Farmer Jim Kreutz uses derivatives to soften the blow should the price of feed corn drop before harvest. His brother-in-law, feedlot owner Jon Reeson, turns to them to hedge the price of his steer. The local farmers’ co-op uses derivatives to finance fixed-price diesel for truckers who carry cattle to slaughter. And the packing plant employs derivatives to stabilize costs from natural gas to foreign currencies.

Far from Wall Street, President Barack Obama’s financial regulatory overhaul, which may pass Congress as early as Thursday, will leave tracks across the wide-open landscape of American industry.

Designed to fix problems that helped cause the financial crisis, the bill will touch storefront check cashiers, city governments, small manufacturers, home buyers and credit bureaus, attesting to the sweeping nature of the legislation, the broadest revamp of finance rules since the 1930s.

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I hope the White House is paying attention to the latest annual Congressional Budget Office Long-Term Budget Outlook, which offers a truly frightening picture of the scale of America’s national debt, with huge implications for the country’s future prosperity. According to the non-partisan CBO, “the federal government has been recording the largest budget deficits, as a share of the economy, since the end of World War II”….

Read it all and follow the link to the important CBO report.

The national debt will reach 62 percent of gross domestic product (GDP) by the end of this year, the nonpartisan Congressional Budget Office (CBO) said Wednesday.

The budget office said the debt will reach its highest percentage of GDP since the end of World War II. The jump is driven by lower tax revenues and higher federal spending in the recent recession.

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After more than a year of work and two weeks of negotiations, lawmakers early Friday finished melding different versions of Wall Street reform.

The final bill won’t be ready for a few days, but here’s CNNMoney.com’s breakdown of key provisions that aim to protect consumers, prevent firms from getting too big to fail and crack down on risky bets that leave taxpayers on the hook.

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That said, the most worrisome long-term economic impact of the Gulf spill lies elsewhere: The catastrophe is adding to the gradual erosion in trust in U.S. professional elites and major institutions, from government to business. It has hardly inspired confidence to watch the White House scramble to prove that President Barack Obama wasn’t as detached from the crisis as he often seemed, or to witness the inability of the world’s best oil engineers to stop the underwater gusher.

Confidence in the economy’s commanding heights has taken a beating following a long run of scandals and malfeasance. The list includes everything from the Enron and Worldcom failures, Bernie Madoff’s massive fraud, the subprime loan mess, the government rescues of Fannie Mae, Freddie Mac, and AIG (AIG), the controversy surrounding Goldman Sachs’ (GS) collateralized debt obligations, and so on. The Tea Party movement may grab all the attention with its antigovernment rhetoric, but surveys have repeatedly shown that its sentiment is widely shared. For instance, a series of long-run surveys by the Pew Research Center find that only 22 percent of those surveyed say they can trust government. That’s about the lowest measure in half a century. The ratings are similarly abysmal for large corporations and banks and other financial institutions: respectively 25 percent and 22 percent.

Trust isn’t as easy to measure as land, labor, and capital. It’s more like a recipe or a software protocol that allows for economic exchange and all kinds of innovation. Nobel Prize Laureate Kenneth Arrow famously remarked that “virtually every commercial transaction has within itself an element of trust.” Societies with high levels of trust are fertile ground for developing large corporations and innovative enterprises. Low-trust societies feature people who don’t like to do business with folks outside their family or community; smaller, family-run companies are the norm.

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To believe Christopher Dodd, the Connecticut Democrat who is chairman of the Senate Banking Committee, the end of government bailouts is near. In truth, the financial-overhaul legislation now before Congress would do little to arrest the bailouts already in progress.

When the U.S. government rescued American International Group Inc. in 2008, it reasoned that a disorderly failure of the financial-services giant would lead to an economic catastrophe. What the Treasury and Federal Reserve said they needed was a way to wind down systemically important institutions without sending them into bankruptcy courts, to keep the companies from triggering defaults on their obligations that would cascade throughout the broader financial system.

