I continue to worry that at some point, Wall Street will convince the administration that it would be a great psychological ploy to cut off unemployment compensation to convince the market there's a recovery.

And if they do that, all hell will break loose:

March 16 (Bloomberg) -- U.S. employers won’t hire enough workers this year to lower the jobless rate much below the level of 9.7 percent reached in February, three Obama administration economic officials said today.

The proportion of Americans who can’t find work is likely to “remain elevated for an extended period,” Treasury Secretary Timothy F. Geithner, White House budget director Peter Orszag and Christina Romer, chairman of the Council of Economic Advisers, said in a joint statement. The officials said unemployment may even rise “slightly” over the next few months as discouraged workers start job-hunting again.

“We do not expect further declines in unemployment this year,” the officials said in testimony prepared for the House Appropriations Committee. They predicted the economy would add about 100,000 jobs a month on average -- not enough to bring the jobless rate down substantially.

Today’s projections are in line with the 10 percent average unemployment forecast for this year in last month’s budget plan. Christopher Rupkey, chief financial economist at Bank of Tokyo Mitsubishi UFJ Ltd. in New York, said the administration’s language risks damping expectations for a recovery.

“They need to work on the message, and right now the message is that there is not a lot to be hopeful about,” Rupkey said. “Warning about a slow jobless recovery can help make it a reality.”

The acid test for me will be: What does Elizabeth Warren think? It's probably a good idea because the story quotes a "senior administration" as expressing "concern" about reducing the Fed’s powers any further and said it was "really critical" that the Fed maintain direct supervision of the large financial firms.

Which could be Rahm, Summers or Geithner, and if they told me the sky was blue, I'd have to double check:

WASHINGTON — The Senate and the Obama administration are nearing agreement on forming a council of regulators, led by the Treasury secretary, to identify systemic risk to the nation’s financial system, officials said Wednesday.

The issue is one of the most fundamental in the contentious effort to overhaul regulation after the financial crisis, and addresses one of the primary lessons of the near debacle: that no one had been assigned to ensure the stability of the system as a whole and detect the kinds of excessive risk-taking and imbalances that could rock an entire economy.

Assigning the Treasury Department the job of spotting incipient trouble and addressing it quickly has support among senators from both parties, though several important provisions, including whether the council would have the ability to bypass existing banking regulators and impose its own rules on huge financial firms, remain to be worked out.

The effect would be to diminish the authority of the Federal Reserve, whose regulation of banks has been criticized for failing to head off the problems.

Talk about understatment. Considering that the boys at the Fed were in on the con game, you can see why Rahm, Larry and Timmy might be concerned about them losing control. Matt Taibbi:

Con artists have a word for the inability of their victims to accept that they've been scammed. They call it the "True Believer Syndrome." That's sort of where we are, in a state of nagging disbelief about the real problem on Wall Street. It isn't so much that we have inadequate rules or incompetent regulators, although both of these things are certainly true. The real problem is that it doesn't matter what regulations are in place if the people running the economy are rip-off artists. The system assumes a certain minimum level of ethical behavior and civic instinct over and above what is spelled out by the regulations. If those ethics are absent — well, this thing isn't going to work, no matter what we do. Sure, mugging old ladies is against the law, but it's also easy. To prevent it, we depend, for the most part, not on cops but on people making the conscious decision not to do it.

That's why the biggest gift the bankers got in the bailout was not fiscal but psychological. "The most valuable part of the bailout," says Rep. Sherman, "was the implicit guarantee that they're Too Big to Fail." Instead of liquidating and prosecuting the insolvent institutions that took us all down with them in a giant Ponzi scheme, we have showered them with money and guarantees and all sorts of other enabling gestures. And what should really freak everyone out is the fact that Wall Street immediately started skimming off its own rescue money. If the bailouts validated anew the crooked psychology of the bubble, the recent profit and bonus numbers show that the same psychology is back, thriving, and looking for new disasters to create. "It's evidence," says Rep. Kanjorski, "that they still don't get it."

More to the point, the fact that we haven't done much of anything to change the rules and behavior of Wall Street shows that we still don't get it. Instituting a bailout policy that stressed recapitalizing bad banks was like the addict coming back to the con man to get his lost money back. Ask yourself how well that ever works out. And then get ready for the reload.

