FLOTUS in Pictures

First Lady Michelle Obama hosts First Lady Svetlana Medvedeva of Russia, right, on the Truman Balcony of the White House, June 24, 2010. (Official White House Photo by Lawrence Jackson)

First Lady Michelle Obama makes remarks during the launch of "Let's Move Outside", an extension of her "Let's Move!" initiative, at the Visitors' Center in Red Rock Canyon, Nev., June 1, 2010. (Official White House Photo by Samantha Appleton)

First Lady Michelle Obama speaks during the "Let's Move!" chefs event on the South Lawn of the White House, June 4, 2010. (Official White House Photo by Chuck Kennedy)

First Lady Michelle Obama greets children at Children's Place in Port-au-Prince, Haiti, April 13, 2010. (Official White House Photo by Samantha Appleton)

First Lady Michelle Obama greets children during her visit to a school, Escuela Siete de Enero, in Mexico City, Mexico, April 14, 2010. (Official White House Photo by Samantha Appleton)

First Lady Michelle Obama hugs a woman working at New Roots Community Farm in San Diego, Calif., April 15, 2010. (Official White House Photo by Lawrence Jackson)

First Lady Michelle Obama talks with Mrs. Elizabeth Preval, the First Lady of Haiti, in the Yellow Oval Room of the White House, March 10, 2010. (Official White House Photo by Lawrence Jackson)

First Lady Michelle Obama greets Mrs. Ada Papandreou, the First Lady of Greece, in the Yellow Oval Room of the White House, March 9, 2010. (Official White House Photo by Samantha Appleton)

First Lady Michelle Obama greets Mrs. Margarita Zavala de Calderon, the First Lady of Mexico, in the Yellow Oval Room of the White House, Feb. 25, 2010. (Official White House Photo by Samantha Appleton)

First Lady Michelle Obama and Queen Silvia of Sweden meet in the Yellow Oval Room of the White House, Oct. 23, 2009. (Official White House Photo by Samantha Appleton)

House, Senate leaders finalize details of sweeping financial overhaul

By Brady Dennis
Washington Post Staff Writer
Friday, June 25, 2010; 12:26 PM


Key House and Senate lawmakers approved far-reaching new financial rules early Friday after weeks of division, delay and frantic last-minute dealmaking. The dawn compromise set up a potential vote in both houses of Congress next week that could send the landmark legislation to President Obama by July 4.
The final and most arduous compromise began to fall into place just after midnight. Sen. Blanche Lincoln (D-Ark.) agreed to scale back a controversial provision that would have forced the nation's biggest banks to spin off their lucrative derivatives-dealing businesses.
The panel also reached accord on the "Volcker rule," named after former Federal Reserve chairman Paul Volcker. That measure would bar banks from trading with their own money, a practice known as proprietary trading.
Lawmakers pulled an all-nighter, wrapping up their work at 5:39 a.m. -- more than 20 messy, mind-numbing hours after they began Thursday morning.
"It's a great moment. I'm proud to have been here," said a teary-eyed Sen. Christopher J. Dodd (D-Conn.), who as chairman of the Senate Banking Committee led the effort in the Senate. "No one will know until this is actually in place how it works. But we believe we've done something that has been needed for a long time. It took a crisis to bring us to the point where we could actually get this job done."
Both the House and Senate must approve the compromise legislation before it can go to Obama for his signature.

Gallery

Key players in the financial overhaul

House and Senate lawmakers agreed on the terms of a financial overhaul bill early Friday after a 20-hour work session, ending weeks of delay and debate.

» LAUNCH PHOTO GALLERY

Despite myriad changes in recent days, Democrats appear poised to deliver a final bill that largely reflects the administration's original blueprint unveiled almost precisely a year ago. Although it would not fundamentally alter the shape of Wall Street or break up the nation's largest firms, the legislation would establish broad new oversight of the financial system.
A new consumer protection bureau housed in the Federal Reserve would have independent funding, an independent leader and near-total autonomy to write and enforce rules. The government would have broad new powers to seize and wind down large, failing financial firms and to oversee the $600 trillion derivatives market. In addition, a council of regulators, headed by the Treasury secretary, would monitor the financial landscape for potential systemic risks.
"The finish line is in sight. The bill that has emerged from conference is strong," Treasury Secretary Timothy F. Geithner said in a statement early Friday. "It will offer families the protections they deserve, help safeguard their financial security and give the businesses of America access to the credit they need to expand and innovate."
Obama, speaking to reporters before leaving for a meeting of global finance ministers and central bankers in Toronto, said the compromise legislation includes "90 percent of what I proposed when I took up this fight."
The president said he is committed to a "strong, robust financial sector" but wants to curb abuses and tighten oversight to make the financial system more transparent and safe.
"The reforms making their way through Congress will hold Wall Street accountable," Obama said, "so we can help prevent another financial crisis like the one that we're still recovering from."
On the House side, the final tally was 20 to 11 to approve the conference committee's report. On the Senate side, it was 7 to 5. The votes fell along party lines, earning no support from Republicans on the two panels.
Asked whether he expected the compromise legislation to pass the full Senate -- which on May 20 approved an earlier version, 59-39, with support from four Republicans -- Obama replied, "You bet."
Republican lawmakers who serve on the financial panels blasted the compromise bill. "This legislation is a failure on both counts," Sen. Judd Gregg (R-N.H.) said in a statement that denounced the compromise as failing to address "shoddy underwriting practices" or problems with Fannie Mae and Freddie Mac. "It will not encourage much-needed stability and confidence in our financial markets. It will not significantly reduce systemic risk in our financial sector."
Lincoln's provision on derivatives had for months remained a particularly thorny issue for Democrats, causing internal divisions that threatened to derail the massive legislation.
Although consumer advocates and many liberals supported her provision, it encountered stiff opposition from the Obama administration and some regulators, as well as from an influential bloc of moderate Democrats and House Democrats from New York, where much of the financial derivatives industry is concentrated.
Administration officials and Democratic leaders worked fervently to bridge the divide between Lincoln and those House Democrats. Top Treasury officials, including Deputy Secretary Neal Wolin and Michael Barr, an assistant secretary, roamed the Dirksen office building alongside White House economic adviser Diana Farrell, conferring with aides and key lawmakers. Gary Gensler, chairman of the Commodity Futures Trading Commission, worked the committee room throughout Thursday.
Lincoln came and went from the hearing room, meeting with members of the centrist New Democrat Coalition to try to find common ground and huddling with Dodd (D-Conn.); Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee; and other lawmakers.
In the very early morning hours Friday, Rep. Collin Peterson (D-Minn.) -- chairman of the House Agriculture Committee and a Lincoln supporter -- introduced a proposal that would compel banks to spin off only their riskiest derivatives trades, including particular forms of credit-default swaps, which are complex financial bets that exacerbated the financial crisis.
At the same time, the proposal would allow banks to hold onto certain derivatives trading related to interest rates, currency rates, gold and silver. They also would be allowed to continue trading in derivatives in order to hedge against their own risks.
Under the compromise, the derivatives operations that firms spin out of their federally insured banks could still be retained in a separately capitalized affiliate. In addition, firms would have two years to institute the new rules.
The Senate agreed to the compromise language just after 2:30 a.m.
The cavernous Dirksen 106 conference room remained packed at that hour, but it was a chaotic and cluttered mass of humanity. Lawmakers had stopped trying to conceal their yawns. Aides who had worn down their BlackBerry batteries recharged them for the home stretch. Trash cans spilled over with coffee cups and sandwich wrappers. Empty Fritos bags and plastic Diet Coke bottles littered the room, along with reams of paper -- old amendments, new amendments, handwritten amendments, amendments to amendments.
"So much for the paperless society," Frank quipped at one point.
In reaching a deal on the Volcker rule, negotiators adopted a provision that mirrors language previously offered by Sens. Carl M. Levin (D-Mich.) and Jeff Merkley (D-Ore.), which would ban certain forms of proprietary trading and forbid firms from betting against securities they sell to clients. The Merkley-Levin measure never got a vote on the Senate floor.
"One goal of these limits is to reduce participation in high-risk activity that can cause significant losses at institutions which are central to the financial system," Dodd said. "A second goal is to end the use of low-cost funds, to which insured depositories have access, from subsidizing high-risk activity."
Under the agreement, firms would have up to two years to scale back their proprietary trading and investments in hedge funds and private equity funds. Banks also would be barred from betting against their clients on certain investments deals.
Even as they worked to toughen the Volcker language, lawmakers agreed to an exemption at the behest of Sen. Scott Brown (R-Mass.), one of the four Republicans who voted for the earlier version of the financial regulation bill.
Brown, whose state is a hub of the asset-management industry, wanted the bill to allow banks to invest at least a small amount of capital in hedge funds and private equity investments. The measure would prohibit a banks from investing more than 3 percent of their capital in private equity or hedge funds. It was one of a number of provisions tailored to hold onto key votes as the bill heads toward final passage.
Lawmakers squared away a handful of other lingering issues late Thursday and early Friday.
They agreed to exempt the nation's 18,000 auto dealers from oversight by a new consumer financial protection watchdog, a striking legislative victory for one of the nation's most influential lobbying groups and a blow to consumer advocates and Democratic leaders who had long opposed such a loophole. "It is time for people like myself to concede that the votes are not there to give the consumer regulator any role in this," Frank said.
Lawmakers also voted to give shareholders more of a say on corporate governance, to place new restrictions on mortgage lending and to levy a risk-based assessment on large financial firms to help pay for the wide-ranging bill, which the Congressional Budget Office has estimated would cost nearly $20 billion over the next decade.
Weary lawmakers wrapped up their work just after sunrise, only hours before Obama was scheduled to leave for Canada. Both Dodd and Frank said they hoped the passage of the legislation by their committees will help the United States lead the ongoing global effort to harmonize new financial safeguards.
"We've put in the hands of the president a very powerful set of tools for him to reassert American leadership in the world," Frank said.
One of the last motions Friday was to name the bill after the two chairmen, who had shepherded the legislation through the House and the Senate over the past year. At 5:07 a.m., they agreed unanimously that it would be known as the Dodd-Frank bill, and the sound of applause echoed down the empty hallways.
More from PostPolitcs:
The "Volcker Rule" explained.
Who are the key players in the financial overhaul process?
An explainer on how financial overhaul will work.
How would the financial legislation protect consumers?
The exemption for auto dealers explained.