Congressional leaders say their final bill will deliver the resolution authority regulators have been seeking. “It will end bailouts, ensuring that failing firms can be shut down without relying on taxpayer bailouts or threatening the stability of our economy,” Dodd said June 10 at the House-Senate conference committee where the differences between the two chambers’ bills are being negotiated.

It wouldn’t end AIG’s rescue, though. The reason AIG hasn’t failed is that the Fed and the Treasury continue to stand behind it. There’s no sign this will change anytime soon. Nor would the legislation force the government to do otherwise.

Read the whole thing.

South Carolina state police should investigate how the unemployed winner of the state’s Democratic U.S. Senate primary paid his filing fee of more than $10,000, after claiming indigency and being appointed a public defender to represent him in a court case, a state lawmaker says.

“There are several questions regarding the filing fee paid for by Mr. Alvin Greene,” Republican Rep. Chip Limehouse wrote in a letter dated Tuesday to State Law Enforcement Division Chief Reggie Lloyd.

Greene, a 32-year-old political unknown, stunned the party establishment when he defeated former state lawmaker Vic Rawl in the June 8 primary to see who would face GOP U.S. Sen. Jim DeMint, the heavy favorite in the fall.

Ugh and yuck. Read it all.

The cost of fixing Fannie Mae and Freddie Mac, the mortgage companies that last year bought or guaranteed three-quarters of all U.S. home loans, will be at least $160 billion and could grow to as much as $1 trillion after the biggest bailout in American history.

Fannie and Freddie, now 80 percent owned by U.S. taxpayers, already have drawn $145 billion from an unlimited line of government credit granted to ensure that home buyers can get loans while the private housing-finance industry is moribund. That surpasses the amount spent on rescues of American International Group Inc., General Motors Co. or Citigroup Inc., which have begun repaying their debts.

“It is the mother of all bailouts,” said Edward Pinto, a former chief credit officer at Fannie Mae, who is now a consultant to the mortgage-finance industry.

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“We have embarrassment fatigue here….If there is an embarrassment equivalent of post-traumatic stress disorder, South Carolina has it.”

–Dick Harpootlian, the former Democratic chairman of the state in the New York Times

The popular tax break for mortgage interest, once considered untouchable, is falling under the scrutiny of policymakers and economic experts seeking ways to close huge deficits.

Although Congress last year rejected the White House’s proposed cut to the amount wealthier taxpayers can deduct for home mortgage interest payments, the administration included it again in its 2010 budget ”” saying it could save $208 billion over the next decade.

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“My best guess is that we’ll have a continued recovery, but it won’t feel terrific,” Ben S. Bernanke, the Fed chairman, said at a dinner at the Woodrow Wilson International Center for Scholars on Monday night. “And the reason it won’t feel terrific is that it’s not going to be fast enough to put back eight million people who lost their jobs within a few years.”

One could almost envision the winces in the White House as Mr. Bernanke observed that the unemployment rate “will stay high for some time.” He went on to note that even if the economy grew at 3 percent, which would be considered a healthy pace, it would do little more than keep pace with the normal rate of growth of the work force.

Virtually every day of late, White House officials have struggled to explain how their strategies to provide economic stimulus to bring down the unemployment rate square with Mr. Obama’s oft-expressed commitment to tackle a record budget deficit. They talk about spending this year ”” in modest amounts ”” while waiting for the prescriptions of the president’s commission on debt reduction, which reports, conveniently, a few weeks after the midterm elections.

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That said, I think part of the business community’s complaint about Obama has merit. Although there are many “innovation” initiatives ongoing in this administration, they are not well coordinated or a top priority or championed by knowledgeable leadership. This administration is heavily staffed by academics, lawyers and political types. There is no senior person who has run a large company or built and sold globally a new innovative product. And that partly explains why this administration has been mostly interested in pushing taxes, social spending and regulation ”” not pushing trade expansion, competitiveness and new company formation. Innovation and competitiveness don’t seem to float Obama’s boat. He could use a buoyant growth strategy.