DOWNLOADS: (806)

PLAYS: (891)

Embed

Of course, Geithner is pushing the Very Serious Idea of reforming Social Security and Medicare. Doesn't everyone?

Considering that the Greenspan commission didn't actually work - at least, not the way that Geithner says it did - it kind of leads me to wonder what he actually means.

From This Week:

TAPPER: Do you think the fact that you guys are pushing the bipartisan commission is indicative of the fact that our political system is not capable of taking on the serious challenges our nation faces?

You and I know that the money, as Willie Sutton says, said, that -- why do you rob banks? Because that's where the money is. The money is in entitlement programs: Medicare, Medicaid, Social Security, things that you do not touch in this budget.

The fact that you need a bipartisan commission to recommend cuts or tax increases, doesn't that indicate that our political system is incapable of making these tough decisions?

GEITHNER: Jake, I am very confident in our ability as a country to bring people together and make sure we are solving these challenges and these problems. We've done it in the past, it is completely within our capacity to do as a country.

But of course, it requires you bringing people together across the aisle to step back from politics, to try to bring practical solutions to things that are very important to our future as a country. And the president is committed to do that.

We're going to give the Republican Party the chance to share in the responsibility and the burden and the privilege of trying to fix the things that were broken in this country.

TAPPER: Republicans are afraid this is just a back door for tax increases. Are you willing to say that tax increases are off the table for this commission? Let's sit down and talk about the long-term structural problems with entitlement spending?

GEITHNER: The president's view, and this is a view shared by many Republicans, and it builds on what we've seen with effective commissions in the past, like the Greenspan commission that President Reagan established to help restore the financial footing of Social Security, is that for this to work, you've got to bring people together to step back from politics, day-to-day politics, and to bring fresh ideas to solve these kind of problems.

That's the only way to do it, we think. And we're committed to doing that. We've got to do it on a bipartisan basis, and we're deeply serious about doing this.

It sounds like a really good idea. But really, this is bribery. And it wouldn't have been necessary to give them everything they want if Geithner and pals put reasonable conditions on the bank bailout in the first place:

The Obama administration is developing a major initiative to tackle the economic and political problem of unemployment by getting federal bailout funds into the hands of small businesses.

The proposal involves spinning off a new entity from the Troubled Assets Relief Program that could give banks access to the government money without restrictions, such as limits on executive pay, as long as they use it to make loans to small businesses. But officials are not yet certain whether carving the program out of TARP would be the best way to lure banks to participate in small-business lending, said sources familiar with the matter who spoke on the condition of anonymity because the plans were not final.

As an alternative, officials are prepared to ask Congress to modify TARP itself, easing the pay limits and other restrictions that would be imposed on small-business lenders taking the money, the sources said.

Since the summer, the administration has been facing an uncomfortable dynamic in the economy. The ranks of the jobless have been growing, while big financial firms that got taxpayer bailout money have been thriving. In response, officials have been trying to recast TARP as aid for Main Street rather than Wall Street.

Treasury Secretary Timothy F. Geithner told a congressional oversight panel Thursday that TARP would focus on aiding small-business lending, community banks and homeowners struggling to keep up with their mortgage payments, and he hinted at the new program.

Banks are "very reluctant to come and do business with the government and they're concerned that, if they come, they will be stigmatized and they will be subject to the risk of conditions in the future that might make it harder for them to run their businesses," Geithner told the TARP oversight panel. Solving that problem, he added, is "going to be something we cannot do on our own. It's going to require some help from Congress to help deal with those basic concerns."

Elizabeth Warren, who heads the oversight panel, chided Geithner for taking so long in setting up several other small-business lending initiatives, two of which were announced last spring.

"It's not news to anyone that small-business lending is important," she said. "Small businesses are closing every day. But Treasury has now announced three plans and clearly has not gotten the job done."

Republicans blaming the Obama administration for this horrendous recession is like an arsonist blaming the fire department - and yet, there's a certain usefulness to their attacks. After all, liberals complaining about the administration's economic policies got us nowhere. Maybe they'll actually listen when Republicans do it!

Growing discontent over the economy and frustration with efforts to speed its recovery boiled over Thursday on Capitol Hill in a wave of criticism and outright anger directed at the Obama administration.