Conservatives on the rise?

1. After two election cycles in the political wilderness, conservatives appear to be rallying in advance of the 2010 midterm election.
In new Gallup numbers released this morning, 42 percent of Americans describe themselves as conservative while 35 percent say they are moderates and 20 percent call themselves liberals.
The 42 percent of self-described conservatives would be a record high for Gallup, which has been asking the question since 1992, if the trend continued through the final six months of the year. (The data for the first six months of 2010 was culled from eight national surveys conducted by Gallup.) The last time four in ten Americans (or more) identified themselves as conservatives was 2004 when Republicans re-elected President George W. Bush and made gains in the House and Senate.
The Gallup numbers are not inconsistent with other recent data -- although they do paint a slightly more rosy picture for conservatives than other polls.
In this week's NBC/Wall Street Journal survey, 38 percent of the sample identified as conservative while 36 percent said they were moderates and 23 percent called themselves liberals.
The rise of conservatives in the Gallup data comes amid increasing signs -- including a National Public Radio poll of 70 of the most competitive congressional districts in the country -- that enthusiasm among Republicans running very high.
While the latest Gallup data is sure to be a nice present heading into the weekend for Republicans, it's important to remember that ideology is not a direct corollary to voting.
In 2008, Gallup showed that 37 percent of people said they were conservative while another 37 percent described themselves as moderates and 22 percent called themselves liberals. President Barack Obama, a Democrat, won 365 electoral votes that year.
2. President Obama will travel to Kansas City on July 8 to hold a fundraiser for Missouri Secretary of State Robin Carnahan's Senate campaign.
The Missouri Senate hopeful was conspicuously absent when Obama made a visit to the state in March, discussing financial reform in Washington while the president was stumping on health care reform and holding a fundraiser for Sen. Claire McCaskill (D-Mo.) and the Democratic Senatorial Campaign Committee.
More recently, Carnahan did appear with Obama at an April event in northeastern Missouri, although her campaign's last-minute announcement that she'd be attending again fueled speculation that she was avoiding the president.
Carnahan has been cautious about being tied too closely to Obama but it appears the Democratic Senate hopeful is damned if she does and damned if she doesn't. Rep. Roy Blunt, the Republican Senate nominee, took a shot at Carnahan yesterday for "hiding" from Obama during his earlier two visits "and now, in an act of desperation, Carnahan is coming out in the open to stand with Obama and his unpopular agenda."
Blunt is calling in a big gun of his own: former White House senior adviser Karl Rove will hold two events for Blunt on Monday.
3. Former World Wrestling Entertainment CEO Linda McMahon (R) is up with a new television ad that puts her career at the helm of the leading professional wrestling organization in the country front and center but sidesteps the controversies that her rivals have raised about her tenure there.
"Before I decided to run for the Senate, I had a regular job," McMahon says, before the shot switches to images of costumed wrestlers duking it out in the ring. "Okay, maybe not a regular job," McMahon continues, calling WWE "a soap opera that entertains millions every week."
The ad marks McMahon's most direct mention of her tenure at WWE, which she co-founded with her husband, Vince, and in which she played an integral role for three decades until stepping down last year. Her previous commercials made only passing references to her career, and her early ads touted her as a businesswoman but mentioned no details about what that "business" was.
McMahon has been facing increasing scrutiny about her time at WWE -- primarily related to controversies surrounding the company's drug-testing policy. She is also facing a lawsuit, filed this week, from the widow of a former wrestler who died in a 1999 stunt.
McMahon's latest ad is a recognition from her campaign that it must try to tell the story of her WWE life in as positive a light as possible rather than watch the various allegations drag down her campaign against state Attorney General Richard Blumenthal (D).
Connecticut Dems were, not surprisingly, quick to respond to the ad. "McMahon is kidding herself if she thinks she can portray the very real impact of pervasive steroid abuse, violence-fueled programming, and abusive treatment of women -- all of which she marketed to children -- as an illusion," the release reads.
4. Former Alaska Gov. Sarah Palin is stepping up her profile in a handful of appearances over the next several days, announcing on her Facebook page that she's headlining a trio of events in Texas, Virginia and Georgia.
Palin is also expected to deliver a speech today at the California State Univeristy Stanislaus. The appearance has been the subject of weeks of controversy due to Palin's refusal to state how much she is charging for the speech as well as her initial barring of media from covering the event. (The university has since announced that reporters will be allowed to attend).
Sen. Barbara Boxer's (D-Calif.) campaign has also used the Palin visit to remind voters that the former Alaska governor former Hewlett Packard CEO Carly Fiorina, the GOP Senate nominee, during the primary. Boxer's campaign released a Web video earlier this week splicing together footage of the two.
(Palin was also at the center of another controversy on Thursday, agreeing to return nearly $400,000 in contributions to her legal defense fund after a local governing board in Alaska deemed the fund to be illegal.)
The 2008 vice presidential nominee appears unbowed by the controversies that swirl around her, however. In addition to her busy travel schedule announced Thursday, she also waded into the open seat Kansas Senate race -- backing Rep. Todd Tiahrt (R) over Rep. Jerry Moran (R).
5. What better way to decompress after a long and, if you live anywhere near DC, hot, week than with two Fix chats?
At 10:30 a.m. we reveal the winner of our "Worst Week in Washington" competition via a live video chat. Gen. Stanley McChrystal is the obvious choice but tune in to see if he's our pick.
Then, at 11 a.m., it's the "Live Fix" -- our weekly chat with Fixistas of all ages on the political hot topics of the day. (And the World Cup, the longest match ever at Wimbledon, John Wall and other things that strike our fancy.)
Tune in!
With Felicia Sonmez

By Chris Cillizza  |  June 25, 2010; 7:42 AM ET

Ben Nelson: Jobless Rate No Big Deal

 Have they thought about what would happen to our GDP. our Jobless Cost other than unemployment payout.  The amounts of foreclosures, the amount of homeless, the cost of tent cities, and no jobs being appropriated for those who need one.