What might that include? I asked two of the best people on this subject, Robert Litan, vice president of research and policy at the Kauffman Foundation, which specializes in innovation, and Curtis Carlson, the chief executive of SRI International, the Silicon Valley-based innovation specialists.

Carlson said he would begin by creating a cabinet position exclusively for promoting innovation and competitiveness to ensure that America remains “the world’s new company formation leader.” “Secretary Newco” would be focused on pushing through initiatives ”” including lower corporate taxes for start-ups, reducing costly regulations (like Sarbanes-Oxley reporting for new companies), and expanding tax breaks for research and development to make it cheaper and faster to start new firms. We need to unleash millions of entrepreneurs.

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Senator Blanche Lincoln of Arkansas survived a tough challenge from her party’s left wing on Tuesday to capture the Democratic nomination in a runoff primary election, resisting the anti-incumbent wave that has defined the midterm election year.

Mrs. Lincoln withstood a multi-million-dollar campaign against her from organized labor, environmental groups and liberal advocacy organizations from outside Arkansas as she prevailed over Lt. Gov. Bill Halter. She faces a difficult contest in the fall, but her victory challenges the suggestion that voters are poised to oust all officeholders.

“We proved that this senator’s vote is not for sale and neither is yours,” Mrs. Lincoln said. “We took on the outside groups seeking to manipulate our votes.”

In California, Republican primary voters chose female business executives to run for Senate and for governor after both crushed their opponents.

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Brushing aside allegations of extramarital affairs, tea party favorite Nikki Haley pushed aside a tough group of political stalwarts and nearly won outright the GOP primary race for governor. Just shy of the 50 percent needed to earn the Republican bid, Haley now faces U.S. Rep. Gresham Barrett in a runoff June 22.

Meanwhile, Democrats overwhelmingly chose Vincent Sheheen as their nominee for governor. Sheheen, a state senator from Camden, took 59 percent of the vote, topping Jim Rex, state superintendent of education, with 23 percent. State Sen. Robert Ford of Charleston finished with 18 percent.

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Of all the incumbents on the ballot across the nation Tuesday, of all the establishment figures whose careers are on the line in this midterm election year, there is no bigger target than Senator Harry Reid of Nevada, the Democratic majority leader.

But will Mr. Reid’s prospects rise after Tuesday night?

That’s one of the questions that will be answered when the outcome of primary contests in 11 states ”” the biggest day so far this election season ”” provides a layer of clarity as to how Republicans and Democrats will be positioned in their battle for control of Congress over the next five months.

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We are drifting. We take comfort in bits of good news, but we are in dangerous waters; the Great Recession is being starkly revealed as a global crisis with the US, the traditional engine of recovery, sputtering on every cylinder. The US government responded with dramatic financial support by transferring money to the household sector. But outside of these transfers the personal income of Americans is still declining; the residential market remains stagnant at best; consumer growth is nominal. The only real energy in the economy has come from the cessation of inventory liquidation, which is now the main factor in rising industrial output and any modest improvement in the economy.

The mood of US households is despondent. In May only 11.3 per cent believed they would see their income rise in the following six months, while 16.6 per cent thought they would see it decline. This is the first time in over four decades that more people believe they will be worse off than better. Any massive fiscal and monetary stimulus that might reverse the trend is likely to be politically unsustainable given the growing concern over the exploding national deficit.

Wherever you look the scene is bleak. Leading economic indicators fell in April ”“ unusual at such an early stage in the up-cycle. Jobless claims were up by 25,000 to 471,000. And up again above expectations in the first three weeks of May ”“ raising the four-week moving average to a level consistent with 100,000, or more, net job losses. For the past several months, claims have been nowhere near the levels of 400,000 and less that in the past were consistent with sustained job creation. We are not enjoying the normal cycle of economic improvement.

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(Please note that the title above is from the print edition–KSH)

But while the research compiled in the Dartmouth Atlas of Health Care has been widely interpreted as showing the country’s best and worst care, the Dartmouth researchers themselves acknowledged in interviews that in fact it mainly shows the varying costs of care in the government’s Medicare program. Measures of the quality of care are not part of the formula.