Episodes in both houses of Congress exposed the raw nerves of lawmakers flooded with stories of unemployment and economic hardship back home. They also underscored the stiff headwinds that the administration faces as it pushes to enact sweeping changes to the financial regulatory system while also trying to create jobs for ordinary Americans.

President Obama's allies in the Congressional Black Caucus, exasperated by the administration's handling of the economy, unexpectedly blocked one of his top priorities, using a legislative maneuver to postpone the approval of financial reform legislation by a key House committee.

Two buildings away, at a session of the Joint Economic Committee, Republicans escalated their attacks on Treasury Secretary Timothy F. Geithner, including a call for his resignation.

"Conservatives agree that as point person, you failed. Liberals are growing in that consensus as well," said Rep. Kevin Brady (R-Tex.). "For the sake of our jobs, will you step down from your post?"

Rep. Michael C. Burgess (R-Tex.) took a different tack. "I don't think that you should be fired," he told Geithner. "I thought you should have never been hired."

The Democrats are also fed up with the president's economic policies. Rep. Pete DeFazio, progressive:

"I have had a number of people say to me, 'I feel the same way you do but I'm not going to say it.' People are worried it will rub off on the president who still enjoys popularity," he said. "I tell them I still support the president. I just think he is being poorly served by his economic team."

"The truth of the matter," DeFazio added, "is that we have not changed the way the money is being used. It is not being used for the purpose it was supposed to be used for. We are not creating jobs and we have not aggressively taken on the culture of Wall Street."

Continue reading »

The New Yorker has a great profile of Sheila Bair, the populist Republican who's at the helm of the FDIC. (h/t Riverdaughter)

As you may already know, Bair is not well liked by the Wall St. crowd that's running the White House show. (Apparently she has this bizarre idea that her job is to look out for working folk. Crazy talk!) Well, she's very popular with regular people - the administration wouldn't get rid of her, it would make a stink. Instead, they've just neutered her:

These debates entered into the Administration’s discussions about building a new regulatory architecture. In late March, Geithner previewed for Congress some of the key concepts that Treasury wanted. The outline seemed to match the Bair camp’s ideas. [Ladies, has this ever happened to you?] A new authority with the power to take over large financial institutions that posed a systemic risk to the economy was modeled on the F.D.I.C., which, Geithner suggested in his testimony, would be an equal partner with Treasury in resolving such firms if they failed. He seemed to be saying that although he and Bair may have disagreed about how to handle the current crisis, there was much more consensus about how to deal with a future one.

But in the white paper detailing the new legislation, which the Administration released on June 17th, all the new authority to regulate firms that posed systemic risk was vested in the Federal Reserve. During Geithner’s testimony before the Senate, Jim Bunning, of Kentucky, echoing Bair, was incredulous. “It took fourteen years for the Fed to write one regulation on mortgages after we gave it the power to do that,” he said. “What makes you think that the Fed will do better this time around?” In addition, while the March plan said that the “Secretary and the FDIC would decide” how to resolve a failing firm, the new plan said such power should “be vested in Treasury.” Geithner could appoint the F.D.I.C. to do the technical work of cleaning up the firm, but between late March and mid-June — when Bair’s aggressive ideas about how to handle Citigroup leaked to the press — Bair’s agency had been downgraded from Treasury’s equal partner to a sidekick.

The senior Treasury official said that stripping authority from the F.D.I.C. had nothing to do with pressure from the banks. “Making a group decision on something that must be done really quickly is not easy,” he said. “At the end of the day, someone has to have the ability to make a call, and it’s better to have that authority vested in one person.”

When I asked Bair about the plan, she said, “I think it reflected a lot of input from a lot of different agencies, and the private sector, and insurance and consumer groups. It’s a very difficult task to try to balance all the different perspectives and come up with a package, and every compromise is going to have people who are unhappy about various parts of it. So I think it’s a starting point.” I said that she sounded disappointed. “I don’t know if ‘disappointed’ is the right word,” she replied.

Legal Schnauzer: The criminal prosecution of former Alabama Governor Don Siegelman is perhaps the best known case that apparently was infected with judicial bias. But recent news about cases that orginated in West Virginia and Georgia indicate the problem is widespread and difficult to combat.