A bill to extend unemployment insurances and small biz credit gets canned—again.

By Andy Kroll | Fri Jun. 25, 2010 12:52 PM PDT

---

On Thursday afternoon, despite eight weeks of haggling and dealbrokering, the Senate rejected [1] extending unemployment benefits amidst rising deficits but at a time when one in 10 people are jobless. The 57-41 vote against the tax extender bill, which would've also given tax breaks to small and large businesses, was the third time Democrats failed break a GOP filibuster, and the bill's failure leaves upwards of 1.2 million unemployed Americans still without help. "They have taken the filibuster and made the Senate dysfunctional," Sen. Dick Durbin, the majority whip, told [1] Politico, referring to Senate Republicans.
Those GOPers who opposed the bill typically cited fears about the country's spiraling deficits, railing on the fact that the jobs bill would've cost $100 billion and added $33 billion to the deficit. Despite the obvious need for the extended unemployment insurance, it's not hard to see why GOPers, however wrongheaded or hypocritical, would vote against this.

Then there's centrist Sen. Ben Nelson (D-Neb.), who bucked his Democratic colleagues and voted against the bill. Nelson, in particular, took issue with his colleagues' reasoning for why the unemployment benefits, unlike the rest of the bill, weren't paid for. Traditionally, unemployment benefits are green-lit without being paid for because they're deemed an emergency. Democrats have done it this way; Republicans have, too. And as Sen. Debbie Stabenow told reporters yesterday afternoon, the same should've applied to the current jobs bill: "15 million people unemployed," she stressed, "is an emergency."
Not so, according to Ben Nelson. "I don’t buy that distinction," Nelson said yesterday. "At some point, it ceases to be an emergency. It's ongoing...I think the bill should be paid for."
A record 6.7 million people out work for six months or more, real unemployment rate of 16.6 percent [2], a growing class of Americans who've completely exhausted [3] all unemployment support, known as "99ers"—none of that qualifies as an emergency for Nelson. Well, at least we know where Nelson stands. That certainly contradicts what the American public thinks, with a majority of people ranking [4] jobs and the economy's woes as the nation's biggest problems right now. If there was ever a case of a politician out of touch with what those outside the Beltway think, this would be it.

World's Only Full-Scale Oil Spill Test Tank Springs a Leak

— By Kate Sheppard

| Fri Jun. 25, 2010 10:20 AM PDT

There's just one facility in the world where scientists and emergency responders can run full-scale oil spill response tests and research. It's housed at US Naval Weapons Station Earle in Leonardo, New Jersey. But when Sen. Robert Menendez (D-NJ) tried to arrange a visit to the facility earlier this week, he learned that the facility is presently inoperable. Why? The tank researchers use to simulate spills has sprung a leak.
The Oil and Hazardous Materials Simulated Environmental Test Tank (OHMSETT) is owned by the Minerals Management Service (recently renamed the "Bureau of Ocean Energy Management, Regulation, and Enforcement"). The wave pool there, which is used to test oil spill response technologies and techniques, was closed last month "because of multiple leaks" and is expected to remain out of commission until sometime in July.
Menendez, a major opponent of offshore drilling, says the situation demonstrates just how unprepared the federal government is to handle an oil disaster like the one in the Gulf. "I believe that the fact that this facility is inoperable during the nation’s largest oil spill is indicative of a complacency and lack of investment in oil spill response technologies," he wrote in a letter to Interior Secretary Ken Salazar on Monday. "The industry and even the government has substantially invested in new technologies to drill in deeper water and deeper into the Earth, but little has been invested in safety or oil spill response and clean-up."
The Department of Interior issued this response today, arguing that maintenance on the tank was planned and that the Coast Guard doesn't need to use the facility right now because they are "too busy with the response" in the Gulf. Here's the full statement:

OHMSETT is currently closed to testing because of planned maintenance. Prior to the closure, BOE consulted with the USCG to see if they needed the tank after the Deepwater Horizon incident and they said that they were too busy with the response. No testing was delayed or postponed due to the planned closure. The tests normally conducted at the facility are scheduled months in advance and are more oriented to advancing research and development than to addressing current issues.

If the research is promising, it can and often is developed into procedures or equipment used to deal with real-world events. We also have the ability to bring the facility back on line in several days if the tank is needed for testing to help the spill response effort.

Even though it was inoperable at the time, Sharon Buffington, chief of the engineering and research branch of MMS, touted the tank as "a vital component" of MMS' oil spill research in testimony to a House panel on June 9. "It is the only facility in the world that allows for full-scale oil spill response testing, training, and research conducted with a variety of oils in a marine environment under controlled conditions," Buffington told a House panel. Now-dismissed MMS head Liz Birnbaum also talked up it at a hearing last month as integral to "ensure that the best and safest technologies are used in offshore oil and gas operations." Neither Birnbaum or Buffington mentioned that the facilty was offline.
Menendez, who is sponsoring an MMS reform bill in the Senate, says this is yet another example of why the divsion needs an overhaul.
"The need for the MMS reform could not be clearer when the agency charged with preventing Big Oil from spilling into our waters cannot keep water in its own testing tanks," Menendez tells Mother Jones.
Seems like the hole in the bottom of the Gulf isn't the only one we should be worrying about.

Climate change and Australia’s new prime minister

 - June 24, 2010

Australia has a new prime minister today, and climate change is a big part of the reason why. Julia Gillard replaced the once-incredibly-popular Kevin Rudd after the latter’s popularity took a dramatic tumble.
Rudd was hugely undermined by his failure to push through an emissions trading scheme after making huge political capital with his ‘tough on climate change’ stance. As a general election approaches later this year, his Labor party decided he had to go and voted in Gillard to take his place.
Australia’s first ever female prime minister affirmed her commitment to tackling climate change, but immediately came under fire from the main opposition party, who said she was going to continue Rudd’s delaying over an emissions trading scheme (Sydney Morning Herald).
“It’s my intention to lead a government that does more to harness the wind and the sun and the new emerging technologies. I will do this because I believe in climate change,” said Gillard in her first speech as PM (transcript, via The Age).
“I believe human beings contribute to climate change and it is most disappointing to me, as it is to millions of Australians, that we do not have a price on carbon, and in the future we will need one. If elected as Prime Minister [in the forthcoming election], I will re-prosecute the case for a carbon price at home and abroad. I will do that as global economic conditions improve and as our economy continues to strengthen.”
More views
Most damaging of all was the perception that Rudd, who once described climate change as one of the biggest "moral dilemmas of our time," had abandoned his commitment to being green. Some of his most ardent supporters, particularly young voters, were horrified when he announced in April that he would shelve an emissions-trading scheme that had secured him many votes back in 2007.
Time
Rudd’s support began to slide in April after he shelved his carbon trading system, the centerpiece of his plan to tackle climate change, which he called the greatest “moral challenge” of our time. He then proposed the 40 percent tax on the “super profits” of resource projects in Australia, the world’s biggest shipper of coal and iron ore, and refused to back down even after members of his own party objected.
Bloomberg
Prime Minister Gillard may not have shown much interest in climate action yet, but she has demonstrated herself to be a good negotiator, is open to negotiating with the Greens, and is clearly interested in power. When climate failure has claimed the last four leaders - Prime Ministers Rudd and Howard and Opposition Leaders Turnbull and Nelson - Prime Minister Gillard would be well advised to come to talk to the Greens about real climate action.”
Green party politician Christine Milne (Reuters).