For all anyone knows, patients could be dying in far greater numbers in hospitals in the beige regions than hospitals in the brown ones, and Dartmouth’s maps would not pick up that difference. As any shopper knows, cheaper does not always mean better.

Even Dartmouth’s claims about which hospitals and regions are cheapest may be suspect. The principal argument behind Dartmouth’s research is that doctors in the Upper Midwest offer consistently better and cheaper care than their counterparts in the South and in big cities, and if Southern and urban doctors would be less greedy and act more like ones in Minnesota, the country would be both healthier and wealthier.

Read it all from Thursday’s New York Times.

Are you worried that we are passing our debt on to future generations? Well, you need not worry.

Before this recession it appeared that absent action, the government’s long-term commitments would become a problem in a few decades. I believe the government response to the recession has created budgetary stress sufficient to bring about the crisis much sooner. Our generation ”” not our grandchildren’s ”” will have to deal with the consequences….

The question we need to ask is this: If we don’t change direction, how long can we travel down this path without having a crisis? The answer lies in two critical issues. First, how long will the capital markets continue to finance government borrowings that may be refinanced but never repaid on reasonable terms? And second, to what extent can obligations that are not financed through traditional fiscal means be satisfied through central bank monetization of debts ”” that is, by the printing of money?

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Prodded by national anger at Wall Street, the Senate on Thursday passed the most far-reaching restraints on big banks since the Great Depression. In its broad sweep, the massive bill would touch Wall Street CEOs and first-time homebuyers, high-flying traders and small town lenders.

The 59-39 vote represents an important achievement for President Barack Obama, and comes just two months after his health care overhaul became law. The bill must now be reconciled with a House version that passed in December. A key House negotiator predicted the legislation would reach Obama’s desk before the Fourth of July.

The legislation aims to prevent a recurrence of the near-meltdown of big Wall Street investment banks and the resulting costly bailouts. It calls for new ways to watch for risks in the financial system and makes it easier to liquidate large failing financial firms. It also writes new rules for complex securities blamed for helping precipitate the 2008 economic crisis, and it creates a new consumer protection agency.

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Senator Arlen Specter of Pennsylvania, who left the Republican Party a year ago in hopes of salvaging a 30-year career, was rejected on Tuesday by Democratic primary voters, with Representative Joe Sestak winning the party’s nomination on an anti-incumbent wave that is defining the midterm elections.

In Kentucky, Rand Paul, the most visible symbol of the Tea Party movement, easily won the Republican Senate primary and delivered a significant blow to the Republican establishment. His 24-point victory over Trey Grayson, who was supported by the most powerful Republican on Capitol Hill, Senator Mitch McConnell of Kentucky, underscored the anti-Washington sentiment echoing across the country.

The outcomes of both contests, along with a Democratic primary in Arkansas that pushed Senator Blanche Lincoln into a runoff election in June, illustrated anew the serious threats both parties face from candidates who are able to portray themselves as outsiders and eager to shake up the system.

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Grilled by skeptical lawmakers, Interior Secretary Ken Salazar on Tuesday acknowledged his agency had been lax in overseeing offshore drilling activities and that may have contributed to the disastrous oil spill in the Gulf of Mexico.

“There will be tremendous lessons to be learned here,” Salazar told a Senate panel in his first appearance before Congress since the April 20 blowout and explosion on the Deepwater Horizon rig.

His appearances before two of the three Senate panels holding hearings Tuesday on the giant oil spill came as federal officials kept a wary eye on the expanding dimensions of the problem. The government increased the area of the Gulf where fishing is shut down to 46,000 square miles, or about 19 percent of federal waters. That’s up from about 7 percent before.

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Herein lies the challenge: Small businesses, half of the private sector (and the most important part as far as jobs are concerned), have been heavily impacted by this credit crisis. Small businesses created 64% of new jobs over the past 15 years, but they have cut five million jobs since the onset of this credit crisis. Large businesses, by comparison, have shed three million jobs in the past two years.