Wonk Room: McCain reminds us of the bullet we...kinda dodged last November, and Obama takes Dennis Ross out of the diplomatic kitchen

The Baseline Scenario: The Geithner/Summers proposals for financial regulation lay the foundation for another financial crisis

Nashville Is Talking: GOP state senator's aide circulates racist image of Obama

Mad Kane: Don't Ask, Don't Tell...Just Sign!

Collateral News: Medical Marijuana

Amos Elon (1926–2009)

The Congressional GOPers (Party of Corporate Pork) are so, so upset when the wrong people are on the losing end in government bailouts. See if you can spot the delicious irony!

Dozens of lawmakers are challenging the authority of President Obama's auto task force, saying its swift restructuring of General Motors and Chrysler is unjust to investors, dealers and others.

In a letter to Treasury Secretary Timothy F. Geithner yesterday, Rep. Jeb Hensarling (R-Tex.) said the auto task force is waging a "war on capital" by favoring the United Auto Workers, who are being offered a 39 percent equity stake in the new GM, over bondholders, many of them small investors and retirees, who are being offered 10 percent.

"Choosing sides between equal classes of creditors sets a terrible precedent -- one that could cause serious long term challenges to the financing marketplace by eroding investor confidence at the worst time in our recessionary period," Hensarling wrote in a letter signed by 20 other House members.

Yes, I know there's more to the story. I know Chrysler promised there would be no job losses or closings (which I put right up there with "the check is in the mail). But the absolute cojones of the Republicans, to complain about a protected class - well, I can't let that go without comment.

DOWNLOADS: (806)

PLAYS: (1513)

Embed

When I think of how much the Bush administration shoved down the country's throat on strictly partisan votes, it makes me crazy when Democrats start talking about being bipartisan. This kind of talk by Tim Geithner on This Week with George Stephanopoulous is more like it:

STEPHANOPOULOS: Let me ask you about health care. The negotiations seem to stall out in the Senate, they are going to try to come back by Sept 15th. The House committees have all passed the bill. One of the things that, Senator Grassley, we just saw, is asking about is that he says he wants some assurance, some guarantees really, that whatever deal, if they strike a deal, a bipartisan deal in the Senate finance committee it's going to hold all the way through the process. The Senate floor, the House floor, the conference committee, can the administration give him that assurance?

GEITHNER: I think that is what every legislator wants. They want that to be of confidence.

STEPHANOPOULOS: They are not going to get it through?

GEITHNER: You know, (chuckles), we want to have an outcome that meets these core principles the President laid out. Which is we want to make sure that we're doing something that is going to reduce the growth in cost over the long term, expand access, improve the quality of care. Do that in a fiscally responsible way that does not increase, increase unduly the burden on average Americans today. That's the basic test. And we're going to try to make sure that we achieve that with the broadest consensus as possible.

STEPHANOPOULOS: You want broad consensus but Senator Grassley, his colleague Senator Enzi are saying that they need those assurances, that can't get them?

GEITHNER: Well again, you know (laughs) we want to make sure we get this done. And we're gonna- as the President's said, we're going to look at anything reasonable, consistent with those principles that's going to get this done.

STEPHANOPOULOS: You want it to be through consensus, the President has said he wants a bipartisan bill if possible, but do you believe it is possible if necessary to get meaningful health care reform with democrats only?

GEITHNER: George, I think that again this is a big consequential reform of the country. And as many people observes, ideally you want to do this with as broad a base of consensus as possible. But people on the hill are going to have to make that choice, do they want to help shape this and be part of it. Or do they want this country, the United States of America, to go another several decades without doing whatever other serious country has done, which is to give their citizens access to basic quality of care.

STEPHANOPOULOS: But if Republicans can't come to an agreement with the democrats are the Democrats and the White House willing to go it to alone?

GEITHNER: George, again, we're going to try and get this done on the best possible terms consistent with those principles. Can't tell you what it's going to take. But you see what the President is trying to do.

As gratifying as it is to hear tough talk from the Dems, though, there are some very serious drawbacks to doing it through the reconciliation process. It would require Obama to walk quite a political tightrope after dangling major healthcare reform in front of the voters:

Continue reading »