The Toxicity of Harry Reid

— By Andy Kroll

| Fri Jun. 25, 2010 7:58 AM PDT

"Rory's Education Plan." "Rory2010.com." "Paid for by Rory 2010."
If you didn't know better, you might think the Nevada gubernatorial candidate named Rory was a Brazilian soccer player, one of those guys with just one name on the back of his jersey. (Hey, it's World Cup season!) Well, not quite. "Rory 2010," if you don't already know, is the campaign for Democrat Rory Reid, the son of Nevada's most recognizable—and, for many, most loathed—politician: Senate Majority Leader Harry Reid.
Today, Reid officially launched his run for the Silver State's governor's office with an ad that's notable for, well, completely omitting his last name. The ad—which features a cast of cute little kids talking education reform, a major issue of Reid's, ahem, Rory's—just goes to show how toxic the Reid name has become amongst large swaths of Nevada voters. In a recent Rasmussen poll gauging the elder Reid's standing in his US Senate race, fringe conservative Sharron Angle leads Harry Reid by 7 percentage points. Even on Rory Reid's website, his ties to his father are completely scrubbed; Rory's bio page, for instance, reads like this:

As Chairman of the Clark County Commission Rory has managed a budget bigger than the state’s general fund for seven years, balanced it every year, and never raised taxes.
Rory, 47, grew up in Nevada attending public schools, as do his three great kids. He attended Brigham Young University, graduating with a dual degree in international relations and Spanish, and continued his studies there through law school. He and his wife, Cindy, have been married for 22 years.

,

Here's Rory's ad:

When Fannie and Freddie Attack

Will one cryptic letter to lenders kill off thousands of homeowners' clean-energy projects?

By Jonathan Hiskes | Thu Jun. 24, 2010 2:15 PM PDT

---

Few new ideas brighten the faces of clean-energy advocates as much as Property Assessed Clean Energy [1], or PACE, the Berkeley-born financing tool that's spreading quickly throughout the country. The three-year-old model has put rooftop solar panels, high-efficiency furnaces, and other home improvements within reach of thousands of American homeowners, and there's hope it could reach many more, creating jobs along the way.
It works by allowing property owners to pay for energy projects through an addition to their property tax bill, paid back over 15 to 20 years. If the owner sells the property after, say, installing a $15,000 solar array, the unpaid balance is passed on to the new owner (who also reaps the electricity-bill savings). In this way PACE overcomes two major barriers to greening buildings: high upfront costs and fear that owners will lose out if they move before their investment has paid for itself.
The Obama administration has endorsed PACE with $100 million in stimulus-act funding. Twenty-two states have passed legislation allowing and encouraging municipalities to start PACE programs. San Francisco, Sonoma and Placer counties in California, and Boulder County in Colorado have all recently launched programs, and Los Angeles and San Diego are set to begin ones later this year.
But they've all come to a sudden halt after Fannie Mae and Freddie Mac, the government-sponsored mortgage-finance corporations, sent a cryptic letter [3] [PDF] to lenders on May 5 warning them away from PACE programs.
At issue is what gets paid first if a borrower defaults—the mortgage or the clean-energy assessment? Tax assessments have senior lien status to mortgages, meaning they must be paid off first. Such assessments are typically used to fund public projects such as sewers, sidewalks, and schools. Fannie and Freddie, which guarantee more than half of the nation's $11 trillion in mortgages, contend that home energy improvements shouldn't get priority over mortgages.
In their letter, Fannie and Freddie promise "additional guidance," but a month and a half later, no clarification has come.
In the meantime, PACE programs are delayed and no new ones have come online.
"If this doesn't get resolved, PACE is dead," said Adam Browning [4], director of the Vote Solar Initiative [5], a California advocacy group.
Lost jobs
Jeanine Cotter, CEO of the Bay Area solar and wind installation company Luminalt [6], projected the company's annual revenue could rise from $4 million to more than $7 million when San Francisco launched its program this April. She had hoped to expand the company's workforce of 17.
"The rug just got pulled out," Cotter said. "[PACE] has the potential to stimulate a market and create jobs and create investment in our communities, which is exactly what we need right now. Now it's not happening."
Fannie and Freddie's letter spurred a flood of requests for clarification, from the Department of Energy, several governors, New York City Mayor Michael Bloomberg, San Francisco Mayor Gavin Newsom, and more than 40 members of Congress. Eleven senators wrote [7] [PDF] Banking Committee Chairman Chris Dodd (D-Conn.) asking him to pressure the corporations for a resolution.
Yet there's been no public response from Fannie and Freddie. "Their internal processes are pretty opaque," said Greg Hale [8], senior financial policy specialist at the Natural Resources Defense Council [9].
Officials at Fannie and Freddie declined to comment for this story, and the corporations are not allowed to speak out on public policy. Alfred Pollard, general counsel for the mortgage corporations' regulator, the Federal Housing Finance Agency [10], said his agency was "working expeditiously to produce guidance in light of the questions and concerns that have been raised." He refused to give a timeframe or say if the letter was intended to shut down PACE programs, as it has done.
Fannie and Freddie's objection to PACE is puzzling. Energy-efficiency retrofits and solar arrays make good financial sense. They pay for themselves—and more—over time, and PACE protects buyers from bearing the cost all at once. So the projects make borrowers more financially secure—something you'd expect Fannie and Freddie to applaud.  Newer PACE programs also have safeguards built in—in San Francisco, financing may not exceed 10 percent of the assessed value of the property, and properties with underwater mortgages are ineligible.
"Nobody wants to see policy that increases foreclosures," said Browning of Vote Solar. "PACE is something that can be used as a way to prevent them."
If borrowers do default, they're not responsible for the full assessment, only the delinquent payments (advocates wonder if Fannie and Freddie misunderstood this). Supporters figure those outstanding payments, if they ever occurred, would almost always amount to less than $1,000.
The state of Maine has proposed a compromise that would make PACE assessments "junior" to existing debt. But that undermines an attractive feature of the tool, according to NRDC's Hale. PACE programs use private capital, not government dollars, to fund renewable energy and retrofits, because cities and counties that use PACE sell municipal bonds on secondary markets (which in turn gives them more money to fund more property improvements). "Junior" assessments would be much less appealing to bond buyers, said Hale.
Lost momentum
Given the pressure Fannie and Freddie are facing from multiple directions, PACE backers figure the lending institutions will propose a resolution eventually.
"They're kind of reeling and, I think, blindly reacting to this without reasoned consideration," Hale said. "They're just very nervous as institutions right now. They've been through a very difficult time in the mortgage industry."
The companies have faced a political pummeling for their role in the mortgage crisis and the $145 billion bailout they required. Last week, they were ordered to leave the New York Stock Exchange [11], which sent their stock to new lows. In short, they need friends, not more enemies.
"This is an opportunity for them to demonstrate an active role in working an additional public good," said Browning.
"They could really cast themselves in a positive light if they came out and worked hard to figure out how to address a national priority," said Hale.
Buildings account for nearly 40 percent of the nation's global-warming emissions and energy use [12], so retrofits and clean-energy installations that save money and create jobs have been a top priority [13] for the movement to green the economy.
But the suspension has already done damage by killing momentum for fledgling PACE programs and shaking consumer confidence in them, according to Cotter of Luminalt.
"It takes a while for people to feel comfortable with something that's new," she said. "It's particularly difficult for homeowners, in this market, to be willing to make commitments, unless they feel really confident about things being delivered. When [a program] starts and stops, it does damage beyond just the immediate damage of losing jobs. It creates this uncertainty, in an already uncertain market, which is really unfortunate."