Small businesses continue to struggle to gain access to credit and cannot hire in this environment. Thus, the full weight of job creation falls upon large businesses. It would take large businesses rehiring 100% of the three million workers laid off over the past two years to make a substantial change in jobless numbers. Given the productivity gains enjoyed recently, it is improbable that anything near this will occur.

Unless real focus is afforded to re-engaging small businesses in this country, we will have a tragic and dangerous unemployment level for an extended period of time. Small businesses fund themselves exactly the way consumers do, with credit cards and home equity lines. Over the past two years, more than $1.5 trillion in credit-card lines have been cut, and those cuts are increasing by the day….

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Lately, when the Rev. Canon Sally Bingham, president and founder of Interfaith Power and Light, preaches a sermon about the United States’ dependence on fossil fuels and the possible shift toward renewable energy sources she turns to Luke chapter 5 and the metaphor that Jesus used when talking to the frustrated fishermen on the Sea of Galilee.

“When it’s not working, put your nets on the other side of the boat,” Bingham, also an Episcopal priest, said in a telephone interview from Washington, D.C., where Interfaith Power & Light, a national organization with 35 state affiliates aimed at mobilizing a religious response to global warming, is having its annual meeting.

“After a hundred years’ of fossil fuels, it’s time to look to alternatives. Put the nets on the other side of the boat. Wind, sun, geothermal ”¦ just like oil, gas and coal, they are God-given resources. What Jesus was saying was, when something isn’t working, try something else.”

Read the whole article.

White House spokesman Ben LaBolt told the AP that “judges confront issues differently than staff attorneys for an administration.”

For the White House, the idea that Kagan might support tougher restrictions on abortion presents a complicated set of political opportunities and risks. The revelation may help to mute right-wing groups who often use support for abortion rights as a way of attacking a nominee.

But the 1997 memorandum may give further rise to the concerns already expressed on Monday by liberal groups, who fear that the lack of evidence of Kagan’s strong support for abortion rights throughout her career suggests that she will not be an advocate for their cause on the court.

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President Obama will nominate Solicitor General Elena Kagan as the nation’s 112th justice, choosing his own chief advocate before the Supreme Court to join it in ruling on cases critical to his view of the country’s future, Democrats close to the White House said Sunday.

After a monthlong search, Mr. Obama informed Ms. Kagan and his advisers on Sunday of his choice to succeed the retiring Justice John Paul Stevens. He plans to announce the nomination at 10 a.m. Monday in the East Room of the White House with Ms. Kagan by his side, said the Democrats, who insisted on anonymity to discuss the decision before it was formally made public.

In settling on Ms. Kagan, the president chose a well-regarded 50-year-old lawyer who served as a staff member in all three branches of government and was the first woman to be dean of Harvard Law School. If confirmed, she would be the youngest member and the third woman on the current court, but the first justice in nearly four decades without any prior judicial experience.

That lack of time on the bench may both help and hurt her confirmation prospects, allowing critics to question whether she is truly qualified while denying them a lengthy judicial paper trail filled with ammunition for attacks….

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Over the past week various people from around the archdiocese have asked for help in reflecting on Arizona’s new immigration law. As readers will know, I’ve used this space many times in the past to urge sensible, national immigration reform. Citizens of this country have a right to their safety and the solvency of their public institutions. But we undermine those very goals if we ignore the basic human rights of immigrant workers and their families.

In the case of Arizona state law, Catholics should listen first to the leaders of the Arizona Catholic community, for obvious reasons. They know the situation there best. Bishop Thomas Olmsted of Phoenix, Bishop Gerald Kicanas of Tucson and Bishop James Wall of Gallup, N.M. (whose diocese includes portions of Arizona) are all excellent pastors. Their leadership in the coming weeks and months should set the tone for our own response.

Having said that, it’s worth making a few simple observations:

First, illegal immigration is wrong and dangerous for everyone involved….

