve LaTourette (R-Ohio) said on Friday. He was referring to the revised-for-the-umpteenth time plan authored by Speaker John Boehner (R-Ohio). After discussions late into the night on Thursday, Boehner decided to assuage the tea party faction within his House Republican caucus by agreeing to include in his plan to raise the debt ceiling a provision that states that both the House and Senate must pass a Balanced Budget Amendment to the United States constitution before the debt ceiling needs to be raised again in February 2012. Facing a mutiny among his troops, Boehner had no option other than to include this provision. The Boehner plan would only raise the debt ceiling immediately through February 2012, and then have another vote on the topic in an election year.

The House passed the Boehner plan around 6 PM EST on Friday, but the plan will assuredly die in the Senate, where each and every one of the 53 Democrats has pledged to vote against it. Meanwhile, Senate Majority Leader Harry Reid (D-Nevada) is advancing his own plan to raise the debt ceiling. There are strong doubts that Reid’s plan can even pass the Senate, let alone be voted on in the House.

So what will Congress send to President Obama for his signature by August 2, Tuesday? Or will the United States default? Is August 2 the actual date when the U.S. coffers run out of money, or is the real date a few days later? These are the questions that have been consuming Washington, DC, as almost all other political and policy activity has come to a standstill in this town. Even the routine, non-political work of government agencies is being impeded because they simply cannot plan for next week, not knowing whether they will have the funds and the authority to spend any money at all.

The nation waits on its representatives with bated breath.

What Are They Thinking? The Debt Ceiling Debate.

Few (if any) decisions are made in DC without a real deadline.  The debt ceiling is no different.  After dueling speeches between Obama and Boehner which offered no new insights and weeks of fruitless negotiation, we are left asking what will motivate Congress to act.  Charlie Cook of the National Journal’s Off to the Races column, offers some sound insight.  As a CMC side note, Charlie’s top editor is Jennifer Duffy – some of you may remember her from our 2011 Annual Meeting.

It is increasingly looking like it may take a cataclysmic drop in the financial markets, perhaps triggered by the lowering of the bond rating for the U.S. government, to focus minds on both sides of the aisle long enough to get this debt-ceiling deal done.  It’s unfortunate that the Dow Jones industrial average might have to fall 500 or 1,000 points before many in Congress are willing to even soften their intransigence.  Both sides will have to go along with what many in their bases consider heretical.

So far, investors have handled the ups and downs of the debate with enormous patience, obviously convinced that cooler heads will eventually prevail.  But how close to a meltdown does Washington have to go before investors really start to worry that the conventional wisdom is wrong?

After the House initially voted down the Troubled Asset Relief Program on September 29, 2008, the stock market immediately dropped 777 points—a 7 percent plunge.  Shortly thereafter, the House and Senate passed the bill and President Bush signed it into law.  Perhaps that’s what it will take here.  But the pain of such a market drop would be enormous.  The years of additional work for those hoping to retire, the body blow to the economy, and the likely rise in unemployment resulting from a severely shaken financial system are all unnecessary, yet they look increasingly likely.

Is the dollar showing the initial signs of what is to come?

A bit closer to home, CME raises margins on Treasuries.

If political outcomes are the drivers, it is tough to see who wins this battle.

Christine M. Cochran

President, Commodity Markets Council

CMC Discusses Rep. Owens Letter and Debt Ceiling Debate on Policy Call

This week, on CMC’s policy conference call with our members, we discussed a number of legislative and regulatory topics.  Among those that generated the most interest were the debt ceiling debate in Congress and a letter from Rep. Bill Owens (Democrat – New York) to CFTC Chairman Gary Gensler.

CMC staff expressed the opinion that a last-minute debt ceiling deal will eventually be reached by the two parties in Congress and the Obama administration, and the deal will include significant spending cuts, although much less than what the Republicans are seeking.  Given overnight developments in the ongoing political negotiations, CMC staff remains of that view, although we would add that the deal will probably be of a short-term nature, enabling the elected politicians to kick the proverbial can down the road while they try to negotiate (or not) a more comprehensive, big picture, longer term solution to America’s fiscal and debt situation.

Rep. Bill Owens recently sent a letter to Chairman Gensler urging the CFTC to follow congressional intent by exempting end-users from margin requirements and other regulations.  CMC and many other trade associations supported this letter, which attracted 71 bipartisan co-signers from the House of Representatives.  Chairman Gensler was asked five specific questions around the swap dealer definition, and he has been given approximately two weeks to respond to Congress.

Carried interest break gets Democratic backers

Among the sticking points in the debt ceiling debate is the White House and Democratic drive to change the treatment of “carried interest,” taxing fund managers’ bonuses at the higher rate that applies to personal income, not the lower one for capital gains.

The stakes are high for the Treasury and for the private equity and hedge fund industries, which are fighting the change hard, and they just got a boost from two Congressional Democrats, Jared Polis and Mike Quigley, who signed a new letter to President Obama defending the current treatment of carried interest.

“Such a tax increase would not only damage our already fragile economic recovery, but it would also cripple the spirit of innovation and entrepreneurship that makes our country so strong,” they write, arguing that the current lower taxes on carried interest encourage private equity investments “in new, untapped markets.”

The two dismiss the notion that the change would merely close a “loophole” and write that the tax would “devastate” other areas of the economy as well, including the struggling commercial real estate industry.

The full letter is here.