The Renminbi Runaround

        By PAUL KRUGMAN   

    Published: June 24, 2010

Last weekend China announced a change in its currency policy, a move clearly intended to head off pressure from the United States and other countries at this weekend’s G-20 summit meeting. Unfortunately, the new policy doesn’t address the real issue, which is that China has been promoting its exports at the rest of the world’s expense. 
In fact, far from representing a step in the right direction, the Chinese announcement was an exercise in bad faith — an attempt to exploit U.S. restraint. To keep the rhetorical temperature down, the Obama administration has used diplomatic language in its efforts to persuade the Chinese government to end its bad behavior. Now the Chinese have responded by seizing on the form of American language to avoid dealing with the substance of American complaints. In short, they’re playing games.
To understand what’s going on, we need to get back to the basics of the situation.
China’s exchange-rate policy is neither complicated nor unprecedented, except for its sheer scale. It’s a classic example of a government keeping the foreign-currency value of its money artificially low by selling its own currency and buying foreign currency. This policy is especially effective in China’s case because there are legal restrictions on the movement of funds both into and out of the country, allowing government intervention to dominate the currency market.
And the proof that China is, in fact, keeping the value of its currency, the renminbi, artificially low is precisely the fact that the central bank is accumulating so many dollars, euros and other foreign assets — more than $2 trillion worth so far. There have been all sorts of calculations purporting to show that the renminbi isn’t really undervalued, or at least not by much. But if the renminbi isn’t deeply undervalued, why has China had to buy around $1 billion a day of foreign currency to keep it from rising?
The effect of this currency undervaluation is twofold: it makes Chinese goods artificially cheap to foreigners, while making foreign goods artificially expensive to the Chinese. That is, it’s as if China were simultaneously subsidizing its exports and placing a protective tariff on its imports.
This policy is very damaging at a time when much of the world economy remains deeply depressed. In normal times, you could argue that Chinese purchases of U.S. bonds, while distorting trade, were at least supplying us with cheap credit — and you could argue that it wasn’t China’s fault that we used that credit to inflate a vast, destructive housing bubble. But right now we’re awash in cheap credit; what’s lacking is sufficient demand for goods and services to generate the jobs we need. And China, by running an artificial trade surplus, is aggravating that problem.
This does not, by the way, mean that China gains from its currency policy. The undervalued renminbi is good for politically influential export companies. But these companies hoard cash rather than passing on the benefits to their workers, hence the recent wave of strikes. Meanwhile, the weak renminbi creates inflationary pressures and diverts a huge fraction of China’s national income into the purchase of foreign assets with a very low rate of return.
So where does last week’s policy announcement fit into all this? Well, China has allowed the renminbi to rise — but barely. As of Thursday, the currency was only about half a percent higher than its typical level before the announcement. And all indications are that watching the future movement of the renminbi will be like watching paint dry: Chinese officials are still making statements denying that a rise in their currency will do anything to reduce trade imbalances, and prices in the forward market, in which traders agree to exchange currencies at various points in the future, suggest a rise of only about 2 percent in the renminbi by the end of this year. This is basically a joke.
What the Chinese have done, they claim, to increase the “flexibility” of their exchange rate: it’s moving around more from day to day than it did in the past, sometimes up, sometimes down.
Of course, Chinese policy makers know perfectly well that although U.S. officials have indeed called for more currency flexibility, that was just a diplomatic euphemism for what America, and the world, wants (and has the right to demand): a much stronger renminbi. Having the currency bob up or down slightly makes no difference to the fundamentals.
So what comes next? China’s government is clearly trying to string the rest of us along, putting off action until something — it’s hard to say what — comes up.
That’s not acceptable. China needs to stop giving us the runaround and deliver real change. And if it refuses, it’s time to talk about trade sanctions.

We're Still at War:

Photo of the Day for June 25, 2010

Fri Jun. 25, 2010 2:00 AM PDT

 

Sgt. Tyler Clausing, a truck driver with Company E, 1st Battalion, 504th Parachute Infantry Regiment, 1st Advise and Assist Brigade, 82nd Airborne Division, hooks up a trailer to a Palletized Load System truck after dark, on June 11, 2010, at Camp Khalid, Iraq. Photo via the US Army photo by Spc. Michael J. MacLeod.

Napolitano walks the line on border security

By Colleen O'Connor
The Denver Post

Posted: 06/25/2010 01:00:00 AM MDT

Updated: 06/25/2010 05:59:31 AM MDT

Homeland Security Secretary Janet Napolitano addresses the annual conference of the National Association of Latino Elected and Appointed Officials on Thursday in Denver. <!--IPTC: DENVER ,CO--Janet Napolitano, Secretary, U.S. Department of Homeland Security, addresses NALEO, National Association of Latino Elected and Appointed Officials, at the Sheraton in downtown Denver Thursday afternoon. Andy Cross, The Denver Post--> (Andy Cross, The Denver Post )

After emphasizing the Obama administration's commitment to comprehensive immigration reform, Homeland Security Secretary Janet Napolitano hit hard on the issue of border security during an address Thursday in Denver.
"We are going to be very tough about enforcing our law, but we're also going to be very smart about how we enforce our laws," she told attendees at the annual conference of the National Association of Latino Elected and Appointed Officials.
Her talk came at a time of heightened tension over illegal immigration, just two months after Arizona passed a new law that requires police to ask people they have stopped, detained or arrested about their immigration status if there is a "reasonable suspicion" they are in

Extras

• Examine an interactive graphic detailing the issues and players surrounding Arizona's immigration law and its effects on national politics.

the U.S. illegally. The law is set to take effect July 29. It came about a year after the Obama administration started the Southwest Border Initiative, cracking down on Mexican drug cartels with more manpower and technology, an improved network of information sharing, and better coordination among state, local and tribal law enforcement authorities.
"We have seized more drugs, more cash and more guns at the border than at any time in our nation's history," Napolitano said.
The Border Patrol now has 20,000 agents, twice what it had in 2004, Napolitano said, and Obama has asked Congress for "another half billion dollars for security at the border."
Still, there is much debate over the issue of comprehensive immigration reform.
"It is a bitterly divided Congress right now, bitterly partisan," Napolitano said.
Last week, Arizona Republican Sen. Jon Kyl cautioned Democrats against trying to "hold hostage the security of the border in order to get comprehensive immigration reform passed."
Napolitano, the former governor of Arizona, took aim at the flap in her remarks.
"There is a mantra in Washington, D.C., that we cannot even talk about immigration reform until we 'secure' the borders," she said. "It doesn't matter in some people's minds that we've had all these record seizures, that we're putting even more manpower, technology and infrastructure at our borders. They keep moving the goal posts."
She urged NALEO members to put pressure on those they know — from labor to faith-based communities — to work for a bipartisan congressional agreement on immigration reform.
"As a Republican, I think this is the opportunity for us to show some leadership on the issue," said Florida Rep. Juan Zapata, the chair of NALEO's Educational Fund.
Ray Martinez, a Republican who served as mayor of Fort Collins, said Democrats need to work with his party on the issue.
"There can't be any more closed-door meetings . . . like they did with health care," he said.
Polly Baca, the first female chair of the Colorado House Democratic Caucus, was "delighted" that Napolitano reaffirmed the administration's support for immigration reform.
"Until we get comprehensive immigration reform, I think we'll see states take some draconian measures similar to Arizona," she said.

Voters give Lang Sias an earful about Obama, economy

Posted June 24, 2010, 5:44 pm MT

By Lynn Bartels

Denver Post Staff Writer

A recent Denver Post poll found Coloradans think jobs and economy is the No. 1 issue facing the country today, and Lang Sias heard the same thing on the campaign trail.