Second, the new Arizona law, despite its flaws, does unintentionally accomplish one good thing. Thanks to Arizona, the urgency of immigration reform and the human issues that underlie it””deported breadwinners; divided families; the anxiety of children who grew up here but do not have citizenship””once again have moved to the front burner of our national discussions. Our current immigration system is now obviously broken. Congress needs to act….

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THE drama over Europe’s sovereign debt might seem good ammunition for American deficit hawks. Not so. As Barack Obama’s bipartisan deficit commission held its first meeting on April 27th, the rising cost of government debt across southern Europe was, if anything, being used to draw a favourable contrast between the American and Greek fiscal positions.

Nevertheless, the American fiscal picture has darkened considerably, thanks to the recession. The projected 2010 deficit, of around 11% of GDP, contrasts with one of 1.2% as recently as 2007, while the net public debt has climbed from 36% to 64% of GDP. These figures look good beside those of Greece, where debt may touch 150% of output by the middle of the decade. There is still enough gloom, however, to trigger concern over the potential for rising interest rates and continued fiscal weakness as America’s baby-boomers start to retire.

The good news is that the deficit is forecast to fall as the federal stimulus unwinds and growth returns.

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…a good number of economists and banking experts are worried. They think the odds of a future bankruptcy-or-bailout dilemma will remain uncomfortably high even if reregulation passes.

For starters, there are the cross-border problems; in the midst of a crisis, governments may have trouble cooperating. Then there is the fact that the regulators have never before tried to shut down anything as complex as a multibillion-dollar financial firm. “It’s really hard ”” really hard,” says Robert Steel, who worked on the financial crisis in the Bush Treasury Department and later was chief executive of Wachovia. “Anyone who says they know exactly what we should do is overconfident.”

Another former top government official adds, bluntly, “Don’t kid yourself into thinking that if J. P. Morgan were on the rocks, it would disappear.”

Above all, no one knows what the next crisis will look like. So no one can be sure exactly how to prevent it. In all likelihood, Wall Street will eventually figure out ways around technocratic rules ”” and technocrats ”” and create trouble that today’s proposals don’t anticipate.

The beauty of a bank tax is that it acknowledges as much.

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Goldman Sachs Group Inc. executives were grilled by U.S. lawmakers who compared the bank’s mortgage bankers to bookies as Senator Carl Levin asked why they sold securities the company itself called “shitty.”

“How about the fact that you sold hundreds of millions of that deal after your people knew it was a shitty deal?” the Michigan Democrat asked Daniel Sparks, who ran the bank’s mortgage unit at the time. “Does that bother you at all?”

Members of the Levin’s Permanent Subcommittee on Investigations, winding up a probe of Goldman Sachs that has lasted more than a year, used today’s hearing to pepper current and former executives with questions about their duty to clients and the ethics of betting against the housing market as the bank also sold mortgage-linked securities to customers.

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With that as the backdrop, it would amount to progress if both parties, via the debt commission, agreed that two big steps can’t be avoided:

”¢ The tax system has to be changed. The U.S. doesn’t have a system that can fund the government the country wants. The Tax Foundation says the levies paid by the top 1% of taxpayers now exceed those paid by all of those in the bottom 95%. And the Tax Policy Institute says almost half of all filers will pay no 2009 income taxes at all, because of various exclusions and credits””up, by some estimates, from a quarter in 1990.

This may be great for those who like soak-the-rich rhetoric, but it’s no way to finance a country. More than that, it’s a bit of a hoax on middle- and lower-middle-class Americans. They certainly pay payroll taxes, and the more they are excused from the income tax-system, the more likely it is that they will be hit with sneakier and less-progressive taxes. Tax reform””a flatter tax system, a value-added tax, something””is needed.

”¢ Americans have to change how they think about retirement. When the economy recovers and costs for recession-related bailouts, stimulus spending and unemployment benefits are resolved, we’ll still be left unable to really afford our Social Security, Medicare and long-term-care commitments. When the easier stuff is done, this is the hard reality, requiring a new and nonpoliticized national discussion.

Read it carefully and read it all.