Republican Lang Sias greets Tom McDougal in a Lakewood neighborhood Wednesday night. (Photo by Kenneth D. Lyons, The Denver Post)

Sias, one of two Republicans running for Congress in the 7th Congressional District, walked Lakewood precincts last night.
“How’s the economy treating you?” Sias asked 26-year-old Nicole Chavez.
“Not too good,” she responded. “I have a good job but my boyfriend’s unemployed right now.”

Sias, a pilot from Arvada, and Aurora City Councilman Ryan Frazier square off in the Aug. 10 primary. The winner faces U.S. Rep. Ed Perlmutter, D-Golden, who is vying for his third term.
The 7th District, on Denver’s western, northern and eastern boundaries, is a swing congressional district, with 113,360 Democrats, 92,357 unaffiliated voters and 86,777 Republicans. The unaffiliated voters are crucial to deciding which party wins the seat, and the national mood makes it tough for Democrats.
Sias heard plenty of complaints about the Obama administration and the Democratic-led Congress while knocking on doors, just as Frazier has.

Posted June 25, 2010, 9:59 am MT

5280 digs into Shepherd story

 5280 magazine this month has an intriguing story on the downfall of Willie Shepherd, a Denver powerbroker who once dreamed of a top job with Obama.

Here’s how the magazine bills the piece:

Along the way to becoming one of the city’s most influential figures, politically wired attorney Willie Shepherd bullied, belittled, lied, and then some. And his fellow partners at Kamlet Shepherd & Reichert failed to stop him until two junior attorneys took a stand.

The article, by Maximillian Potter, looks at Shepherd’s role in raising money for the Democratic National Convention in Denver as well as his legal billing processes that helped do him in.
The article begins by talking about an exclusive VIP party the first night of the convention at Tamayo restaurant.

“It was filled with local and national VIPs … and positioned in the middle of the first floor was attorney Willie E. Shepherd. …
“Even if you hadn’t recognized Shepherd upon entering the VIP bash at Tamayo, you likely would have pegged him as a somebody, maybe the host, which would have been fine by him. … This was the time, he told colleagues, when he would make the jump: Maybe he would be appointed Colorado’s U.S. attorney; maybe he’d get a seat in Obama’s cabinet.”

You can read the entire legal/political drama, “Power Broken,” by clicking here.

 

Reid's high-stakes climate bill gamble

By: Coral Davenport and Darren Samuelsohn June 24, 2010 05:52 PM EDT

Senate Majority Leader Harry Reid (D-Nev.) is planning a high-risk, high-stakes strategy for bringing climate and energy legislation to the floor ahead of the August recess. The gamble: yoking a bipartisan, fast-track measure to overhaul offshore drilling rules with a broad, contentious bill capping greenhouse gas emissions that otherwise would have almost no chance of passage on its own. Reid’s own Democrats are mixed on the strategy for notching 60 votes. Some argue that public perception of fossil fuels in the wake of the BP oil spill will sway enough of the party’s swing votes and open Republicans to attack if they oppose the measure as their reelection campaigns head into the homestretch. “Republicans are not supporting virtually anything to transform our energy system,” said Sen. Bernie Sanders (I-Vt.). “That’s not what the American people want. So I think you bring forth a strong bill, you rally the American people and I think the Republicans will respond as a result of that.” Thus far, Reid can’t count on all Democrats coalescing around this approach. Several say they are fearful that hitching a popular oil reform bill to a big, unwieldy climate plan will just sink legislation that could otherwise serve as a quick, easy and politically popular win. One leading Democrat who’s wary of Reid’s strategy is the leader of the party’s 2010 Senate campaign committee, Robert Menendez of New Jersey. “I think we should do them separately,” he said. “The oil regulation bill is moving fast and has a lot of support.” Reid on Thursday offered broad-brush details of his legislative plans in remarks to reporters after an hourlong closed-door meeting with all 59 members of the Democratic Caucus. Senate sources said about 20 senators in the room spoke in favor of carbon limits. Reid afterward called the meeting “inspirational” and signaled he had no plans to sidestep the controversial concept. “The Democratic Caucus realizes we have a problem,” Reid said. “We have a phenomenon that is here and if we don’t do something about it, our planet’s destruction could be there.” Reid also all but dared Republicans to oppose a broad legislative package that could be positioned politically as the Senate’s response to the oil spill. “We’re going to write a bill that sets reasonable goals over a reasonable time frame that’d benefit both our environment and our economy,” he said. “We’re going to write a bill that can pass the Senate. My caucus is ready to get to work, but we need the cooperation of brave Republicans. It’s my hope they will join us in putting good policy over bad politics.” Reid plans to build the floor package around a bill fast-tracked for approval next week in the Energy and Natural Resources Committee that would impose new safety and environmental rules and increase oversight of oil companies doing offshore exploration. Sens. Jeff Bingaman (D-N.M.) and Lisa Murkowski (R-Alaska), chairman and ranking member on the committee, respectively, introduced the legislation together on Monday, with plans to amend it next week with more oil spill ideas from Sens. Menendez, Mark Udall (D-Colo.) and Scott Brown (R-Mass.). Interior Secretary Ken Salazar testified at a hearing Thursday that the underlying package was “a very good bill.” The Democratic leader’s floor plan addresses a growing desire by the Obama administration to take swift action on any legislation that could prevent a future disaster like the Gulf Coast oil spill. Republicans who once would have resisted legislation that would impose new safety and environmental restrictions on the oil industry are now lining up in favor of such measures, in part to avoid being seen in the same light as Rep. Joe Barton, the Texas Republican who drew intense pressure from his own caucus after publicly apologizing to BP. But Reid may also be playing with fire by pushing climate change provisions that nearly all Republicans have painted as an expensive new taxes and moderate Democrats see as an unpopular vote they’d rather avoid. Minority Leader Mitch McConnell (R-Ky.) said Thursday that he would prefer that the focus remain on responding to the oil spill. Asked whether he’d be open to additional energy provisions, McConnell replied, “It depends entirely on what it looks like. If it’s a national energy tax, which is what cap and trade is, I think it’s not going to pass.” Reid hasn’t settled yet on whether to push for a sweeping cap on greenhouse gases that covers multiple sectors of the economy — including power plants, transportation fuels and energy-intensive manufacturers of products like glass, cement, and pulp and paper — or a more limited approach that would deal with only power plants. Additional clarity is expected when Reid leads a group of Senate Democrats and Republicans to the White House for a meeting with President Barack Obama, probably early next week. For now, some Democrats are pressing Reid to drop the entire carbon-cap plan and instead go forward with a nationwide renewable electricity standard. A carbon cap “will be difficult to achieve at this stage given the current circumstances,” said Sen. Evan Bayh (D-Ind.). “But I do think it’s possible we can make progress on an energy bill that begins to make progress on the climate issue. But the clock is ticking.” Daniel J. Weiss, a senior fellow at the left-leaning Center for American Progress Action Fund, said Reid needs to force members of his caucus to take the climate vote just as he did earlier this year on health care reform. Weiss said, “There are some Democrats who have made it clear they don’t want to have to vote on this — they’ve even told Reid they won’t vote for it. But when push comes to shove, they won’t be able to vote against it because of the other good stuff in there. The question is how many of those there are and how far they can push them.” Scott Wong and Giovanni Russonello contributed to this report.

Jerry Brown's Clean Energy Revolution

Governor Moonbeam greened California once. Can he do it again?

By Kate Galbraith | Thu Jun. 24, 2010 2:27 PM PDT

---

Trivia questions for energy geeks: Which state approved the country's first energy-efficiency standards for appliances? The first green building codes? The first big wind farms? And who was governor when all those fine things happened?
The answer is California under Gov. Jerry Brown—aka Governor Moonbeam [1]— who just happens to be running for the office again, some 30 years later. Last week, Brown, the Democratic nominee, unveiled a clean-energy plan [2] to put far more solar panels on California's rooftops, in addition to appointing a renewable energy czar and strengthening those sexy appliance standards.
Of course, plenty of politicians make lofty promises about ushering in an energy transformation, to little or no result. Like the last eight presidents [3], for example. But there's good reason to take Brown seriously.
"He's done it before. And really if you look across the landscape in American political history, there's nobody else that can say that," said John Geesman, who was executive director of the California Energy Commission during part of Jerry Brown's first stint in the governor's mansion. "Nobody at all."

Brown then ...
When Brown took office in 1975, energy was high on everyone's agenda. Just over a year earlier, the Arab oil embargo [5] had driven up energy prices and triggered lines at the gas pumps. California utilities were projecting a 7 percent annual growth in electric demand, and had dreams of building a string of nuclear power plants along the coast.
Brown found another way.
In the mid-1970s, at a faculty club event at the University of California at Berkeley, he sat at the same dinner table as Art Rosenfeld [6], then at Lawrence Berkeley National Laboratory, who was just beginning a noted career in energy efficiency.
They talked shop, and the conversation turned to a controversial proposed nuclear plant, Sundesert. Rosenfeld told Brown that just by requiring refrigerators to be more efficient, the state could save as much energy as would be produced by the Sundesert plant. Brown left around 9 p.m. to drive back to Sacramento. Twelve hours later, Rosenfeld got a call from Gene Varanini of the California Energy Commission.
"He said, 'Art, I think you'd be happy to know that Jerry Brown woke me up this morning at 8 a.m. to know if this guy Art Rosenfeld is real,'" Rosenfeld recalls. "And that was the unraveling of Sundesert."
Under Brown's leadership, California adopted Rosenfeld's refrigerator standard in 1978. And the state continues to lead the nation in appliance standards today, having approved the nation's first efficiency requirement for televisions [7] last fall. As if to underscore Brown's achievement, several large solar projects are now planned for the old Sundesert site.
Also under Brown's watch, California became the first state to approve a strong energy-efficiency building code, called Title 24, in 1978.
In 1982, Brown's final full year in office, California pioneered the idea of "decoupling [8]" electric utilities' revenues from how much electricity they sold—which means, in a nutshell, that utilities had an incentive to promote energy efficiency rather than simply generating and selling as much power as they could. (A handful of other states have embraced electric decoupling since then.)
Brown's California also did renewables. In the mid-1970s, the legislature passed tax credits of a whopping 55 percent for wind, solar, geothermal, and some biomass. A 1978 federal law called the Public Utility Regulatory Policies Act also helped. So California started building: In the early 1980s, a wind farm at Altamont Pass, east of the Bay Area, began operating, followed shortly by two other large wind farms. The state invested heavily in solar hot-water heaters, and also put in a number of geothermal and biomass plants, according to V. John White, the executive director of the Center for Energy Efficiency and Renewable Technologies.
To be sure, Brown, who is now California's attorney general, hardly deserves all the credit for such measures. The legislature passed important bills, such as the tax credits. Even Ronald Reagan, who was governor of California before Brown, signed the law in 1974 creating the powerful California Energy Commission, which crafts appliance standards and building codes and licenses large power plants. (According to Rosenfeld and Geesman, Reagan had vetoed a similar bill a year earlier, but then a little thing called the oil embargo came along.)
But Brown was a key advocate for these changes and he made the most of them. One of his big achievements was staffing up the California Energy Commission and turning it into an activist body, and he did the same with the California Public Utilities Commission. Together, those two regulatory entities fast-tracked many of the policy objectives set forth by the legislature, like appliance standards and building codes.
According to Rosenfeld, Brown even tried to recruit a young John Holdren, then a professor of energy and resources at Berkeley, to chair the California Energy Commission, but Holdren, who is now Obama's science advisor [9], wouldn't jump. Brown, Rosenfeld observes, has a knack "for picking future successful people."
... and Brown now
Three decades on, California remains ahead of the country in energy efficiency. Its per-capita electricity usage has barely budged since Brown's time despite the proliferation of gadgetry and a fondness for McMansions. California also continues to lead on solar, although without the emphasis on solar hot water that Brown had envisioned.
But on wind, the Golden State has become the Bronze State. Texas leads the nation in wind power production, having passed California for the top spot several years ago—and, embarrassingly, California now also trails Iowa, a state one-third of its size. Very few wind farms—or biomass or geothermal facilities—have been built since Brown's time. Wind farms or other power plants can no longer be blithely sited on empty land in California—a partial legacy of the many birds that have perished at Altamont Pass [10].
Brown can be proud of the changes he set in motion, but in today's California, his job will be harder.  He'll need new approaches—and he seems to get that.
His clean-energy plan [11] [PDF] emphasizes "localized electricity generation"—read: rooftop solar—which doesn't face siting problems. The plan calls for more than 10 times as much of this small-scale generation as California has on its rooftops now, by 2020. That's not a cheap proposition, however.
To push through bigger projects, renewable energy advocates say Brown could help out by cutting through some of California's notorious red tape. "I think Jerry could make a difference [in] execution and planning," says White. "I think one of the problems in this area is there are so many agencies, so many jurisdictions, so many personalities, that things take longer than they should. They take longer than any other state." Brown has already called for "dramatically reduced [2]" permitting times for transmission lines.
Brown also wants to:

• build a "solar highway" of panels along state roads
• encourage energy storage systems [12]
• set tougher efficiency standards for new buildings and appliances
• make existing buildings more efficient, in part by helping to finance efficiency upgrades for homeowners and businesses

Meg Whitman, Brown's Republican opponent, has an energy and environment plan [13] of her own, though it's less detailed. She also supports further clean-energy development and promises to "work to update the law to ensure that vital infrastructure and energy projects are not stalled due to redundant reviews and overly bureaucratic processes."
Brown, for his part, claims his clean-energy plan would create 500,000 jobs over 10 years. If he can manage that—and that's a big "if"—he'll live up to his campaign slogan: "Let's get California working again."

Stagnation, default or inflation await. The only way out is growth

Jun 24th 2010

THERE is an old joke about a stranger who asks a local for directions and gets the cheerful reply: “If I wanted to go there, I wouldn’t start from here.” That advice sums up the dilemma the developed countries face in dealing with their debt. They have accumulated a mountain of it at every level, from the personal to the corporate and the sovereign. As this special report has shown, this was encouraged by a legal system that sheltered debtors, a corporate and financial sector that used debt to boost its returns and a cultural change that made it more respectable.

Central banks and governments implicitly guaranteed this debt, riding to the rescue whenever a repayment crisis loomed. They intervened in a host of small financial fires, using low interest rates to put out the flames. But this merely allowed the tinder to build up that set off the huge conflagration of 2008. Now the governments’ own balance-sheets have deteriorated. In America the amount of government debt per person has risen from $16,000 in 2001 to $34,000 now, and household debt has gone up from $27,000 to $44,000. In Britain government debt per head has almost trebled, from £5,000 in 2001 to nearly £18,000 today, and household debt has jumped from just under £14,000 to £24,000.
Cutting the debt back to more acceptable levels is both hard and unappealing, since it may involve years of austerity and slow economic growth. It also requires some tough political decisions. If being able to borrow makes people feel richer (however illusory the sensation), having to repay the debt makes them feel poorer. They resent the sacrifices involved, especially if they are imposed by outsiders. This is particularly true in democracies. In a referendum Icelanders voted overwhelmingly against a debt repayment deal with Britain and the Netherlands.

Dani Rodrik, an economist at Harvard, has talked of a “trilemma” in which countries aiming for the three goals of deep economic integration with the rest of the world, national sovereignty and democratic politics can achieve two of them but not all three. Left to themselves, voters will resist the sacrifices needed to remain competitive in a system of deep economic integration, and nation states are constantly erecting barriers to international trade. One way of eliminating those barriers would be to set up some sort of global federal government. Another would be to install a “free-market Stalin”—a figure in the mould of Chile’s Augusto Pinochet—who would force his country’s citizens to accept the constraints of the global market, including debt repayment. Neither option is appealing.
The citizens of Europe may now be realising that debt transfers power from the borrower to the creditor. The first world war destroyed Britain’s credit position and ushered in the era of American financial dominance. Now the debt burden reflects the shift in the balance of economic power from rich countries to developing ones. It is striking that on average developed countries now have a higher debt burden than emerging nations. Investors have certainly noticed, and have poured money into emerging-market bonds funds over the past year. Developing countries also have more chance of outgrowing their debt burdens. According to Tony Crescenzi of PIMCO, investors are asking themselves, “Would I rather lend money to nations whose debt burden is worsening, or to nations where it is improving?”
This pattern of debt is the opposite of what you might expect. At the level of individual consumers, people tend to borrow when they are young because they are hoping for higher incomes in the future. As they reach middle age they start to pay off their debts and save for retirement. By extension, rich countries with their greying populations should be saving whereas younger, fast-growing developing countries should be borrowing heavily. But in fact it is the other way round.
This is not unalloyed joy for the creditor nations. Once the exposure of a creditor to a borrower gets sufficiently large, the two sink or swim together. The relationship between China and America has been described as vendor financing, in which the Chinese lend the Americans the money to buy their cheap manufactured goods; a collapse in American demand would cause substantial unemployment (and social unrest) in China.
The longstanding system of vendor financing may have encouraged the rich world to concentrate on consumption rather than investment and to enjoy the resulting “artificial” growth, like a child on a sugar high. Richard Koo, who wrote a book about the Japanese recession, “The Holy Grail of Macroeconomics”, refers to a debt-financed boom as “cherry-blossom” economics. He recounts the tale of the two brothers who bought a barrel of sake to sell to revellers at Japan’s cherry-blossom festival. But instead of taking money from the thirsty crowd, each brother charged the other for a cup of sake, then used the proceeds to buy a cup for himself, and so on. The brothers ended the day drunk and empty-handed.
Jeremy Grantham of GMO, a fund-management group, is a detached and cynical observer of the financial and economic scene. The way he sees it, “all debt seems to do is bring growth forward a little. If you get people to spend 1% more than their income every year, after 20 years they are going backwards because interest expense is eating up more of their salary.”
Robert Bergqvist, chief economist at SEB Group in Sweden, is equally pessimistic. “The leverage-led growth model is dead,” he says. “Households and corporates can increase borrowing and enhance today’s consumption and investments but that requires that we can assume higher future incomes and expected returns and/or rising asset values. And this is not certain.”

Running out of ammunition
The debt burden may also have had a distorting effect on economic policy. In the 1960s and 1970s governments grappled with a wage-price spiral in which demands for higher wages forced companies to increase their prices, which in turn triggered demands for higher wages. The past two decades have seen a debt-interest rate spiral. It starts off with the private sector borrowing a lot of money. This is followed by a crisis in which the central bank cuts interest rates to help borrowers. That encourages the private sector to borrow more, which makes it all the more imperative for central banks to come to the rescue when the next crisis comes along. With short-term interest rates now at 1% or less in America, Britain, Japan and the euro zone, this process cannot go any further.
If the 1960s and 1970s produced consumer inflation, the debt-interest rate spiral created asset inflation. In 2000 this pushed share prices to unprecedented peaks; indeed many stockmarkets have yet to regain the levels they reached a decade ago. Now the support of asset prices has entered a new stage, with central banks buying assets (in particular, government and mortgage-backed bonds) directly to boost the financial sector.
Indeed, that sector was the biggest beneficiary of this spiral. Before the credit crunch it generated some 35% of all domestic profits in America. A highly sophisticated society would be expected to spend quite a lot on finance, but that figure still looked too high. “We have been transferring aggregate income and wealth to the financial-services industry. All this financial activity is just a deadweight on the system,” says Mr Grantham.
During the debt boom the optimists argued that the huge growth in derivatives did not add to risk in the system because every buyer was matched by a seller. Nobody drew attention to the fact that with each new instrument the finance sector took a cut in the form of a fee, or the spread between buying and selling prices. As derivative was piled on derivative, debt on debt, the cut got ever larger.
Financial profits may have artificially boosted the government’s revenues across a range of items, from corporate profits to capital gains and taxes on bonuses. Some of that revenue may now be lost for good. Mr Koo points out in his book that whereas in 1990 Japanese tax receipts were ¥60 trillion ($416 billion), in 2005 they had come down to only ¥49 trillion, even though Japan’s nominal GDP was 13% higher. When revenues were booming, governments thought they would keep coming and increased their spending accordingly. Now it is hard to see how the gap can be closed.
The vast amount of debt at every level also raises the question whether the pool of savings is large enough to absorb it all. In the early 2000s there was no problem. Central banks and sovereign-wealth funds in the emerging economies seemed only too happy to recycle their current-account surpluses into the government bonds of rich countries. This forced down bond yields and tempted rich-world investors to look for better returns by buying mortgage-backed and high-yield corporate bonds.
All that changed with the credit crunch. Suddenly the business sector found it very difficult to borrow. By contrast, governments found it easy because their debt was seen as safe. But once economies start expanding again, business and governments may start competing for the same pool of savings and the public sector may “crowd out” the private one. As the Greek crisis has shown, countries which want to dip into that pool would do well to keep their finances in order.
If attracting international investors is too hard, governments will be tempted to lean on their domestic savers. Theo Zemek, who heads the fixed-income division at AXA, a giant insurance company, reckons that a combination of regulatory and accounting changes will encourage banks and insurance companies to buy more bonds, and ageing populations in the rich world will also want to hold more assets that produce fixed incomes.
Historical factors such as legal, tax and monetary policy have provided incentives for consumers, companies and (crucially) the finance sector to pile on debt. The level of debt has become untenable, but the options for reducing it are not enticing.

Here’s how not to do it
One example not to follow is Japan, which has suffered a long period of stagnation accompanied by ever-rising government-debt-to-GDP ratios. This has proved sustainable only because of the country’s strong external position; it owes its debt to its own institutions.
For nations that owe money to foreigners, a long period of stagnation is likely to lead to at least partial default. This may be the eventual outcome in Greece, despite the recent rescue package put together by the IMF and the EU. Ms Reinhart and Mr Rogoff argue that the world is due for a wave of sovereign defaults, which are common after serious financial crises.
Another undesirable model is to inflate the debt away, as has often happened in the past. At the extreme, as in Germany in the 1920s, central banks “monetise” the debt, simply printing the money to allow the government to pay its bills. Some regard quantitative easing—in which central banks create money to buy financial assets, mainly government bonds—as monetisation by another name. But many countries may find this difficult, especially if they have a lot of short-term debt. Dhaval Joshi of RAB Capital, a hedge fund, explains that 53% of government debt will have to be rolled over by 2012, for example. If investors think inflation is set to rise, they will demand higher yields, increasing the cost of servicing the debt.
Stagnate, default, inflate—they all seem equally grim. The best solution for rich countries is to work off their debts through economic growth. That may be harder for some than for others, given that many countries’ workforces are set to level out or shrink as their populations age. It will be all the more important for such countries to pursue structural reforms that will increase productivity.
But outgrowing debt is not easy: the McKinsey study found that, out of 32 cases of deleveraging following a financial crisis that it examined, only one was driven by growth. America, which has a younger workforce than Europe or Japan, might still manage it. But for many other countries the hole they have dug for themselves may already be too deep.

An interactive chart allows you to compare how the debt burden varies across 14 countries and to examine different types of borrowing